exv10w02



 





Exhibit 10.02




MEREDITH N. LANDY (S.B. # 136489)

LORI E. ROMLEY (S.B. # 148447)

JOSHUA D. BAKER (S.B. # 214389)

SARA M. FOLCHI (S.B. # 228540)

O’Melveny & Myers LLP

2765 Sand Hill Road


					
	Menlo Park, CA 94025

Telephone:          (650) 473-2600

Facsimile:          (650) 473-2601	 	ENDORSED
 FILED

ALAMEDA COUNTY

OCT - 1 2007
	Attorneys for Defendants

ROBERT L. BLAIR, JAMES B. BOYD,

ANNIE M. H. CHAN, FRED S. L. CHAN, DAVID

S. LEE, PETER T. MOK, DOMINIC NG, and	 	CLERK OF THE SUPERIOR COURT 

By E. Opelski-Erickson, Deputy




Nominal Defendant ESS TECHNOLOGY, INC.




DARIO DE GHETALDI (S.B. # 126782)

JERRY E. NASTARI (S.B. # 151756)

AMANDA L. RIDDLE (S.B. # 215221)

Corey, Luzaich, Pliska, De Ghetaldi &

Nastari LLP

700 El Camino Real

P.O. Box 669

Millbrae, California 94030-0669

Telephone: (650) 871-5666

Facsimile: (650) 871-4144




Plaintiffs’ Lead and Liaison Counsel,

Derivatively on Behalf of ESS TECHNOLOGY,

INC.




SUPERIOR COURT OF THE STATE OF CALIFORNIA




COUNTY OF ALAMEDA




	 	 	 
	Consolidated Derivative Proceeding

	 	Case No. 2002-067527
	Special Title
	 	 
	 
	 	 
	Haven v. Blair

	 	JUDGMENT OF DISMISSAL
	 
	 	 
	(“ESS CASES”)

	 	Dated: October 1, 2007
	 
	 


	 	 
	 

	 	The Honorable Bonnie L. Sabraw
	THIS DOCUMENT RELATES TO:
	 	 
	ALL CASES
	 	 
	 
	 


	 	 






JUDGMENT OF DISMISSAL —2002-067527




 









 





     In the consolidated cases entitled Robert Haven, Derivately on Behalf of Nominal Defendant
ESS Technology, Inc., v. Robert L. Blair, et al. Case No. 2002067527, James Shroff, Derivately on
Behalf of Nominal Defendant ESS Technology, Inc., v. Robert L. Blair, et al, Case No. 2002068418,
and David Chesnut, Derivately on Behalf of Nominal Defendant ESS Technology, Inc., v. Robert L.
Blair, et al, Case No. 2002069064, the application of Plaintiffs Robert Haven, James Shroff and
David Chesnut for approval of the Stipulation and Agreement of Settlement, a copy of which is
attached hereto as Exhibit 1 (the “Stipulation”), came regularly on for hearing on October 1,
2007, at 3:00 p.m., before the Hon. Bonnie L. Sabraw to determine: (1) whether the terms and
conditions of the Stipulation should be approved; (2) whether judgment should be entered
dismissing this Action with prejudice; and (3) whether a release of the Released Claims, as set
forth in the Stipulation, should be provided to the Released Parties.



     Having heard and considered the matter, including all papers filed in connection therewith and the
oral presentations of counsel at said hearing, and good cause appearing:



         IT IS HEREBY ORDERED, ADJUDGED AND DECREED:



     1. The Stipulation, including the definitions contained therein, is incorporated by reference
in this Final Judgment.



     2. This Court hereby approves the Settlement set forth in the Stipulation and finds that the
Settlement is, in all respects, fair, reasonable, and adequate with respect to ESS and its
Shareholders, is consistent and in compliance with all applicable requirements of California law,
the California and United States Constitutions (including the due process clause), the California
Code of Civil Procedure, the California Rules of Court, and any other applicable law, and is in the
best interests of the Company and its Shareholders.



     3. ESS’s Counsel and Plaintiffs’ Counsel have adequately represented the interests of the
Company and its Shareholders for purposes of this Action.



     4. The Settling Parties and their counsel are hereby directed to implement and consummate
the Settlement according to its terms and provisions.



JUDGMENT OF DISMISSAL—2002-067527



/       /       /


- 1 -









 





     5. The Settlement is binding on the Settling Parties, as well as their past, present, and
future parents, subsidiaries, predecessors, successors and assigns and affiliates and each of their
respective past, present, and future officers, directors, employees, agents, representatives,
attorneys, heirs, administrators, executors, insurers, predecessors, successors, and assigns, or
any of them, including any person or entity controlled by or controlling or under the control of
any of them. As to the Released Claims, this Judgment is intended to have res judicata and other
preclusive effect in all pending and future lawsuits or other proceedings maintained by or on
behalf of ESS.



     6. The Court finds that all parties to the Action and their counsel have complied with the
requirements of the California Code of Civil Procedure as to all proceedings herein.



