<PAGE>
                                                                   EXHIBIT 10.49

                              ESS TECHNOLOGY, INC.

                        1995 DIRECTORS STOCK OPTION PLAN
                            (as of October 20, 2001)

      1. PURPOSE. This 1995 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for nonemployee members of the Board of
Directors of ESS Technology, Inc. (the "COMPANY"), who are described in Section
6.1 below, by granting such persons options to purchase shares of stock of the
Company.

      2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC; provided, however, that if the Effective Date does not occur on or
before December 31, 1995, this Plan and any Options granted hereunder will
terminate as of December 31, 1995 having never become effective. This Plan shall
be approved by the stockholders of the Company, consistent with applicable laws,
within twelve (12) months after the date this Plan is adopted by the Board.
Options ("OPTIONS") may be granted under this Plan after the Effective Date
provided that, in the event that stockholder approval is not obtained within the
time period provided herein, this Plan, and all Options granted hereunder, shall
terminate. No Option that is issued as a result of any increase in the number of
shares authorized to be issued under this Plan shall be exercised prior to the
time such increase has been approved by the stockholders of the Company and all
such Options granted pursuant to such increase shall similarly terminate if such
stockholder approval is not obtained. So long as the Company is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), the Company will comply with the requirements of Rule 16b-3 with respect
to stockholder approval.

      3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall be
nonqualified stock options ("NQSOS"). The shares of stock that may be purchased
upon exercise of Options granted under this Plan (the "SHARES") are shares of
the Common Stock of the Company.

      4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 600,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the term
of this Plan, the Company shall reserve and keep available such number of Shares
as shall be required to satisfy the requirements of outstanding Options granted
under this Plan; provided, however, that if the aggregate number of Shares
subject to outstanding Options granted under this Plan plus the aggregate number
of Shares previously issued by the Company pursuant to the exercise of Options
granted under this Plan equals or exceeds the Maximum Number of Shares, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options

<PAGE>

granted under this Plan plus the aggregate number of Shares previously issued by
the Company pursuant to the exercise of Options granted under this Plan is less
than the Maximum Number.

      5. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "Committee"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.

      6. ELIGIBILITY AND AWARD FORMULA.

      6.1 Eligibility. Options may be granted only to directors of the Company
who are not employees of the Company or any Parent, Subsidiary or Affiliate of
the Company, as those terms are defined in Section 17 below.

      6.2 Initial Grant. Each Optionee who on or after the Effective Date
becomes a member of the Board will automatically be granted an Option for 40,000
Shares (the "Initial Grant"). Initial Grants shall be made on the date such
Optionee first becomes a member of the Board.

      6.3 Succeeding Grants. On the date of each annual meeting of the Company's
shareholders immediately following which an Optionee shall continue as a member
on the Board, each Optionee who is a member of the Board and has continuously
served as a director of the Company for at least six months will be
automatically granted an Option to purchase 10,000 Shares (the "Succeeding
Grant").

      7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:

      7.1 Form of Option Grant. Each Option granted under this Plan shall be
evidenced by a written Stock Option Grant ("GRANT") in such form (which need not
be the same for each Optionee) as the Committee shall from time to time approve,
which Grant shall comply with and be subject to the terms and conditions of this
Plan.

      7.2 Vesting. Options granted under this Plan shall be exercisable as they
vest. The date an Optionee receives an Initial Grant or a Succeeding Grant is
referred to in this Plan as the "GRANT DATE" for such Option.

            (a) Initial Grants. Each Option that is an Initial Grant will vest
as to twenty-five percent (25%) of the Shares on the first anniversary of the
Grant Date for such Initial Grant and thereafter an additional 1/48th of the
Shares shall vest on the same day each month as the Grant Date of the Initial
Grant, so long as the Optionee continuously remains a director of the Company.

            (b) Succeeding Grants. Each Succeeding Grant will vest as to 1/48th
of the Shares monthly on the same day each month as the Grant Date of the
Succeeding Grant beginning with the first month following the Grant Date of the
Succeeding Grant, so long as the Optionee continuously remains a director of the
Company.


