Document:

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                                                                   EXHIBIT 10.36

                              ESS TECHNOLOGY, INC.

                           1997 EQUITY INCENTIVE PLAN

                   (AMENDED AND RESTATED AS OF APRIL 21, 2001)

        1. PURPOSES OF THE PLAN. The purposes of this ESS Technology, Inc.
Equity Incentive Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
Employees and Consultants and to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant of an
option and subject to the applicable provisions of Section 422 of the Code and
the regulations promulgated thereunder.

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

           (a) "ADMINISTRATOR" means the Board or its Committee appointed
pursuant to Section 4 of the Plan.

           (b) "AFFILIATE" means an entity other than a Subsidiary (as defined
below) which, together with the Company, is under common control of a third
person or entity.

           (c) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options are granted
under the Plan, as such laws, rules, regulations and requirements shall be in
place from time to time.

           (d) "BOARD" means the Board of Directors of the Company.

           (e) "CAUSE" for termination of a Participant's Continuous Service
Status will exist (unless otherwise defined in an applicable employment
agreement) if the Participant is terminated for any of the following reasons:
(i) Participant's willful failure substantially to perform his or her duties and
responsibilities to the Company or deliberate violation of a Company policy;
(ii) Participant's commission of any act of fraud, embezzlement, dishonesty or
any other willful misconduct that has caused or is reasonably expected to result
in material injury to the Company; (iii) unauthorized use or disclosure by
Participant of any proprietary information or trade secrets of the Company or
any other party to whom the Participant owes an obligation of nondisclosure as a
result of his or her relationship with the Company; or (iv) Participant's
willful breach of any of his or her obligations under any written agreement or
covenant with the Company. The determination as to whether a Participant is
being terminated for Cause shall be made in good faith by the Company and shall
be final and binding on the Participant. The foregoing definition does not in
any way limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time as provided in

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Section 5(d) below, and the term "Company" will be interpreted to include any
Subsidiary, Parent, Affiliate or successor thereto, if appropriate.

           (f) "CHANGE OF CONTROL" means a sale of all or substantially all of
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.

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

           (h) "COMMITTEE" means one or more committees or subcommittees of the
Board appointed by the Board to administer the Plan in accordance with Section 4
below.

           (i) "COMMON STOCK" means the Common Stock of the Company.

           (j) "COMPANY" means ESS Technology, Inc., a California corporation.

           (k) "CONSULTANT" means any person, including an advisor, who is
engaged by the Company or any Parent, Subsidiary or Affiliate to render services
and is compensated for such services, and any director of the Company whether
compensated for such services or not.

           (l) "CONTINUOUS SERVICE STATUS" means the absence of any interruption
or termination of service as an Employee or Consultant. Continuous Service
Status as an Employee or Consultant shall not be considered interrupted in the
case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence
approved by the Administrator, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its Parents,
Subsidiaries, Affiliates or their respective successors. A change in status from
an Employee to a Consultant or from a Consultant to an Employee will not
constitute an interruption of Continuous Service Status.

           (m) "CORPORATE TRANSACTION" means a sale of all or substantially all
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation and includes a
Change of Control.

           (n) "DIRECTOR" means a member of the Board.

           (o) "EMPLOYEE" means any person employed by the Company or any
Parent, Subsidiary or Affiliate, with the status of employment determined based
upon such factors as are deemed appropriate by the Administrator in its
discretion, subject to any requirements of the Code or the Applicable Laws. The
payment by the Company of a director's fee to a Director shall not be sufficient
to constitute "employment" of such Director by the Company.

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           (p) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

           (q) "FAIR MARKET VALUE" means, as of any date, the fair market value
of the Common Stock, as determined by the Administrator in good faith on such
basis as it deems appropriate and applied consistently with respect to
Participants. 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.

           (r) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.

           (s) "Involuntary Termination" means termination of a Participant's
Continuous Service Status under the following circumstances: (i) termination
without Cause by the Company or a Subsidiary, Parent, Affiliate or successor
thereto, as appropriate; or (ii) voluntary termination by the Participant within
90 days following (A) a material reduction in the Participant's job
responsibilities, provided that neither a mere change in title alone nor
reassignment following a Change of Control to a position that is substantially
similar to the position held prior to the Change of Control shall constitute a
material reduction in job responsibilities; (B) relocation by the Company or a
Subsidiary, Parent, Affiliate or successor thereto, as appropriate, of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site for the Company at the time of the Change of
Control; or (C) a reduction in Participant's then-current base salary, provided
that an across-the-board reduction in the salary level of all other employees or
consultants in positions similar to the Participant's by the same percentage
amount as part of a general salary level reduction shall not constitute such a
salary reduction.