     7. The Court hereby dismisses the Action with prejudice and without costs, except as provided
in the Stipulation.



     8. Upon the Settlement Effective Date, Plaintiffs and ESS shall be deemed to have, and by
operation of the Final Judgment shall have, fully, finally, and forever released, relinquished, and
discharged each and every one of the Released Parties from the Released Claims as detailed in
Section V.3 of the Stipulation.



     9. Plaintiffs and ESS, and any of their respective representatives, trustees, successors,
heirs and assigns, are permanently barred and enjoined from filing, commencing, prosecuting,
intervening in, participating in (as a nominal defendant or otherwise) or receiving any benefits or
other relief from, any other lawsuit, arbitration, or administrative, regulatory, or other
proceeding or order against the Released Parties in any jurisdiction based on or relating to the
Released Claims.



     10. Pursuant to California Corporations Code § 800, no notice of the Settlement to ESS’s
shareholders is required.



     11. Upon the Settlement Effective Date, each of the Settling Parties shall be deemed to have,
and by operation of the Final Judgment shall have, fully, finally, and forever released,
relinquished, and discharged each other, and Plaintiffs’ Counsel from all claims relating to,



JUDGMENT OF DISMISSAL—2002-067527




- 2 -









 





     arising out of, or connected with the institution, prosecution, assertion, settlement, or
resolution of the Action and/or the Released Claims.



     12. In the event that this Stipulation and Settlement is terminated by any of the parties in
accordance with Section V.6.1 of the Stipulation, then this Final Judgment shall be null and void
and shall have no force or effect, and no party to the Settlement shall be bound by any of its
terms, except for the terms of Section V.6.4.



     13. The Court retains continuing jurisdiction over the implementation of this Judgment and all
parties thereto for the purpose of enforcing and administering the terms of the Settlement. Such
continuing jurisdiction shall not affect the finality of this Judgment as to matters not reserved.


DATED: OCT-1 2007




	 	 	 	 	 
	 	 	 
	 	                                              /s/ Bonnie Sabraw
 	 
	 	Hon. Bonnie L. Sabraw  	 
	 	Judge of the Superior Court 	 
	 



JUDGMENT OF DISMISSAL—2002-067527





- 3 -









 





EXHIBIT 1




 









 





MEREDITH N. LANDY (S.B. # 136489)

LORI E. ROMLEY (S.B. # 148447)

JOSHUA D. BAKER (S.B. # 214389)

SARA M. FOLCHI (S.B. # 228540)

O’MELVENY & MYERS LLP

2765 Sand Hill Road

Menlo Park, CA 94025

Telephone:          (650) 473-2600

Facsimile:          (650) 473-2601




Attorneys for Defendants

ROBERT L. BLAIR, JAMES B. BOYD,

ANNIE M. H. CHAN, FRED S. L. CHAN, DAVID

S. LEE, PETER T. MOK, DOMINIC NG, and

Nominal Defendant ESS TECHNOLOGY, INC.



GEORGE R. COREY (S.B. # 34580)

DARIO DE GHETALDI (S.B. # 126782)

JERRY E. NASTARI (S.B. # 151756)

AMANDA L. RIDDLE (S.B. #215221)

COREY, LUZAIGH, PLISKA, DE GHETALDI &

NASTARI LLP

700 El Camino Real

P.O. Box 669

Millbrae, California 94030-0669

Telephone: (650) 871-5666

Facsimile: (650) 871-4144




Plaintiffs’ Lead and Liaison Counsel,

Derivatively on Behalf of ESS TECHNOLOGY, 
INC.




SUPERIOR COURT OF THE STATE OF CALIFORNIA




COUNTY OF ALAMEDA




	 	 	 
	Consolidated Derivative Proceeding

	 	Case No. 2002-067527
	Special Title
	 	 
	 
	 	 
	ESS CASES

	 	STIPULATION AND AGREEMENT OF SETTLEMENT
	 


	 	 
	THIS DOCUMENT RELATES TO:
	 	 
	ALL CASES
	 	 
	 


	 	 






STIPULATION AND AGREMENT OF SETTLEMENT—2002-067527




 









 





     Robert Haven, James Shroff and David Chesnut (who have sued derivatively on behalf of ESS
Technology Inc.), Robert Blair, James B. Boyd, Annie M. H. Chan, Fred S. L. Chan, David S. Lee,
Peter T. Mok, Dominic Ng, and ESS Technology, Inc., hereby enter into the following Stipulation
and Agreement of Settlement, dated as of October 1, 2007, subject to the approval of the Court.



I. THE DERIVATIVE LITIGATION




     A. The Derivative Complaints



     On October 3, 2002, Robert Haven filed a derivative action in the Superior Court of the State
of California for the County of Alameda on behalf of nominal defendant ESS Technology, Inc.
(“ESS”), entitled Robert Haven, Derivately on Behalf of Nominal Defendant ESS Technology, Inc., v.
Robert L. Blair, et al., Case No. 2002067527, alleging causes of action for (1) violations of
Corporations Code §§ 25402 and 25502.5, (2) breach of fiduciary duty, (3) abuse of control and (4)
unjust enrichment arising from ESS’s Board of Directors and certain executive officers’ sales of
ESS stock between November 26, 2001, and March 11, 2002. Two (2) other similar derivative actions
were later filed in this Court on behalf of ESS, against Defendants, entitled James Shroff,
Derivately on Behalf of Nominal Defendant ESS Technology, Inc., v. Robert L. Blair, et al, Case No.
2002068418, and David Chesnut, Derivately on Behalf of Nominal Defendant ESS Technology, Inc., v.
Robert L. Blair, et al, Case No. 2002069064. On or about January 22, 2003, this Court entered an
Order consolidating the Haven, Shroff and Chesnut actions into Consolidated Derivative Proceeding
Special Title ESS Cases, Case No. 2002067527.