                                       2
<PAGE>


      7.3 EXERCISE PRICE. The exercise price of an Option shall be the Fair
Market Value (as defined in Section 17.4) of the Shares, at the time that the
Option is granted.

      7.4 TERMINATION OF OPTION. Except as provided below in this Section, each
Option shall expire ten (10) years after its Grant Date (the "EXPIRATION DATE").
The Option shall cease to vest if the Optionee ceases to be a member of the
Board. The date on which the Optionee ceases to be a member of the Board shall
be referred to as the "TERMINATION DATE". An Option may be exercised after the
Termination Date only as set forth below:

            (a) Termination Generally. If the Optionee ceases to be a member of
the Board for any reason except death or disability, then each Option then held
by such Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee within seven (7) months after the Termination Date, but in no event
later than the Expiration Date.

            (b) Death or Disability. If the Optionee ceases to be a member of
the Board because of the death of the Optionee or the disability of the Optionee
within the meaning of Section 22(e)(3) of the internal Revenue Code of 1986, as
amended (the "CODE"), then each Option then held by such Optionee, to the extent
(and only to the extent) that it would have been exercisable by the Optionee on
the Termination Date, may be exercised by the Optionee (or the Optionee's legal
representative) within twelve (12) months after the Termination Date, but in no
event later than the Expiration Date.

      8. EXERCISE OF OPTIONS.

      8.1 Notice. Options may be exercised only by delivery to the Company of an
exercise agreement in a form approved by the Committee stating the number of
Shares being purchased, the restrictions imposed on the Shares and such
representations and agreements regarding the Optionee's investment intent and
access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.

      8.2 Payment. Payment for the Shares purchased upon exercise of an Option
may be made (a) in cash or by check; (b) by surrender of shares of Common Stock
of the Company that have been owned by the Optionee for more than six (6) months
(and which have been paid for within the meaning of SEC Rule 144 and, if such
shares were purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and


                                       3
<PAGE>

whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; or (f) by any combination of
the foregoing.

      8.3 Withholding Taxes. Prior to issuance of the Shares upon exercise of an
Option, the Optionee shall pay or make adequate provision for any federal or
state withholding obligations of the Company, if applicable.

      8.4 Limitations on Exercise. Notwithstanding the exercise periods set
forth in the Grant, exercise of an Option shall always be subject to the
following limitations:

            (a) An Option shall not be exercisable until such time as this Plan
(or, in the case of Options granted pursuant to an amendment increasing the
number of shares that may be issued pursuant to this Plan, such amendment) has
been approved by the stockholders of the Company in accordance with Section 15
hereof.

            (b) An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act and all applicable state securities laws, as
they are in effect on the date of exercise.

            (c) The Committee may specify a reasonable minimum number of Shares
that may be purchased upon any exercise of an Option, provided that such minimum
number will not prevent the Optionee from exercising the full number of Shares
as to which the Option is then exercisable.

      9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee or by the Optionee's guardian
or legal representative, unless otherwise permitted by the Committee. No Option
may be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution.

      10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its stockholders.

      11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.


                                       4
<PAGE>

      12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.

      13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares
upon exercise of any Options shall be subject to and conditioned upon compliance
with all applicable requirements of law, including without limitation compliance
with the Securities Act, compliance with all other applicable state securities
laws and compliance with the requirements of any stock exchange or national
market system on which the Shares may be listed. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration or qualification requirement of any state securities laws, stock
exchange or national market system.