           (t) "LISTED SECURITY" means any security of the Company that is
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.

           (u) "NAMED EXECUTIVE" means any individual who, on the last day of
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.

           (v) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.

           (w) "OPTION" means a stock option granted pursuant to the Plan.

           (x) "OPTION AGREEMENT" means a written document, the form(s) of which
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option

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Agreement, including, but not limited to, a notice of stock option grant and a
form of exercise notice.

           (y) "OPTION EXCHANGE PROGRAM" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price or are amended to decrease the exercise price as a result of a
decline in the Fair Market Value of the Common Stock.

           (z) "OPTIONED STOCK" means the Common Stock subject to an Option.

           (aa) "OPTIONEE" means an Employee or Consultant who receives an
Option.

           (bb) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.

           (cc) "PARTICIPANT" means any holder of one or more Options, or the
Shares issuable or issued upon exercise of such Options, under the Plan.

           (dd) "PLAN" means this 1997 Equity Incentive Plan.

           (ee) "REPORTING PERSON" means an officer, Director, or greater than
ten percent shareholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.

           (ff) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange
Act, as amended from time to time, or any successor provision.

           (gg) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.

           (hh) "STOCK EXCHANGE" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.

           (ii) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.

           (jj) "TEN PERCENT HOLDER" means a person who owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.

        3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be sold under the Plan
is 10,000,000 Shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock. If an award should expire or become
unexercisable for any reason without having been exercised in full, or is
surrendered pursuant to an Option Exchange Program, the unpurchased Shares that
were subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. In addition, any Shares of Common
Stock which are retained by the Company upon exercise of an award in order to
satisfy the exercise or purchase price for such

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award or any withholding taxes due with respect to such exercise or purchase
shall be treated as not issued and shall continue to be available under the
Plan. Shares issued under the Plan and later repurchased by the Company pursuant
to any repurchase right which the Company may have shall not be available for
future grant under the Plan.

        4. ADMINISTRATION OF THE PLAN.

           (a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to make awards under the Plan.

           (b) COMMITTEE COMPOSITION. If a Committee has been appointed pursuant
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan in
accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to
the extent permitted or required by such provisions.

           (c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:

               (i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(q) of the Plan, provided that such determination shall
be applied consistently with respect to Participants under the Plan;

               (ii) to select the Employees and Consultants to whom Options may
from time to time be granted;

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

               (iv) to determine the number of Shares of Common Stock to be
covered by each award granted;

               (v) to approve the form(s) of agreement(s) used under the Plan;

               (vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when awards may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option, Optioned Stock or restricted
stock issued upon exercise of an Option, based in each case on such factors as
the Administrator, in its sole discretion, shall determine;

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               (vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(c) instead of Common Stock;

               (viii) to implement an Option Exchange Program on such terms and
conditions as the Administrator in its discretion deems appropriate, provided
that no amendment or adjustment to an Option that would materially and adversely
affect the rights of any Optionee shall be made without the prior written
consent of the Optionee;

               (ix) to adjust the vesting of an Option held by an Employee or
Consultant as a result of a change in the terms or conditions under which such
person is providing services to the Company;

               (x) to construe and interpret the terms of the Plan and awards
granted under the Plan, which constructions, interpretations and decisions shall
be final and binding on all Participants; and

               (xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to Participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.

        5. ELIGIBILITY.

           (a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options may be granted
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided that Employees of Affiliates shall not be eligible to
receive Incentive Stock Options.

           (b) TYPE OF OPTION. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.

           (c) ISO $100,000 LIMITATION. Notwithstanding any designation under
Section 5(b), to the extent that the aggregate Fair Market Value of Shares with
respect to which Options designated as Incentive Stock Options are exercisable
for the first time by any Optionee during any calendar year (under all plans of
the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options
shall be treated as Nonstatutory Stock Options. For purposes of this Section
5(c), Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of the Shares subject to an
Incentive Stock Option shall be determined as of the date of the grant of such
Option.