     B. Procedural History



     On February 21, 2003, Plaintiffs filed the Consolidated Derivative Complaint, naming Blair,
Boyd, Annie M. H. Chan, Fred S. L. Chan, Lee, Mok, and Ng as Defendants and ESS as Nominal
Defendant. The Consolidated Derivative Complaint alleged causes of action for (1) violations of
Corporations Code §§ 25402 and 25502.5, (2) breach of fiduciary duty, (3) abuse of control and (4)
unjust enrichment against Defendants. This Court sustained Defendants’ demurrer to the Fourth
Cause of Action for Unjust Enrichment, with leave to amend. Plaintiffs elected not to amend the
Consolidated Derivative Complaint in light of Melchior v. New Line



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527




-1-









 




Productions, Inc. (2003) 106 Cal.App.4th 779, 793.




     C. Mediation and Settlement



     Over the past 18 months, counsel for the Settling Parties have engaged in substantial
arms-length negotiations in an effort to resolve the Action, including a lengthy meeting, and
telephone conferences, wherein the terms of the Settlement were debated and negotiated.



II. ESS’S APPROVAL OF THE SETTLEMENT




     ESS believes it to be in the Company’s best interests for this Action to be settled and
dismissed because this Settlement will (i) provide substantial benefits to ESS and its
shareholders, and (ii) avoid the substantial expense, disruption, and risks posed by the Action.



III. PLAINTIFFS’ AGREEMENT TO THE SETTLEMENT




     Plaintiffs believe that the claims asserted in the Action have merit and that the evidence
supports the claims asserted. However, Plaintiffs recognize the expense and length of continued
proceedings necessary to prosecute the Action through trial and appeal. Plaintiffs have taken into
account the uncertain outcome and the risk of any litigation, especially complex derivative actions
such as this Action, as well as the difficulties and delay inherent in such litigation,
particularly delays in possible appeals, even assuming Plaintiffs prevail at trial. Plaintiffs have
also taken into account the possible defenses to the Released Claims and the substantial benefits
inuring to ESS and its shareholders as a result of the provisions of this Settlement. In light of
the foregoing, and based on their arms-length negotiations conducted by counsel for Plaintiffs and
Defendants, Plaintiffs believe that terms of the settlement set forth in this Stipulation and
Agreement of Settlement are fair, reasonable and adequate, and confer substantial benefits on ESS.



IV. DEFENDANTS’ AGREEMENT TO THE SETTLEMENT AND DENIALS OF WRONGDOING AND LIABILITY





	      Defendants have denied, and continue to deny, all allegations of wrongdoing or liability
whatsoever with respect to the Released Claims, including any and all contested facts or claims
alleged in the Action. Defendants have asserted and continue to assert that at all relevant times,
they acted in good faith, and in a manner that was in fact, and that they reasonably believed to
be,





STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-2-









 







in the best interests of ESS and its shareholders. Nonetheless, Defendants have concluded that it
is desirable that the Action be fully and finally settled in the manner and upon the conditions
set forth in this Stipulation as it will eliminate the burden (to them and the Company), expense,
and uncertainties of further litigation and the concomitant distraction of resources and efforts
from their business.



V. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT




     NOW, THEREFORE, in consideration of the promises and agreements, covenants, representations,
and warranties set forth herein, intending to be legally bound;



     IT IS HEREBY STIPULATED AND AGREED, by and between the Settling Parties, that this Action and
all Released Claims are settled and compromised and that the Action shall be dismissed with
prejudice, subject to approval of the Court, on the following terms and conditions:



     1. Definitions As used in this Stipulation, the following capitalized terms have the
following meanings, unless a section or subsection of this Stipulation provides otherwise:



     1.1 “Action” means the lawsuits captioned Consolidated Derivative Proceeding Special Title ESS
Cases, Alameda County Superior Court Case No. 2002067527.



     1.2 “Attorneys’ Fees and Expenses” and “Fee Award” means such funds as may be awarded to
Plaintiffs’ Counsel to compensate them for their fees and expenses in connection with this Action.



     1.3 “Court” means the Superior Court of the State of California for the County of Alameda.



     1.4 “Defendants” means Robert Blair, James B. Boyd, Annie M. H. Chan, Fred S. L. Chan, David
S. Lee, Peter T. Mok, Dominic Ng.



     1.5 “Defense Counsel” means the law firm of O’Melveny & Myers, LLP.



     1.6 “Escrow Account” means the escrow account to be set up by Defendants in relation to the
Attorneys’ Fees and Expenses detailed in Section V.4.2.



     1.7 “ESS” or the “Company” means ESS Technology, Inc., and its past, present, and future
parents, subsidiaries, predecessors, successors, agents, affiliates, and assigns.