      14. ACCELERATION OF OPTIONS. In the event of (a) a dissolution or
liquidation of the Company, (b) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company or their relative stock holdings and the Options
granted under this Plan are assumed or replaced by the successor corporation,
which assumption will be binding on all Optionees), (c) a merger in which the
Company is the surviving corporation but after which the stockholders of the
Company (other than any stockholder which merges (or which owns or controls
another corporation which merges) with the Company in such merger) cease to own
their shares or other equity interests in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) any other transaction
which qualifies as a "corporate transaction" under Section 424 of the Code
wherein the stockholders of the Company give up all of their equity interests in
the Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company from or by the
stockholders of the Company), the vesting of all options granted pursuant to
this Plan will accelerate and the options will become exercisable in full prior
to the consummation of such event at such times and on such conditions as the
Committee determines, and if such options are not exercised prior to the
consummation of the corporate transaction, they shall terminate in accordance
with the provisions of this Plan.

      15. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan (but may not terminate or amend the terms of any
outstanding option without the consent of the Optionee); provided, however, that
the Committee shall not, without the approval of the stockholders of the
Company, increase the total number of Shares available under this Plan (except
by operation of the provisions of Sections 4 and 11 above) or change the class
of persons eligible to receive Options. Further, the provisions in Sections 6
and 7 of this Plan shall not be amended more than once every six (6) months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act or the rules thereunder. In any case, no amendment of this Plan may
adversely affect any then outstanding Options or any unexercised portions
thereof without the written consent of the Optionee.

      16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the date this Plan is adopted by
the Board.


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<PAGE>

      17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:

      17.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.

      17.2 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

      17.3 "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.

      17.4 "FAIR MARKET VALUE" means, as of any date, the fair market value of
the Common Stock, as determined by the Board in good faith on such basis as it
deems appropriate and applied consistently with respect to Optionees. Whenever
possible, the determination of Fair Market Value shall be based upon the closing
price for the Shares as reported in the Wall Street Journal for the applicable
date.


                                       6
<PAGE>

FOR INITIAL GRANT

                              ESS TECHNOLOGY, INC.

                        1995 DIRECTORS STOCK OPTION PLAN

                DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT

      This Stock Option Grant (this "GRANT") is made and entered into as of the
date of grant set forth below (the "DATE OF GRANT") by and between ESS
Technology, Inc., a California corporation (the "COMPANY"), and the Optionee
named below ("OPTIONEE").

Optionee:
                                  ------------------------------------------
Optionee's Address:
                                  ------------------------------------------

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

Total Shares Subject to Option:
                                  ------------------------------------------
Exercise Price Per Share:
                                  ------------------------------------------
Date of Grant:
                                  ------------------------------------------
Expiration Date:
                                  ------------------------------------------

      1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this
"OPTION") to purchase up to the total number of shares of Common Stock of the
Company set forth above (collectively, the "SHARES") at the exercise price per
share set forth above (the "EXERCISE PRICE"), subject to all of the terms and
conditions of this Grant and the Company's 1995 Directors Stock Option Plan, as
amended (the "PLAN"). Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to them in the Plan.

      2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions of
the Plan and this Grant, this Option shall become exercisable as it vests.
Subject to the terms and conditions of the Plan and this Grant, this Option
shall vest as to twenty-five percent (25%) of the Shares upon each of the first
four (4) successive anniversaries of the Date of Grant so long as the Optionee
continuously remains a member of the Board of Directors of the Company (a "BOARD
MEMBER").

      3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.


<PAGE>

      4. TERMINATION OF OPTION. Except as provided below in this Section, this
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member. The date on which Optionee ceases to be a Board Member shall be referred
to as the "TERMINATION DATE."

            4.1 Termination Generally. If Optionee ceases to be a Board Member
for any reason except death or disability, then this Option, to the extent (and
only to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee within seven (7) months after the
Termination Date, but in no event later than the Expiration Date.

            4.2 Death or Disability. If Optionee ceases to be a Board Member
because of the death of Optionee or the disability of Optionee within the
meaning of Section 22(e)(3) of the Code, then this Option, to the extent (and
only to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee (or Optionee's legal
representative) within twelve (12) months after the Termination Date, but in no
event later than the Expiration Date.

      5. MANNER OF EXERCISE.

            5.1 Exercise Agreement. This Option shall be exercisable by delivery
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as Exhibit A, or in such other form as may be
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.

