ESS TECHNOLOGY INC, DEF 14A, 1999-04-30

ESS TECHNOLOGY INC
DEF 14A, 1999-04-30
SEMICONDUCTORS & RELATED DEVICES

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<PAGE> 1

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

ESS TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transactions applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:

---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:

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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.

(1) Amount previously paid:

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(2) Form, Schedule or Registration Statement no.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

LOGO

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 25, 1999

TO THE SHAREHOLDERS OF ESS TECHNOLOGY, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of ESS
Technology, Inc. (the "Company") will be held on Tuesday, May 25, 1999 at 1:30
p.m. local time at The Westin Hotel, 5101 Great America Parkway, Santa Clara,
California 95054 for the following purposes:

1. To elect directors of the Company, each to serve until the next Annual
Meeting of Shareholders and until his or her successor has been elected
and qualified or until his or her earlier resignation or removal.

2. To ratify the selection of PRICEWATERHOUSECOOPERS LLP as independent
accountants for the Company for the fiscal year ending December 31,
1999.

3. To transact such other business as may properly come before the meeting
or any postponement or adjournment(s) thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.

Only shareholders of record at the close of business on April 12, 1999 are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.

All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder returned a proxy card.

BY ORDER OF THE BOARD OF DIRECTORS
/s/ Dale R. Lindly
Dale R. Lindly
Chief Financial Officer and Secretary
Fremont, California
April 27, 1999

IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE
ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THANK YOU FOR ACTING
PROMPTLY.
<PAGE> 3

LOGO

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 25, 1999
------------------------

INFORMATION CONCERNING SOLICITATION AND VOTING

GENERAL

The enclosed Proxy is solicited on behalf of the Board of Directors of ESS
Technology, Inc. (the "Company"), a California corporation, for use at the
Annual Meeting of Shareholders to be held on Tuesday, May 25, 1999 at 1:30 p.m.,
local time, or at any postponement or adjournment(s) thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at The Westin Hotel, 5101 Great
America Parkway, Santa Clara, CA 95054. The telephone number at that location is
(408) 986-0700.

The Company's principal executive offices are located at 48401 Fremont
Blvd., Fremont, California 94538. The Company's telephone number at that
location is (510) 492-1088.

SOLICITATION

These proxy solicitation materials, including an annual report for the
fiscal year ended December 31, 1998 were mailed on or about April 28, 1999 to
all shareholders entitled to vote at the meeting. The costs of soliciting these
proxies will be borne by the Company. These costs will include the expenses of
preparing and mailing proxy materials for the Annual Meeting and reimbursement
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's common stock. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.

The Company will provide a copy of the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, including financial statements and
financial statement schedules (but not exhibits), without charge to each
shareholder upon written request. The request should be sent to Dale R. Lindly,
Chief Financial Officer, ESS Technology, Inc., 48401 Fremont Blvd., Fremont, CA
94538 (telephone number: (510) 492-1088). Exhibits to the Annual Report may be
obtained on written request to Mr. Lindly and payment of the Company's
reasonable expenses in furnishing such exhibits.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Dale R. Lindly, Inspector of Elections) a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting of shareholders
and voting in person. Please note, however, that if a shareholder's shares are
held of record by a broker, bank or other nominee and the shareholder wishes to
vote at the meeting, the shareholder must bring to the meeting a letter from the
broker, bank or other nominee confirming the shareholder's beneficial ownership
of the shares.

VOTING RIGHTS AND SOLICITATION OF PROXIES

VOTING

Holders of common stock are entitled to one vote per share on all matters,
except that in the election of directors each shareholder has cumulative voting
rights and is entitled to a number of votes equal to the number of shares held
by such shareholder multiplied by the number of directors to be elected. The
shareholder may cast these votes all for a single candidate or distribute the
votes among any or all of the candidates. No shareholder will be entitled to
cumulate votes for a candidate, however, unless that candidate's name has been
placed in nomination prior to the voting and the shareholder, or any other
shareholder, has
<PAGE> 4

given notice at the Meeting prior to the voting of an intention to cumulate
votes. In such an event, the proxy holder may allocate among the Board of
Directors' nominees the votes represented by proxies in the proxy holder's sole
discretion. With respect to the election of directors, the six (6) directors
receiving the highest number of votes of the shares of common stock present in
person or represented by proxy at the Meeting and voting on the election of
directors will be elected.