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527




-3-









 





     1.8 “Final Judgment” means that judgment to be entered by the Court, substantially in the form
of Exhibit B hereto, as contemplated in Section V.5 below.



     1.9 “Plaintiffs ” means Robert Haven, James Shroff and David Chesnut.



     1.10 “Plaintiffs’ Counsel” means the law firms of: Corey, Luzaich, Pliska, de Ghetaldi &
Nastari LLP, Robbins, Umeda & Fink, LLP, and Emerson Poynter, LLP.



     1.11 “Plaintiffs’ Lead and Liason Counsel” means the law firm Corey, Luzaich, Pliska, de
Ghetaldi & Nastari LLP.



     1.12 “Release” means the release set forth in Section V.3.1 of this Stipulation.



     1.13 “Released Claims” means any and all claims, actions, causes of action, liabilities,
losses, obligations, judgments, duties, costs, expenses, equitable, legal, and administrative
relief, demands or rights, suits, matters, and issues of every kind and nature whatsoever,
including, without limitation, claims for rescission, restitution, or damages of any kind, whether
based on or arising under federal, state or local law, statute, ordinance, regulation, contract,
common law, or any other source, that have been, might have been, could have been, or might
hereafter be asserted, whether known or unknown (including without limitation unknown claims
discussed in Section V.3.1.2 below), through the Settlement Effective Date, by or on behalf of
Plaintiffs derivatively and/or ESS, and each of their heirs, executors, administrators, successors,
and assigns against the Released Parties or any of them in this Action, or in any other court
action or before any administrative body, tribunal, arbitration panel, or other adjudicatory body,
arising out of or related, directly or indirectly, in any way to the allegations of the Complaint
or any facts, occurrences, disclosures, statements, acts or omissions, failures to act by the
Defendants, breach of fiduciary duties, abuse of control, unjust enrichment, self-dealing,
misappropriation of information, or any stock transactions consummated by Defendants, during the
time period of November 26, 2001, through September 12, 2002.



     1.14 “Released Parties” means the Defendants and each of their respective agents, attorneys,
personal or legal representatives, accountants, auditors, advisors, predecessors,
successors, spouses, partners, parents, heirs, assigns, executors, personal
representatives, immediate family members, insurers, co-insurers and re-insurers, entities in which
a Defendant



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-4-









 







has a controlling interest, or trusts of which a Defendant is the settler or which is for the
benefit of any Defendant’s family.




     1.15 “Settlement” or “Stipulation” means this Stipulation and Agreement of
Settlement, dated as of October 1, 2007.



     1.16 “Settlement Effective Date” means the date upon which the Court enters an order approving
the Settlement and enters judgment thereon.



     1.17 “Settlement Hearing” means the hearing scheduled for October 1, 2007 at which the parties
will present this Stipulation for approval by the Court.



     1.18 “Settling Parties” means Robert Haven, James Shroff and David Chesnut (who have sued
derivatively on behalf of ESS Technology Inc.), Robert Blair, James B. Boyd, Annie M. H. Chan, Fred
S. L. Chan, David S. Lee, Peter T. Mok, Dominic Ng, and ESS Technology, Inc.



     1.19 “Shareholder” means any holder of ESS common stock during the time period September 13,
2002, through the date of the Settlement Hearing.



     2. Settlement Relief



     2.1 Blair, Boyd, Annie M. H. Chan, Fred S. L. Chan, Lee, Mok, Ng, and ESS acknowledge that the
filing and prosecution of this Action were material factors in the adoption of the various
modifications made to ESS’s policies listed in Exhibit A hereto which constitute substantial
benefits to ESS.



     3. Release, Waiver, and Covenant Not to Sue



     3.1 Plaintiffs and ESS agree to the following release and waiver, which shall take effect as
of the Settlement Effective Date:



          3.1.1 Plaintiffs, on behalf of themselves and ESS, and ESS hereby release and
discharge each and every Released Claim, and shall not now or hereinafter institute,
participate in, or maintain a proceeding involving a Released Claim, against the Released Parties,
either directly or indirectly, derivatively, on their own behalf, or on behalf of any other person
or entity;




STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527




-5-









 





          3.1.2 By expressly releasing and forever discharging all Released Claims against the Released
Parties, Plaintiffs and ESS expressly waive any and all provisions, rights, and benefits conferred
by § 1542 of the California Civil Code which provides:





A general release does not extend to claims which the creditor does
not know or suspect exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.


For the purpose of implementing a full and complete release of the Released Claims, Plaintiffs and
ESS also expressly waive all similar federal, state or foreign laws, rights, rules, or legal
principals which may be applicable herein. Notwithstanding the provisions of Section 1542 and all
similar federal, state or foreign laws, rights, rules, or legal principles which may be applicable
herein, Plaintiffs and ESS understand and agree that this Release is intended to include all
Released Claims, if any, which Plaintiffs and/or the Company may have whether or not Plaintiffs
and/or the Company know or suspect those claims exist in their favor, and that this Release
extinguishes all such claims. Plaintiffs and/or ESS may hereafter discover facts in addition to or
different from those which they and/or the Company knows or believes to be true with respect to the
subject matter of the Released Claims. Plaintiffs and ESS each expressly, 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, without
regard to the subsequent discovery or existence of such different or additional facts. Plaintiffs
and ESS acknowledge that the waiver of unknown claims set forth herein was separately bargained for
and a key element of the Settlement of which this Release is a part.