           (d) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
Participant any right with respect to continuation of an employment or
consulting relationship with the Company, nor shall it interfere in any way with
such Participant's right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without Cause.

        6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board of Directors. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 15 of the Plan.

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        7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided that the term shall be no more than ten years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement and provided further that, in the case of an Incentive Stock
Option granted to a person who at the time of such grant is a Ten Percent
Holder, the term of the Option shall be five years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.

        8. LIMITATION ON GRANTS. Subject to adjustment as provided in Section 13
below, the maximum number of Shares that may be subject to Options granted to
any one individual under this Plan for any fiscal year of the Company shall be
500,000; provided, however, that up to 1,000,000 shares subject to options may
be granted to an individual in the calendar year in which the individual
commences his or her employment with the Company, a Parent, a Subsidiary or an
Affiliate.

        9. OPTION EXERCISE PRICE AND CONSIDERATION.

           (a) EXERCISE PRICE. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator and set forth in the Option Agreement, but shall be subject to
the following:

               (i) In the case of an Incentive Stock Option

                   (A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant; or

                   (B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

               (ii) In the case of a Nonstatutory Stock Option, the per share
Exercise Price shall be such price as determined by the Administrator provided
that if such eligible person is, at the time of the grant of such Option, a
Named Executive of the Company, the per share Exercise Price shall be no less
than 100% of the Fair Market Value on the date of grant if such Option is
intended to qualify as performance-based compensation under Section 162(m) of
the Code.

               (iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.

           (b) PERMISSIBLE CONSIDERATION. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash; (2) check; (3) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate; (4) cancellation of indebtedness; (5) other Shares
that have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which the Option is exercised, provided that
in the case of Shares acquired,

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directly or indirectly, from the Company, such Shares must have been owned by
the Optionee for more than six months on the date of surrender (or such other
period as may be required to avoid the Company's incurring an adverse accounting
charge); (6) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and a securities broker approved by the
Company shall require to effect exercise of the Option and prompt delivery to
the Company of the sale or loan proceeds required to pay the exercise price and
any applicable withholding taxes; or (7) any combination of the foregoing
methods of payment. In making its determination as to the type of consideration
to accept, the Administrator shall consider if acceptance of such consideration
may be reasonably expected to benefit the Company and the Administrator may, in
its sole discretion, refuse to accept a particular form of consideration at the
time of any Option exercise.

        10. EXERCISE OF OPTION.

            (a) GENERAL.

                (i) EXERCISABILITY. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator, consistent with the term of the Plan and reflected in the Option
Agreement, including vesting requirements and/or performance criteria with
respect to the Company and/or the Optionee. The Administrator shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave.

                (ii) MINIMUM EXERCISE REQUIREMENTS. An Option may not be
exercised for a fraction of a Share. The Administrator may require that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent an Optionee from exercising the full number of
Shares as to which the Option is then exercisable.

                (iii) PROCEDURES FOR AND RESULTS OF EXERCISE. An Option shall be
deemed exercised when written notice of such exercise has been given to the
Company in accordance with the terms of the Option by the person entitled to
exercise the Option and the Company has received full payment for the Shares
with respect to which the Option is exercised. Full payment may, as authorized
by the Administrator, consist of any consideration and method of payment
allowable under Section 9(b) of the Plan, provided that the Administrator may,
in its sole discretion, refuse to accept any form of consideration at the time
of any Option exercise.

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

                (iv) RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 14 of the Plan.

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            (b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Except as
otherwise set forth in this Section 10(b), the Administrator shall establish and
set forth in the applicable Option Agreement the terms and conditions upon which
an Option shall remain exercisable, if at all, following termination of an
Optionee's Continuous Service Status, which provisions may be waived or modified
by the Administrator at any time. To the extent that the Optionee is not
entitled to exercise an Option at the date of his or her termination of
Continuous Service Status, or if the Optionee (or other person entitled to
exercise the Option) does not exercise the Option to the extent so entitled
within the time specified in the Option Agreement or below (as applicable), the
Option shall terminate and the Optioned Stock underlying the unexercised portion
of the Option shall revert to the Plan. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Option Agreement
(and subject to Section 7).