            5.2 Payment. Payment for the Shares purchased upon exercise of this
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or (f) by any combination of the foregoing.

            5.3 Withholding Taxes. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.


                                       2
<PAGE>

            5.4 Issuance of Shares. Provided that such notice and payment are in
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.

      6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee, this
Option shall be exercisable only by Optionee or by Optionee's guardian or legal
representative, unless otherwise permitted by the Committee. This Option may not
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution.

      7. INTERPRETATION. Any dispute regarding the interpretation of this Grant
shall be submitted by Optionee or the Company to the Committee that administers
the Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and on Optionee. Nothing in the Plan or this Grant shall confer on
Optionee any right to continue as a Board Member.

      8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
thereof, are incorporated herein by this reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.

                                         ESS TECHNOLOGY, INC.

                                         By:
                                            ----------------------
                                         Name:
                                               -------------------
                                         Title:
                                               -------------------


                                       3
<PAGE>

                        ACCEPTANCE OF STOCK OPTION GRANT

      Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.

                                         ---------------------------------------
                                                                      , Optionee
                                         -----------------------------

[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT]


                                       4
<PAGE>

FOR SUCCEEDING GRANT

                              ESS TECHNOLOGY, INC.
                        1995 DIRECTORS STOCK OPTION PLAN
              DIRECTORS NONQUALIFIED SUCCEEDING STOCK OPTION GRANT

      This Stock Option Grant (this "GRANT") is made and entered into as of the
date of Grant set forth below (the "DATE OF GRANT") by and between ESS
Technology, Inc., a California corporation (the "COMPANY"), and the Optionee
named below ("OPTIONEE").

Optionee:
                                  ------------------------------------------
Optionee's Address:
                                  ------------------------------------------

                                  ------------------------------------------
Total Shares Subject to Option:
                                  ------------------------------------------
Exercise Price Per Share:
                                  ------------------------------------------
Date of Grant:
                                  ------------------------------------------
Expiration Date:
                                  ------------------------------------------

      1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this
"OPTION") to purchase up to the total number of shares of Common Stock of the
Company set forth above (collectively, the "SHARES") at the exercise price per
share set forth above (the "EXERCISE PRICE"), subject to all of the terms and
conditions of this Grant and the Company's 1995 Directors Stock Option Plan, as
amended (the "PLAN"). Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to them in the Plan.

      2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions of
the Plan and this Grant, this Option shall become exercisable as it vests.
Subject to the terms and conditions of the Plan and this Grant, this Option
shall vest as to twenty-five percent (25%) of the Shares upon each of the first
four (4) successive anniversaries of the Date of Grant so long as the Optionee
continuously remains a member of the Board of Directors of the Company (a "BOARD
MEMBER").

      3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.

      4. TERMINATION OF OPTION. Except as provided below in this Section, this
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member. The date on which Optionee ceases to be a Board Member shall be referred
to as the "TERMINATION DATE."

<PAGE>

            4.1 Termination Generally. If Optionee ceases to be a Board Member
for any reason except death or disability, then this Option, to the extent (and
only to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee within seven (7) months after the
Termination Date, but in no event later than the Expiration Date.

            4.2 Death or Disability. If Optionee ceases to be a Board Member
because of the death of Optionee or the disability of Optionee within the
meaning of Section 22(e)(3) of the Code, then this Option, to the extent (and
only to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee (or Optionee's legal
representative) within twelve (12) months after the Termination Date, but in no
event later than the Expiration Date.

      5. MANNER OF EXERCISE.

            5.1 Exercise Agreement. This Option shall be exercisable by delivery
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as Exhibit A, or in such other form as may be
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.

            5.2 Payment. Payment for the Shares purchased upon exercise of this
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or (f) by any combination of the foregoing.

            5.3 Withholding Taxes. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.

            5.4 Issuance of Shares. Provided that such notice and payment are in
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with


                                       2
<PAGE>

stock powers or other instruments of transfer approved by the Committee
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated, and
the Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates.