          3.1.3 Nothing in this Release shall preclude: (a) any action to enforce the terms of this
Settlement; or (b) any motion to enforce the terms of this Settlement pursuant to California Code
of Civil Procedure § 664.6.




STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527




-6-









 





     3.2 Upon the Settlement Effective Date, Defendants and ESS shall be deemed to have released,
acquitted, and forever discharged Plaintiffs and Plaintiffs’ Counsel from any and all claims, known
or unknown, they have or may have against Plaintiffs or Plaintiffs’ Counsel regarding, concerning,
or in connection with the Action. In releasing such claims, Defendants and ESS also expressly waive
any and all provisions, rights and benefits conferred by California Code of Civil Procedure § 1542
and all similar federal, state or foreign law rights, rules or legal principles which may be
applicable herein.



     3.3 The Parties hereby agree and acknowledge that the provisions of Sections V.3.1 and V.3.2
constitute essential terms of the Stipulation.



     4. Attorneys’ Fees and Litigation Expenses



     4.1 Plaintiffs’ Lead and Liason Counsel agree to make, and Defendants and ESS agree not to
oppose, an application for an award of Attorneys’ Fees and Expenses in this Action not to exceed a
total of two hundred thousand dollars ($200,000.00).



     4.2 Defendants agree to pay into an interest-bearing escrow account, at a financial
institution mutually agreed to by the Settling Parties, in the manner specified below and subject
to Court approval, a sum not to exceed two hundred thousand dollars ($200,000.00), equal to the
award of Attorneys’ Fees and Expenses, within ten (10) business days of the Court entering the
Final Judgment and Order for the Fee Award.



     4.3 The actual amounts of Attorneys’ Fees and Expenses to be paid to Plaintiffs from the
Escrow Account are subject to the approval of the Court and Plaintiffs shall only be entitled to
receive from the Escrow Account the amounts finally approved by the Court.



     4.4 Interest on the Attorneys’ Fees and Expenses awarded to Plaintiffs shall accrue for the
benefit of Plaintiffs’ Counsel, commencing upon the date the funds are deposited into the Escrow
Account and continuing until the Settlement Effective Date, at which time all monies awarded to
Plaintiffs’ Counsel by the Court, and any and all interest earned on said monies, shall be
distributed from the Escrow Account to Plaintiffs’ Counsel.



     4.5 Plaintiffs’ Lead and Liason Counsel in consultation with Plaintiffs’ Executive Committee
shall allocate the monies in the Escrow Account amongst Plaintiffs’ Counsel in a



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-7-









 








     manner in which they in good faith believe reflects the contributions and costs and expenses of
such counsel in the prosecution and settlement of the Action. Plaintiffs’ Counsel have agreed that
they will seek permission from the Court to pay $4,000.00 to David Chestnut and $4,000.00 to Robert
Haven and $4,000.000 to James Shroff from the monies in the Escrow Account to compensate them for
losses on their investment in ESS while this action was pending.



     4.6 Neither the Company nor Defendants, nor any of their respective past, present, and future
parents, subsidiaries, predecessors, successors, and assigns, nor any of their respective past,
present, and future officers, directors, partners, principals, employees, agents, representatives,
attorneys, heirs, administrators, executors, insurers, predecessors, successors, and assigns, or
any of them, shall be liable for or obligated to pay any fees, expenses, costs or disbursements
to, or incur any expense on behalf of, any person, either directly or indirectly, in connection
with this Action, this Stipulation, or the proposed Settlement, other than as expressly provided
for in this Settlement.



     5. Settlement Hearing and Final Judgment



     5.1 As soon as practicable after execution of this Stipulation, the Settling Parties shall
submit this Stipulation to the Court for approval.



     5.2 As part of the Settlement Hearing and upon approval by the Court of the Settlement terms
set forth in this Stipulation, the Settling Parties shall seek and obtain from the Court a Final
Judgment, substantially in the form annexed as Exhibit B hereto, that shall, among other things:



          5.2.1 approve the Settlement as fair, reasonable, and adequate, consistent and in compliance
with all applicable requirements of California law, the California and United States Constitutions
(including the due process clause), the California Code of Civil Procedure, the California Rules of
Court, and any other applicable law, and as being in the best interests of the Company and its
shareholders;




          5.2.2 direct the Settling Parties and their counsel to implement and consummate this
Settlement according to its terms and provisions; and declare this Settlement to be binding on—and,
as to the Released Claims, to have res judicata and other preclusive effect in all pending




STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527




-8-









 




and future lawsuits or other proceedings maintained by or on behalf of— the Settling Parties, as
well as their past, present, and future parents, subsidiaries, predecessors, successors and
assigns and affiliates and each of their respective past, present, and future officers, directors,
employees, agents, representatives, attorneys, heirs, administrators, executors, insurers,
predecessors, successors, and assigns, or any of them, including any person or entity controlled
by or controlling or under the control of any of them;