           The following provisions (1) shall apply to the extent an Option
Agreement does not specify the terms and conditions upon which an Option shall
terminate upon termination of an Optionee's Continuous Service Status, and (2)
establish the minimum post-termination exercise periods that may be set forth in
an Option Agreement:

                (i) TERMINATION OTHER THAN UPON DISABILITY OR DEATH OR FOR
CAUSE. In the event of termination of an Optionee's Continuous Service Status,
such Optionee may exercise an Option for 30 days following such termination to
the extent the Optionee was entitled to exercise it at the date of such
termination. No termination shall be deemed to occur and this Section 10(b)(i)
shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or
(ii) the Optionee is an Employee who becomes a Consultant.

                (ii) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Service Status as a result of his or her disability
(including a disability within the meaning of Section 22(e)(3) of the Code),
such Optionee may exercise an Option at any time within six months following
such termination to the extent the Optionee was entitled to exercise it at the
date of such termination.

                (iii) DEATH OF OPTIONEE. In the event of the death of an
Optionee during the period of Continuous Service Status since the date of grant
of the Option, or within thirty days following termination of Optionee's
Continuous Service Status, the Option may be exercised by Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance at any time within twelve months following the date of death, but
only to the extent of the right to exercise that had accrued at the date of
death or, if earlier, the date the Optionee's Continuous Service Status
terminated.

                (iv) TERMINATION FOR CAUSE. In the event of termination of an
Optionee's Continuous Service Status for Cause, any Option (including any
exercisable portion thereof) held by such Optionee shall immediately terminate
in its entirety upon first notification to the Optionee of termination of the
Optionee's Continuous Service Status. If an Optionee's employment or consulting
relationship with the Company is suspended pending an investigation of whether
the Optionee shall be terminated for Cause, all the Optionee's rights under any
Option likewise shall be suspended during the investigation period and the
Optionee shall have no right to exercise any Option.

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

        11. TAXES.

            (a) As a condition of the exercise of an Option granted under the
Plan, the Participant (or in the case of the Participant's death, the person
exercising the Option) shall make such arrangements as the Administrator may
require for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the exercise of
the Option and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied. If the
Administrator allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations under this Section 11 (whether
pursuant to Section 11(c), (d) or (e), or otherwise), the Administrator shall
not allow Shares to be withheld in an amount that exceeds the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes.

            (b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.

            (c) This Section 11(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option that number of Shares having a Fair Market Value
determined as of the applicable Tax Date (as defined below) equal to the amount
required to be withheld. For purposes of this Section 11, the Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined under the Applicable Laws (the "Tax
Date").

            (d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option by surrendering to the Company Shares that have a Fair Market Value
determined as of the applicable Tax Date equal to the amount required to be
withheld. In the case of shares previously acquired from the Company that are
surrendered under this Section 11(d), such Shares must have been owned by the
Participant for more than six (6) months on the date of surrender (or such other
period of time as is required for the Company to avoid adverse accounting
charges).

            (e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 11(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or

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disapproval of the Administrator. Any election by a Participant under Section
11(d) above must be made on or prior to the applicable Tax Date.

            (f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option is exercised but such
Participant shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.

        12. NON-TRANSFERABILITY OF OPTIONS.

            (a) GENERAL. Except as set forth in this Section 12, Options may not
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent or distribution. The
designation of a beneficiary by an Optionee will not constitute a transfer. An
Option may be exercised, during the lifetime of the holder of an Option, only by
such holder or a transferee permitted by this Section 12.

            (b) LIMITED TRANSFERABILITY RIGHTS. The Administrator may in its
discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements specifying the manner in which such Nonstatutory Stock Options are
transferable. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.

        13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS.

            (a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of Shares of Common Stock covered by
each outstanding Option, the numbers of Shares set forth in Sections 3 and 8
above, and the number of Shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or that
have been returned to the Plan upon cancellation or expiration of an Option, as
well as the price per Share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination, recapitalization or reclassification
of the Common Stock, or any other increase or decrease in the number of issued
Shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares of Common Stock subject to an Option.