      6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee, this
Option shall be exercisable only by Optionee or by Optionee's guardian or legal
representative, unless otherwise permitted by the Committee. This Option may not
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution.

      7. INTERPRETATION. Any dispute regarding the interpretation of this Grant
shall be submitted by Optionee or the Company to the Committee that administers
the Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and on Optionee. Nothing in the Plan or this Grant shall confer on
Optionee any right to continue as a Board Member.

      8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
thereof, are incorporated herein by this reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.

                                         ESS TECHNOLOGY, INC.

                                         By:
                                            ----------------------
                                         Name:
                                              --------------------
                                         Title:
                                               -------------------


                                       3
<PAGE>

                        ACCEPTANCE OF STOCK OPTION GRANT

      Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee has been
advised by the Company that Optionee should consult a qualified tax advisor
prior to such exercise or disposition.

                                         ---------------------------------------
                                                                      , Optionee
                                         -----------------------------

[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT]


                                       4
<PAGE>
                                        EXHIBIT A

                        DIRECTORS STOCK OPTION EXERCISE AGREEMENT

<PAGE>
                                    Exhibit A
                              ESS TECHNOLOGY, INC.
                 1995 DIRECTORS STOCK OPTION PLAN (THE "PLAN ")
                    DIRECTORS STOCK OPTION EXERCISE AGREEMENT

I hereby elect to purchase the number of shares of common stock of ESS
TECHNOLOGY, INC. (the "Company") as set forth below:

<TABLE>
<S>                                                 <C>
Optionee:_______________________________            Number of Shares Purchased:_________________
Social Security Number:_________________            Purchase Price per Share:___________________
Address:________________________________            Aggregate Purchase Price: __________________
________________________________________            Date of Stock Option Grant:_________________
Type of Stock Option: Nonqualified Stock Option     Exact Name of Title to Shares:______________
                                                    ____________________________________________
</TABLE>

1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Directors Nonqualified
Stock Option Grant referred to above (the "Grant"), as follows (check as
applicable and complete):

| |   in cash (by check) in the amount of $__________, receipt of which is
      acknowledged by the Company;

| |   by delivery of _________ fully-paid, nonassessable and vested shares of
      the common stock of the Company owned by Optionee for at least six (6)
      months prior to the date hereof (and which have been paid for within the
      meaning of SEC Rule 144), or obtained by Optionee in the open public
      market, and owned free and clear of all liens, claims, encumbrances or
      security interests, valued at the current Fair Market Value of $________
      per share;

| |   by the waiver hereby of compensation due or accrued to Optionee for
      services rendered in the amount of $_________;

| |   through a "same-day-sale" commitment, delivered herewith, from Optionee
      and the NASD Dealer named therein, in the amount of $__________; or

| |   through a "margin" commitment, delivered herewith from Optionee and the
      NASD Dealer named therein, in the amount of $__________.

2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.

3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.

4. ENTIRE AGREEMENT. The Plan and the Grant are incorporated herein by
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior
understandings and agreements of the Company and Optionee with respect to the
subject matter hereof, and are governed by California law except for that body
of law pertaining to conflict of laws.

Date:
     ------------------------       --------------------------------------------
                                    Signature of Optionee

<PAGE>

                              ESS TECHNOLOGY, INC.
                        1995 DIRECTORS STOCK OPTION PLAN

                                SPOUSE'S CONSENT

      I acknowledge that I have read the foregoing Directors Stock Option
Exercise Agreement (the "AGREEMENT") and that I know its contents. I hereby
consent to and approve all the provisions of the Agreement and agree that the
shares of the Common Stock of ESS Technology, Inc. purchased thereunder (the
"SHARES") and any interest I may have in such Shares are subject to all the
provisions of the Agreement. I will take no action at any time to hinder
operation of the Agreement on these Shares or any interest I may have on them.

Spouse of Optionee
                                         Date:
---------------------------------------       ----------------------------------
                                         Date:
---------------------------------------       ----------------------------------
Optionee's Name