          5.2.3 find that ESS’s Counsel and Plaintiffs’ Counsel adequately represented the interests of
ESS and its shareholders for purposes of this Action;




          5.2.4 dismiss the Action with prejudice, without fees or costs to any party except as provided
in this Settlement;




          5.2.5 incorporate the Release set forth above in Section V.3, make the Release effective as of
the date of the Final Judgment, and forever discharge the Released Parties from any claims or
liabilities arising from or related to the matters covered by the Release;




          5.2.6 permanently bar and enjoin Plaintiffs and ESS, or any of their respective
representatives, trustees, successors, heirs and assigns, from filing, commencing, prosecuting,
intervening in, participating in (as a nominal defendant or otherwise) or receiving any benefits or
other relief from, any other lawsuit, arbitration, or administrative, regulatory, or other
proceeding or order against the Released Parties in any jurisdiction based on or relating to the
Released Claims;




          5.2.7 find that, pursuant to California Corporations Code § 800, no notice of the Settlement
to ESS’s shareholders is required; and




          5.2.8 without affecting the finality of the Final Judgment for purposes of appeal, retain
jurisdiction as to all matters relating to the administration, consummation, enforcement, and
interpretation of this Stipulation and the Final Judgment.




     6. Effect of Disapproval or Termination



     6.1 Subject to paragraph V.6.2, this Settlement will terminate at the sole option and
discretion of Plaintiffs, the Company, or Defendants if (i) the Court, or any appellate court(s),
rejects, modifies or denies any portion of the Stipulation or the proposed Settlement that the



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-9-









 







terminating party in its (or their) sole judgment and discretion reasonably determine(s) is
material, including, without limitation, the terms of relief, the findings of the Court, or the
terms of the Release, or (ii) the Court, or any appellate court(s), does not enter or completely
affirm, or alters or expands, any portion of the Final Judgment, that the terminating party in its
(or their) sole judgment and discretion reasonably believe(s) to be material. The terminating
party must exercise the option to withdraw from and terminate this Settlement, as provided in this
subsection, no later than twenty (20) business days after receiving notice of the event giving
rise to the grounds for termination.




     6.2 Disallowance by the Court of any Attorneys’ Fees and Expenses or interest that has accrued
thereon requested by or awarded to Plaintiffs’ Counsel, any appeal from any order relating thereto,
and any modification or reversal on appeal of any such order, shall not operate to terminate or
cancel the Stipulation or affect its terms, including the releases, be deemed a material change to
this Stipulation under Section V.6.1, or affect or delay the finality of the Final Judgment
approving the Stipulation; provided, however, that Defendants, in their sole discretion, may elect
to terminate this Settlement if the amount of Attorneys’ Fees and Expenses awarded, in the first
instance or on appeal, exceeds the amount agreed upon by the Settling Parties as set forth in
Section V.4.1 above.



     6.3 If an option to withdraw from and terminate this Settlement arises under Section V.6.1 of
this Stipulation, neither Plaintiffs, Defendants, nor the Company will be required for any reason
or under any circumstance to exercise that option.



     6.4 If this Settlement is terminated in accordance with its terms, then:



          6.4.1 this Stipulation shall be null and void and shall have no force or effect, and no party
to this Settlement shall be bound by any of its terms, except for the terms of Section V.6.4, which
shall remain in force and effect;




          6.4.2 this Stipulation, all of its provisions, and all negotiations, statements, and
proceedings and orders relating to it shall be without prejudice to the rights of Plaintiffs,
Defendants, and ESS, all of whom shall be restored to their respective positions existing
immediately before the execution of this Stipulation, including the return of all sums paid in




STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-10-









 







connection with this Settlement, with interest calculated from the date the funds were initially
deposited in escrow at the rate for Thirty (30) Day U.S. Treasury Notes prevailing as of the date
of termination;




          6.4.3 Defendants and their current and former predecessors, successors, heirs, agents,
assigns, officers, directors, employees, partners, principals, attorneys and representatives
expressly and affirmatively reserve all defenses, arguments, and motions as to all claims that have
been or might later be asserted in this Action;




          6.4.4 Plaintiffs and ESS and their current and former predecessors, successors, heirs,
agents, assigns, officers, directors, employees, partners, principals, attorneys and
representatives expressly and affirmatively reserve all arguments and motions as to all claims that
have been or might later be asserted in this Action; and




          6.4.5 neither this Stipulation, nor the fact of its having been made, shall be admissible or
entered into evidence for any purpose whatsoever.




     7. General Matters and Reservations



     7.1 The obligation, though not the ability, of the Settling Parties to conclude the proposed
Settlement is and will be contingent on each of the following:



          7.1.1 occurrence of the Settlement Effective Date; and




          7.1.2 any other conditions stated in this Stipulation.