<PAGE>   12

            (b) DISSOLUTION OR LIQUIDATION. In the event of the dissolution or
liquidation of the Company, each Option will terminate immediately prior to the
consummation of such action, unless otherwise determined by the Administrator.

            (c) CORPORATE TRANSACTION. In the event of a Corporate Transaction,
each outstanding Option shall be assumed or an equivalent option or right shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation (the "Successor Corporation"), unless the Successor
Corporation does not agree to assume the award or to substitute an equivalent
option or right, in which case such Option shall terminate upon the consummation
of the transaction.

            Notwithstanding the above, in the event of a Change of Control in
which outstanding awards are not being assumed, substituted or terminated in
connection with the transaction, the vesting and exercisability of each
outstanding Option may, in the Administrator's sole discretion, accelerate such
that the Options shall become vested and exercisable to the extent of up to 100%
of the Shares then unvested, in each case effective as of immediately prior to
consummation of the transaction. To the extent that an Option is not exercised
prior to consummation of a Corporate Transaction in which the Option is not
being assumed or substituted, such Option shall terminate upon such consummation
and the Administrator shall notify the Optionee or holder of such fact at least
five (5) days prior to the date on which the Option terminates.

            For purposes of this Section 13(c), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon a Corporate Transaction or a Change of Control, as the case
may be, each holder of an Option would be entitled to receive upon exercise of
the award the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the award at such time (after giving effect to any adjustments in the number
of Shares covered by the Option as provided for in this Section 13); provided
that if such consideration received in the transaction is not solely common
stock of the Successor Corporation, the Administrator may, with the consent of
the Successor Corporation, provide for the consideration to be received upon
exercise of the award to be solely common stock of the Successor Corporation
equal to the Fair Market Value of the per Share consideration received by
holders of Common Stock in the transaction.

            (d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.

        14. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator,
provided that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of

<PAGE>   13

the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.

        15. AMENDMENT AND TERMINATION OF THE PLAN.

            (a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation (other than an adjustment pursuant to Section 13
above) shall be made that would materially and adversely affect the rights of
any Optionee under any outstanding grant, without his or her consent. In
addition, to the extent necessary and desirable to comply with the Applicable
Laws, the Company shall obtain shareholder approval of any Plan amendment in
such a manner and to such a degree as required.

            (b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination
of the Plan shall materially and adversely affect Options already granted,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee or holder and the
Company.

        16. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel. As a condition to the
exercise of an Option, the Company may require the person exercising the award
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by law.

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

        18. AGREEMENTS. Options shall be evidenced by Option Agreements in such
form(s) as the Administrator shall from time to time approve.

        19. SHAREHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.

20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. If required by the
Applicable Laws, the Company shall provide financial statements at least
annually to each Optionee and to each individual who acquired Shares pursuant to
the Plan, during the period such Optionee or purchaser has one or more Options
outstanding, and in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares. The Company shall
not be required to provide such information if the issuance of Options under the
Plan is

<PAGE>   14

limited to key employees whose duties in connection with the Company assure
their access to equivalent information

<PAGE>   15
                               ESS Technology, Inc
                           1997 EQUITY INCENTIVE PLAN

                          NOTICE OF STOCK OPTION GRANT

Optionee's Name and Address:

[Optionee]
[OptioneeAddress1]
[OptioneeAddress2]

You have been granted an option to purchase Common Stock of ESS Technology,
Inc., (the "Company") as follows:

Board Approval Date: _____________________________

Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting):            [ExercisePrice]

Exercise Price Per Share:          [ExercisePrice]

Total Number of Shares Granted:    [NoofShares]

Total Price of Shares Granted:     [TotalExercisePrice]

Type of Option:                    [NoSharesISO] Shares Incentive Stock Option
                                   [NoSharesNSO] Shares Nonstatutory Stock
                                   Option

Term/Expiration Date:              [Term]/[ExpirDate]

Vesting Commencement Date:         [VestingCommencementDate]

Vesting Schedule:                  [CliffVestAmount]

Termination Period: Option may be exercised for a period of 30 days after
termination of employment or consulting relationship except as set out in
Sections 7 and 8 of the Stock Option Agreement (but in no event later than the
Expiration Date).

By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the ESS Technology, Inc. 1997 Equity Incentive Plan and
the Stock Option Agreement, all of which are attached and made a part of this
document.