The Inspector of Elections Votes will tabulate the votes cast in person or
by proxy at the Annual Meeting with the assistance of the Company's transfer
agent. The Inspector of Elections will also determine whether or not a quorum is
present. The affirmative vote of a majority of shares represented and voting
(and constituting at least a majority of the required quorum) at a duly held
meeting at which a quorum is present and voting is required under California law
for approval of proposals presented to shareholders other than the election of
directors. In general, California law also provides that a quorum consists of a
majority of the shares entitled to vote, represented either in person or by
proxy. The Inspector of Elections will treat abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum but as not voting for purposes of determining the approval of any matter
submitted to the shareholders for a vote. Any proxy which is returned using the
form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of directors, and for ratification of the appointment of
the designated independent accountants, and as the proxy holders deem advisable
on other matters that may come before the meeting, as the case may be, with
respect to the item not marked. If a broker indicates on the enclosed proxy or
its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter ("broker non-votes"), those shares will be
considered as present for the purpose of determining the presence of a quorum
but will not be considered as voting with respect to that matter. While there is
no definitive specific statutory or case law authority in California concerning
the proper treatment of abstentions and broker non-votes, the Company believes
that the tabulation procedures to be followed by the Inspector of Elections are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.

The Company announced in its 10-Q filed for its quarter ended September 30,
1998 that if the shareholders who are interested in raising a proposal at the
Company's 1999 Annual Meeting do not notify the Company of a proposal on or
before March 14, 1999, management may use its discretionary voting authority to
vote on such proposal, even if the matter is not discussed in the proxy
statement for the 1999 Annual Meeting of Shareholders. Since the Company was not
notified of any proposal on or before March 14, 1999, management intends to use
its discretionary voting authority to vote on any proposal that may be brought
at the 1999 Annual Meeting.

RECORD DATE AND SHARE OWNERSHIP

Only shareholders of record at the close of business on April 12, 1999 are
entitled to notice of and to vote at the meeting. As of the record date,
40,265,729 shares of the Company's common stock were issued and outstanding, and
there were 298 shareholders of record.

DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS

Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 2000 Annual Meeting of Shareholders must
be received by the Company no later than January 26, 2000, in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.

Also, if a shareholder does not notify the Company on or before March 16,
2000 of a proposal for the 2000 Annual Meeting of Shareholders, management
intends to use its discretionary voting authority to vote on such proposal, even
if the matter is not discussed in the proxy statement for the 2000 Annual
Meeting of Shareholders.

2
<PAGE> 5

PROPOSAL NO. 1

ELECTION OF DIRECTORS

The Company's bylaws currently provide that the number of directors shall
not be less than five or more than nine. The size of the Company's Board of
Directors (the "Board") is currently set at six members. Accordingly, six
nominees will be elected at the Meeting to be the six directors of the Company.

Board of Directors has nominated the six persons named below to serve as
directors to hold office until the next Annual Meeting of Shareholders and until
their respective successors have been elected and qualified or until such
directors' earlier resignation or removal. All of the nominees have served as
directors since the last annual meeting, except for Matthew Fong. Mr. Fong was
appointed to the Board on January 5, 1999 and will stand for election as a
director for the first time at this year's annual meeting. If any nominee for
any reason is unable to serve, or for good cause, will not serve as a director,
the proxies may be voted for such substitute nominee as the proxy holder may
determine. The Company is not aware of any nominee who will be unable to or, for
good cause, will not serve as a director.

NOMINEES

The names of the nominees, and certain information about them as of March
22, 1999, are set forth below:

<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Fred S.L. Chan.................... 52 President, Chief Executive Officer and Chairman 1986
of the Board of Directors of the Company
Annie M.H. Chan................... 47 Independent Investor and Management Consultant 1993
Matthew Fong...................... 45 Advisor to the President of the Company 1999
Ilbok Lee......................... 53 President and Chief Executive Officer of IC 1995
WORKS, Inc.*
Peter T. Mok...................... 45 President and CEO of KLM Capital, a venture 1993
capital management company
Dominic Ng........................ 40 President and CEO of East West Bank 1998
</TABLE>

- ---------------
* IC Works, Inc. was acquired by Cypress Semiconductor Corporation on April 1,
1999.

Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his or her name above during the past
five years. There is no family relationship between any director or executive
officer of the Company, except for Annie Chan and Fred Chan, who are married to
each other.

Mr. Chan joined the Company in November 1985 as President and served as
such until October 1996 and then began to serve as President again since
February 1997. Mr. Chan has been a director since January 1986. He was appointed
Chairman of the Board of Directors in October 1992 and Chief Executive Officer
in June 1994. Mr. Chan served as Secretary from October 1992 to August 1995 and
Chief Financial Officer from October 1992 to May 1995. Mr. Chan holds B.S.E.E.
and M.S.C. degrees from the University of Hawaii. Mr. Chan is the husband of
Annie M.H. Chan.