     7.2 Neither this Stipulation nor any of its terms (nor any agreement, negotiations, or order
relating thereto), nor any payment or consideration provided for herein, is or shall be construed
as an admission by Defendants or ESS of any fault, wrongdoing, or liability whatsoever, nor as an
admission by any of the Plaintiffs of any lack of merit of their claims against Defendants.
Neither this Stipulation nor any of its terms (nor any agreement, negotiations, or order relating
thereto), nor any payment or consideration provided for herein, shall be deemed or offered or
received in evidence in any judicial, administrative, regulatory, or other proceeding or utilized
in any manner whatsoever, including as a presumption, a concession, or an admission of any fault,
wrongdoing, or liability whatsoever on the part of Defendants or ESS;, provided, however, that
nothing contained in this subsection shall prevent the Stipulation (or



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-11-









 







any agreement or order relating thereto) from being used, offered, or received in evidence in any
proceeding to approve, enforce, or otherwise effectuate the Settlement (or any agreement or order
relating thereto) or the Final Judgment, or in any proceeding in which the reasonableness,
fairness, or good faith of Defendants in participating in the Settlement (or any agreement or
order relating thereto) is at issue, or to enforce or effectuate provisions of this Settlement as
to the Settling Parties.




     7.3 Plaintiffs’ Counsel, Defendants’ Counsel, and ESS’s Counsel agree to act in good faith to
ensure that any public comments about or descriptions of the proposed Settlement are balanced,
fair, and accurate. None of the parties will issue any press releases regarding this Settlement.
All parties are free, however, to respond to inquiries from the press. Notwithstanding any other
provision of this paragraph, the Company shall be able to make, without notification to, or prior
review or approval by, Plaintiffs’ Counsel or Defendants’ Counsel, any and all disclosures
regarding the Settlement that the Company believes may be required or appropriate under applicable
law or by the rules of the NASDAQ stock exchange, or as required in connection with a judicial or
regulatory proceeding.



     7.4 By execution of this Stipulation, neither Defendants nor ESS releases any claim against
any insurer for any cost or expense hereunder, including attorneys’ fees and costs.



     7.5 All counsel who execute this Stipulation represent and warrant that they have authority to
do so on behalf of their respective clients.



     7.6 The Settling Parties acknowledge that their designated representatives have reviewed this
Settlement and acknowledge that they are accepting the benefits of this Settlement after consulting
with Counsel.



     7.7 ESS hereby represents and warrants to each other party hereto that the execution,
delivery, and performance of this Settlement is within its power and authority, has been duly
authorized by all necessary action, and does not and will not: (a) require any authorization which
has not been obtained; or (b) contravene the charter documents of ESS, any applicable laws or other
legal requirements, or any agreement or restriction binding on or affecting ESS or its



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-12-









 







property. This Settlement, when executed by its designated representative and delivered, will
constitute the legal, valid, and binding obligation of ESS.




     7.8 This Stipulation (including exhibits hereto, agreements referenced herein, and documents
executed pursuant to the foregoing) contains the entire agreement among the Settling Parties with
respect to the subject matter hereof and supersedes any prior written or oral agreements,
representations, warranties, or statements. The Settling Parties agree that this Stipulation was
drafted at arms’ length, and that no parol or other evidence may be offered to explain, construe,
or clarify its terms, the intent of the parties or their counsel, or the circumstances under which
the Settlement was made or executed; provided, that there shall be no presumption for or against
any party that dratted all or any portion of this Stipulation.



     7.9 No representation, warranty, or inducement has been made to any party concerning this
Stipulation other than the representations, warranties, and covenants contained herein.



     7.10 Plaintiffs and Plaintiffs’ Counsel expressly warrant that, in entering into this
Stipulation, they relied solely upon their own knowledge and investigation, and not upon any
promise, representation, warranty, or other statement by Defendants or ESS not expressly contained
herein.



     7.11 Whenever this Stipulation and Settlement requires or contemplates that one party shall or
may give notice to another, notice shall be provided by facsimile and/or next-day (excluding
weekends and court holidays) express delivery service as follows:



	 	 
	1.

	If to Defendants or ESS, then to:
	 
	 
	 

	Meredith N. Landy. Esq.
	 

	O’MELVENY & MYERS LLP
	 

	2765 Sand Hill Road
	 

	Menlo Park, CA 94025
	 
	2.

	If to Plaintiffs, then to:
	 
	 
	 

	Dario de Ghetaldi, Esq.
	 

	Corey, Luziach, Pliska, De Ghetaldi, & Nastari LLP
	 

	700 El Camino Real, P.O. Box 669
	 

	Millbrae, CA 94030






     7.12 The failure of any Settling Party to enforce at any time any provision of this
Stipulation shall not be construed to be a waiver of such provision, nor in any way to affect the



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-13-









 







validity of this Stipulation or any part hereof or the right of any Settling Party thereafter to
enforce each and every such provision. No waiver of any breach of this Stipulation shall be held
to constitute a waiver of any other breach.




     7.13 The Settling Parties, their successors and assigns, and their attorneys agree to
cooperate fully with one another in seeking Court approval of this Stipulation and to use their
best efforts to effect the prompt consummation of this Stipulation and the proposed settlement.
Without limitation of any other remedies available by law, the Settling Parties agree that any
party to this Stipulation may compel specific performance of its terms.



     7.14 This Stipulation and the Settlement contemplated hereby shall be governed by, and
construed in accordance with, the laws of the State of California, including its choice of law
principles.