OPTIONEE:                                    ESS Technology, Inc.

-----------------------------------          -----------------------------------
Signature                                    By:

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

<PAGE>   16

                              ESS TECHNOLOGY, INC.

                             STOCK OPTION AGREEMENT

1. GRANT OF OPTION. ESS Technology, Inc., a California corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant attached to this Agreement ("Optionee"), an option (the "Option") to
purchase the total number of shares of Common Stock (the "Shares") set forth in
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
definitions and provisions of the 1997 Equity Incentive Plan (the "Plan")
adopted by the Company, which is incorporated in this Agreement by reference. In
the event of a conflict between the terms of the Plan and the terms of this
Agreement, the terms of the Plan shall govern. Unless otherwise defined in this
Agreement, the terms used in this Agreement shall have the meanings defined in
the Plan.

To the extent designated an Incentive Stock Option in the Notice of Stock Option
Grant, this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and, to the extent not so designated, this Option is intended to be a
Nonstatutory Stock Option.

2. EXERCISE OF OPTION. This Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and with the provisions of Sections 9 and 10 of the Plan as follows:

    (a) RIGHT TO EXERCISE.

           (i)    This Option may not be exercised for a fraction of a share.

           (ii)   In the event of Optionee's death, disability or other
                  termination of employment, the exercisability of the Option is
                  governed by Sections 6, 7 and 8 below, subject to the
                  limitations contained in paragraphs (iii) and (iv) below.

           (iii)  In no event may this Option be exercised after the date of
                  expiration of the term of this Option as set forth in the
                  Notice of Stock Option Grant.

           (iv)   If designated an Incentive Stock Option in the Notice of Stock
                  Option Grant, in the event that the Shares subject to this
                  Option (and all other Incentive Stock Options granted to
                  Optionee by the Company or any Parent or Subsidiary) that vest
                  in any calendar year have an aggregate fair market value
                  (determined for each Share as of the Date of Grant of the
                  option covering such Share) in excess of $100,000, the Shares
                  in excess of $100,000 shall be treated as subject to a
                  Nonstatutory Stock Option, in accordance with Section 5 of the
                  Plan.

    (b) METHOD OF EXERCISE.

           (i)    This Option shall be exercisable by delivering to the Company
                  a written notice of exercise (in the form attached as Exhibit
                  A) which shall state the election to exercise the Option, the
                  number of Shares in respect of which the Option is being
                  exercised, and such other representations and agreements as to
                  the holder's investment intent with respect to such Shares of
                  Common Stock as may be required by the Company pursuant to the
                  provisions of the Plan. Such written notice shall be signed by
                  Optionee and shall be delivered in person or by certified mail
                  to the Secretary of the Company. The written notice shall be
                  accompanied by payment of the Exercise Price. This Option
                  shall be deemed to be exercised upon receipt by the Company of
                  such written notice accompanied by the Exercise Price.

           (ii)   As a condition to the exercise of this Option, Optionee agrees
                  to make adequate provision for federal, state or other tax
                  withholding obligations, if any, which arise upon the exercise

<PAGE>   17

                  of the Option or disposition of Shares, whether by
                  withholding, direct payment to the Company, or otherwise.

           (iii)  No Shares will be issued pursuant to the exercise of an Option
                  unless such issuance and such exercise shall comply with all
                  relevant provisions of law and the requirements of any stock
                  exchange upon which the Shares may then be listed. Assuming
                  such compliance, for income tax purposes the Shares shall be
                  considered transferred to Optionee on the date on which the
                  Option is exercised with respect to such Shares.

3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to
the exercise of this Option have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company an investment
representation statement in customary form, a copy of which is available for
Optionee's review from the Company upon request.

4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the
following, or a combination of the following, at the election of Optionee: (a)
cash; (b) check; (c) surrender of other Shares of Common Stock of the Company
that (i) either have been owned by Optionee for more than six (6) months on the
date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (d) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; or (e) if there is a
public market for the Shares and they are registered under the Securities Act,
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the exercise price.

5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as
the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.

6. TERMINATION OF RELATIONSHIP. In the event of termination of Optionee's
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at the date of such termination, or if Optionee does not exercise
this Option within the time specified in the Notice of Stock Option Grant, the
Option shall terminate.