Mrs. Chan has served as a director of the Company since May 1993 and has
been an independent investor and management consultant since April 1996. Mrs.
Chan was a member of the Senior Technical Staff of the Company from May 1995
until March 1996. From September 1994 to May 1995, she was Vice President,
Administration of the Company and, from May 1993 to August 1994, she was Vice
President, CAD of the Company. Mrs. Chan holds a B.S. degree in Organizational
Behavior from the University of San Francisco. Mrs. Chan is the wife of Fred
S.L. Chan.

Mr. Fong has served as Advisor to the President since January 4, 1999, and
as a director of the Company since January 5, 1999. Prior to that, he has served
as California State Treasurer from 1995 to 1998. He has also led global
investment missions as the Chief Financial Officer for California. He also
served as the

3
<PAGE> 6

National Economic Growth and Taxation Committee in Washington, D.C. Mr. Fong
also served as Vice Chairman of the State Board of Equalization from 1991 to
1994.

Mr. Lee has served as a director of the Company since April 1995. He has
served as the President and Chief Executive Officer and a director of IC WORKS,
Inc., a company engaged in the semiconductor design and foundry business, since
May 1992. From 1989 to May 1992, he was President and a director of Samsung
Semiconductor, Inc., a semiconductor manufacturer. Mr. Lee holds a B.S.E.E.
degree from Seoul National University and also holds M.S.E.E. and Ph.D.E.E.
degrees from the University of Minnesota.

Mr. Mok has served as a director of the Company since May 1993. Mr. Mok has
served as President and CEO of KLM Capital, a venture capital management
company, since July 1996. From July 1994 to July 1996, Mr. Mok was Senior
Manager, Investment Banking, of DBS Ltd. From June 1992 to July 1994, he was
Senior Vice President, Manager and a director of Transpac Capital, Inc., a
venture capital management company that is a wholly-owned subsidiary of
Transpac. Mr. Mok holds a B.S. degree in Business Administration from San Jose
State University.

Mr. Ng has served as President and CEO of East West Bank since 1992. Prior
to that, he served as President of Seyen Investment, Inc. Mr. Ng is currently a
member of the Board of Governors of Town Hall Los Angeles and serves, among
others, as a director of the United Way of Greater Los Angeles and a director of
the Los Angeles Chamber of Commerce.

BOARD OF DIRECTORS' MEETINGS AND COMMITTEES

The Board met 9 times, including telephone conference meetings, during
fiscal year 1998. The Board of Directors has an Audit Committee, a Compensation
Committee, and a Nominating Committee.

During the fiscal year 1998, the Audit Committee of the Board of Directors
consisted of Messrs. Lee and Mok and held 4 meetings. The Audit Committee meets
with the Company's independent accountants to review the adequacy of the
Company's internal control systems and financial reporting procedures; reviews
the general scope of the Company's annual audit and the fees charged by the
independent accountants; reviews and monitors the performance of non-audit
services by the Company's auditors; reviews the fairness of any proposed
transaction between any officer, director or other affiliate of the Company and
the Company, and after such review, makes recommendations to the full Board; and
performs such further functions as may be required by any stock exchange or
over-the-counter market upon which the Company's common stock may now or in the
future be listed.

During fiscal year 1998, the Compensation Committee consisted of Messrs.
Lee and Mok and held 11 meetings. The Compensation Committee reviews and
approves compensation and benefits for the Company's key executive officers,
administers the Company's stock purchase and equity incentive plans and makes
recommendations to the Board of Directors regarding such matters.

The Nominating Committee was formed in December 1997. It makes
recommendations to the Board regarding the size and composition of the Board.
During fiscal year 1998, it consisted of Messrs. Lee and Mok. The Nominating
Committee did not meet in fiscal year 1998. The Nominating Committee will
consider nominees proposed by shareholders. Any shareholder who wishes to
recommend a prospective nominee for the Board of Directors for the Nominating
Committee's consideration may do so by giving the candidate's name and
qualifications in writing to the Secretary of the Company, ESS Technology, Inc.,
48401 Fremont Blvd., Fremont, CA 94538.

No incumbent director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and meetings of the Committees of the Board
of Directors on which he serves held during the fiscal year 1998.

COMPENSATION OF DIRECTORS

Directors of the Company do not receive cash compensation for their
services, except that nonemployee directors (Mrs. Chan, Messrs. Lee, Mok, and
Ng) receive $1,000 each for each board meeting he or she

4
<PAGE> 7

attends. The directors are reimbursed for their reasonable expenses in attending
meetings of the Board of Directors.