     7.15 Nothing in this Stipulation, the Settlement contemplated thereby, or the
negotiations or proceedings relating to the foregoing is intended to be or shall be deemed to
constitute a waiver of any applicable privilege or immunity, including without limitation, the
accountants’ privilege, the attorney-client privilege, the joint defense privilege, or work product
immunity.



     7.16 This Stipulation may be executed in one or more counterparts, all of which shall be
considered the same as if a single document shall have been executed, and shall become effective
when such counterparts have been executed by all signatories and delivered to Plaintiffs’ Lead and
Liason Counsel, Defendants’ Counsel and ESS’s Counsel. Execution by facsimile shall be fully and
legally binding on any Settling Party so executing.



     7.17 This Stipulation and Settlement may not be modified except pursuant to a written
instrument signed by all the parties hereto.



     7.18 All Released Parties who are not individually, or through counsel, signatories to this
Stipulation are intended third-party beneficiaries entitled to enforce the terms of the Release set
forth herein so long as they agree to be bound by the entirety of this Stipulation and Agreement of
Settlement.



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527




-14-









 





     7.19 The Settling Parties agree that the Court shall retain jurisdiction as to all matters
relating to the administration, consummation, enforcement, and interpretation of this Stipulation
and the Final Judgment.


Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	
/s/ Robert Haven
 	 
	 	Robert Haven 	 
	 	 	 
	 


Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	                                                 /s/ James Shroff
 	 
	 	James Shroff 	 
	 	 	 
	 


Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	                                                /s/ David Chestnut
 	 
	 	David Chestnut 	 
	 	 	 
	 



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-15-









 





	 	 	 
	Dated: October 1, 2007

	 	COREY, LUZAICH, PLISKA,
	 

	 	DE GHETALDI & NASTARI LLP
	 

	 	Dario de Ghetaldi
	 

	 	George R. Corey
	 

	 	Jerry E. Nastari
	 

	 	Amanda L. Riddle






	 	 	 	 	 
	 	 	 
	 	By:  	                                                    /s/ Dario de Ghetaldi
 	 
	 	 	Dario de Ghetaldi 	 
	 	 	 	 
	 



	 	 	 
	 

	 	Plaintiffs’ Lead and Liaison Counsel and
	 

	 	Counsel for Plaintiff Robert Haven
	 
	 	 
	Dated: October 1,2007

	 	EMERSON POYNTER LLP
	 

	 	John G. Emerson, Jr.






	 	 	 	 	 
	 	 	 
	 	By:  	                                             /s/ John G. Emerson, Jr.
 	 
	 	 	John G. Emerson, Jr. 	 
	 	 	 	 
	 



	 	 	 
	 

	 	Plaintiffs’ Executive
Committee Member and
	 

	 	Counsel for Plaintiff David Chestnut
	 
	 	 
	Dated: October 1, 2007

	 	ROBBINS UMEDA & FINK, LLP

Marc M. Umeda






	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Marc M. Umeda 	 
	 	 	 	 
	 



	 	 	 
	 

	 	Plaintiffs’ Executive Committee Member and
	 

	 	Counsel for Plaintiff James Shroff






STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527




-16-









 





	 	 	 
	Dated: October 1, 2007

	 	O’MELVENY & MYERS LLP
	 

	 	Meredith N. Landy
	 

	 	Lori E.Romley
	 

	 	Joshua D. Baker
	 

	 	Sara M.Folchi






	 	 	 	 	 
	 	 	 
	 	By:  	/s/ Meredith N. Landy
 	 
	 	 	Meredith N. Landy 	 
	 	 	 	 
	 



	 	 	 
	 

	 	Counsel for Defendants Robert L. Blair, James
	 

	 	B. Boyd, Annie M. H. Chan, Fred S. L. Chan,
	 

	 	David S. Lee, Peter T. Mok, Dominic Ng, and
	 

	 	Nominal Defendant ESS Technology, Inc.





Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	

/s/ James B. Boyd
 	 
	 	James B. Boyd 	 
	 	 	 
	 


Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	                                                   /s/ Annie M. H. Chan
 	 
	 	Annie M. H. Chan 	 
	 	 	 
	 


Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	                                                   /s/ Fred S. L. Chan
 	 
	 	Fred S. L. Chan 	 
	 	 	 
	 


Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	                                                /s/ David S. Lee
 	 
	 	David S. Lee 	 
	 	 	 
	 


Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	                                                /s/ Peter T. Mok
 	 
	 	Peter T. Mok 	 
	 	 	 
	 



STIPULATION AND AGREEMENT OF SETTLEMENT—2002-067527





-17-









 







Dated: October 1, 2007




	 	 	 	 	 
	 	 	 
	 	       /s/ Dominic Ng
 	 
	 	Dominic Ng 	 
	 	 	 
	 


Dated: October 1, 2007




	 	 	 	 	 
	 	ESS TECHONOLOGY, INC.

 	 
	 	By:  	/s/
Robert Blair	 
	 	 	Robert Blair	 
	 	 	 	 
	 



STIPULATION
AND AGREEMENT OF SETTLEMENT 2002-067527





18