7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, in
the event of termination of Optionee's Continuous Status as an Employee or
Consultant as a result of total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within six (6) months from the
date of termination of employment (but in no event later than the date of
expiration of the term of this Option as set forth in Section 10 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option (to the
extent otherwise so entitled) within the time specified in this Agreement, the
Option shall terminate.

8. DEATH OF OPTIONEE.  In the event of the death of Optionee:

    (a) During the term of this Option and while an Employee of the Company
        and having been in Continuous Status as an Employee or Consultant since
        the date of grant of the Option, the Option may be exercised, at any
        time within six (6) months following the date of death (but in no event
        later than the date of

<PAGE>   18

        expiration of the term of this Option as set forth in Section 10 below),
        by Optionee's estate or by a person who acquired the right to exercise
        the Option by bequest or inheritance, but only to the extent of the
        right to exercise that would have accrued had Optionee continued living
        and remained in Continuous Status as an Employee or Consultant three (3)
        months after the date of death, subject to the limitation contained in
        Section 2(i)(d) above in the case of an Incentive Stock Option; or

    (b) Within thirty (30) days after the termination of Optionee's Continuous
        Status as an Employee or Consultant, the Option may be exercised, at any
        time within six (6) months following the date of death (but in no event
        later than the date of expiration of the term of this Option as set
        forth in Section 10 below), by Optionee's estate or by a person who
        acquired the right to exercise the Option by bequest or inheritance, but
        only to the extent of the right to exercise that had accrued at the date
        of termination.

9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution. The
designation of a beneficiary does not constitute a transfer. An Option may be
exercised during the lifetime of Optionee only by Optionee or a transferee
permitted by this section. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of Optionee.

10. TERM OF OPTION. This Option may be exercised only within the term set out in
the Notice of Stock Option Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.

11. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees that the
vesting of Shares pursuant to the Vesting Schedule is earned only by continuing
as an Employee or Consultant at the will of the Company (not through the act of
being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement, nor in the Plan which is incorporated in this Agreement by reference,
shall confer upon Optionee any right with respect to continuation as an Employee
or Consultant with the Company, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.

12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the brief
summary set forth below of certain federal tax consequences of exercise of this
Option and disposition of the Shares under the law in effect as of the date of
grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

    (a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option is an Incentive Stock
        Option, there will be no regular federal income tax liability upon the
        exercise of the Option, although the excess, if any, of the fair market
        value of the Shares on the date of exercise over the Exercise Price will
        be treated as an item of alternative minimum taxable income for federal
        tax purposes and may subject Optionee to the alternative minimum tax in
        the year of exercise.

    (b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not qualify
        as an Incentive Stock Option, Optionee may incur regular federal income
        tax liability upon the exercise of the Option. Optionee will be treated
        as having received compensation income (taxable at ordinary income tax
        rates) equal to the excess, if any, of the fair market value of the
        Shares on the date of exercise over the Exercise Price. In addition, if
        Optionee is an employee of the Company, the Company will be required to
        withhold from Optionee's compensation or collect from Optionee and pay
        to the applicable taxing authorities an amount equal to a percentage of
        this compensation income at the time of exercise.

    (c) DISPOSITION OF SHARES. If this Option is an Incentive Stock Option and
        if Shares transferred pursuant to the Option are held for more than one
        year after exercise and more than two years after the Date of Grant, any
        gain realized on disposition of the Shares will be treated as long-term
        capital gain for federal income tax purposes. If Shares purchased under
        an Incentive Stock Option are disposed of before the end of either of
        such two holding periods, then any gain realized on such disposition
        will be treated as

<PAGE>   19

        compensation income (taxable at ordinary income rates) to the extent of
        the excess, if any, of the lesser of (i) the fair market value of the
        Shares on the date of exercise, or (ii) the sales proceeds, over the
        Exercise Price. If this Option is a Nonstatutory Stock Option, then gain
        realized on the disposition of Shares will be treated as long-term or
        short-term capital gain depending on whether or not the disposition
        occurs more than one year after the exercise date.

    (d) NOTICE OF DISQUALIFYING DISPOSITION. If the Option granted to Optionee
        in this Agreement is an Incentive Stock Option, and if Optionee sells or
        otherwise disposes of any of the Shares acquired pursuant to the
        Incentive Stock Option on or before the later of (i) the date two years
        after the Date of Grant, or (ii) the date one year after transfer of
        such Shares to Optionee upon exercise of the Incentive Stock Option,
        Optionee shall notify the Company in writing within thirty (30) days
        after the date of any such disposition. Optionee agrees that Optionee
        may be subject to income tax withholding by the Company on the
        compensation income recognized by Optionee from the early disposition by
        payment in cash or out of the current earnings paid to Optionee.

13. SIGNATURE. This Stock Option Agreement shall be deemed executed by the
Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.

                  [Remainder of page left intentionally blank]

<PAGE>   20

                                    EXHIBIT A

                               NOTICE OF EXERCISE

To:            ESS Technology, Inc.
Attn:          Stock Option Administrator
Subject:       Notice of Intention to Exercise Stock Option

This is official notice that the undersigned ("Optionee") intends to exercise
Optionee's option to purchase __________ shares of ESS Technology, Inc. Common
Stock, under and pursuant to the Company's 1997 Equity Incentive Plan and the
Stock Option Agreement dated ___________, as follows:

Grant Number:           ________________________________

Date of Purchase:       ________________________________

Number of Shares:       ________________________________

Purchase Price:         ________________________________

Method of Payment of Purchase Price: ________________________________

Social Security No.: ________________________________

The shares should be issued as follows:

Name:    __________________________________

Address: _______________________________

         _______________________________

         _______________________________

         _______________________________

Signed: _______________________________

Date: ________________________________<PAGE>   1

                                                                   EXHIBIT 10.37
                              ESS TECHNOLOGY, INC.

                        1995 DIRECTORS STOCK OPTION PLAN

                  (Amended and Restated as of April 21, 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

<PAGE>   2

Maximum Number is increased or 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 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 each anniversary of the Initial Grant,
or, in the case of an Optionee who did not receive an Initial Grant, on each
anniversary of the most recent prior grant date of an option to such Optionee,
if the Optionee is still a member of the Board and has served continuously as a
member of the Board since such date, the Optionee will automatically be granted
an Option for 10,000 Shares (a "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 "START 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 upon each of the first four
(4) successive anniversaries of the Start Date for such Initial Grant, so long
as the Optionee continuously remains a director of the Company.

                   (b) Succeeding Grants. Each Succeeding Grant will vest as to
twenty-five percent (25%) of the Shares upon each of the first four (4)
successive anniversaries of the Start Date for such Succeeding Grant, so long as
the Optionee continuously remains a director of the Company.

<PAGE>   3

               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 Start 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

<PAGE>   4

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.

<PAGE>   5

        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.

<PAGE>   6

        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" shall mean, as of any date, the value of
a share of the Company's Common Stock determined by the Board in its sole
discretion, exercised in good faith; provided, however, that where there is a
public market for the Common Stock, the Fair Market Value per share shall be the
average of the closing bid and asked prices of the Common Stock on the last
trading day prior to the date of determination as reported in The Wall Street
Journal (or, if not so reported, as otherwise reported by the Nasdaq Stock
Market) or, in the event the Common Stock is listed on a stock exchange or on
the Nasdaq National Market, the Fair Market Value per share shall be the closing
price on the exchange or on the Nasdaq National Market on the last trading date
prior to the date of determination as reported in The Wall Street Journal;
provided, however, that notwithstanding the foregoing, with respect to the
Initial Grants that are granted on the Effective Date, the "Fair Market Value"
shall mean the price per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's underwriters in the
initial public offering of the Company's Common Stock pursuant to a registration
statement filed with the SEC under the Securities Act.

<PAGE>   7

               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

<PAGE>   8

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."

           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.

<PAGE>   9

           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 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:________________________

<PAGE>   10

                        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]

<PAGE>   11

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.

<PAGE>   12

        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.

<PAGE>   13

           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 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: ________________________

<PAGE>   14

                        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]

<PAGE>   15

                                    EXHIBIT A
                    DIRECTORS STOCK OPTION EXERCISE AGREEMENT

<PAGE>   16

                                    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 OPTIONEES PURCHASE OR DISPOSITION OF THE SHARES.
    OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANTS)
    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.

<PAGE>   17

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>   18

                              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

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