Nonemployee directors of the Company are automatically granted options to
purchase shares of the Company's common stock pursuant to the terms of the
Company's 1995 Directors' Stock Option Plan (the "Directors' Plan"). Each
nonemployee director who becomes a member of the Board on or after October 5,
1995, the effective date of the Company's initial public offering of its common
stock (the "Effective Date"), will be automatically granted an option to
purchase 20,000 shares of common stock under the Directors' Plan (the "Initial
Grant"). On each anniversary of his or her Initial Grant, each nonemployee
director will be automatically granted an additional option to purchase 5,000
shares of common stock under the Directors Plan, so long as he or she has
continuously served as a director of the Company (the "Succeeding Grant"). In
addition, a nonemployee director who does not receive an Initial Grant shall
nevertheless automatically receive a Succeeding Grant on the anniversary of the
most recent grant of an option to such director. Options granted under the
Directors' Plan have an exercise price equal to the fair market value of the
Company's common stock on the date of grant with a term of ten years. The fair
market value of the common stock is the closing sales price on the Nasdaq
National Market on the last trading day prior to grant. Nonemployee director
options vest and are exercisable in four equal installments, starting from one
year anniversary date of the grant. As of March 31, 1999, Mrs. Chan and Messrs.
Lee, Mok and Ng, nonemployee directors, had been granted options to purchase
15,000, 80,000, 80,000, and 30,000 shares of the Company's common stock,
respectively.

On April 18, 1998 the Board of Directors granted Messrs. Lee and Mok 10,000
additional options to purchase the Company common stock under the 1995 Equity
Incentive Plan. On August 20, 1998, the Board of Directors granted Messrs. Lee,
Mok, and Ng 10,000 additional options to purchase the Company Common stock under
the 1995 Equity Incentive Plan.

In January 1999, Mr. Fong accepted an offer of employment with the Company
as an Advisor to the President. Under the terms of Mr. Fong's employment offer,
he is an at-will employee reporting to Mr. Chan and receives compensation of
$5,950 per month for four hours per week with additional compensation of $250
per hour and $2,500 per day of additional compensation for each day of travel
overseas. Mr. Fong was also granted an option to purchase 40,000 shares of the
Company's Common Stock under the Company's 1997 Equity Incentive Plan.

REQUIRED VOTE

The six nominees receiving the highest number of affirmative votes of
shares of the Company's common stock present at the Annual Meeting in person or
by proxy and voting on the election of directors shall be elected as directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF EACH OF THE NOMINEES LISTED ABOVE.

5
<PAGE> 8

PROPOSAL NO. 2

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

The Company has selected PricewaterhouseCoopers LLP as its independent
accountants to perform the audit of the Company's financial statements for
fiscal year 1999, and recommends that the shareholders vote for ratification of
such selection. In the event the shareholders do not ratify such appointment,
the Board of Directors will reconsider its selection. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting,
will have the opportunity to make a statement at the Meeting if they desire to
do so and are expected to be available to respond to appropriate questions.

REQUIRED VOTE

The ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants requires the affirmative vote of the holders
of a majority of the shares of the Company's common stock present at the Annual
Meeting in person or by proxy and entitled to vote and constituting a majority
of the required quorum.

THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP FOR FISCAL YEAR 1999.

6
<PAGE> 9

COMMON OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of March 22, 1999,
known to the Company regarding the beneficial ownership of the Company's common
stock by (i) each person known by the Company to be the beneficial owner of more
than 5% of the Company's common stock, (ii) each of the Company's directors,
(iii) each executive officer named in the Summary Compensation Table below and
(iv) all directors and executive officers as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1) OPTIONS EXERCISABLE
5% SHAREHOLDERS, DIRECTORS, NAMED EXECUTIVE OFFICERS, --------------------- ON OR BEFORE
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT MAY 21, 1999
- ----------------------------------------------------- ---------- ------- -------------------
<S> <C> <C> <C>
Fred S.L. Chan(2).................................... 11,833,402 29% 303,750
President, CEO, Chairman of the Board of Directors
Annie M.H. Chan, Director(2)......................... 11,833,402 29% 303,750
Trusts benefiting the children of Fred S.L. Chan and
Annie M.H. Chan(3)................................. 3,680,954 9% --
Matthew Fong, director and Advisor to the
President.......................................... 585 * --
Ilbok Lee, director.................................. 45,834 * 45,834
c/o IC WORKS, Inc.**
3725 North First Street, San Jose, CA 95134-1700
Peter T. Mok, director............................... 52,934 * 44,584
c/o KLM Capitol Group
2041 Mission College Blvd. Suite 175
Santa Clara, CA 95054
Dominic Ng, director................................. -- * --
Robert L. Blair, Executive VP, Operations............ 75,750 * 60,000
Johnston Chen, VP of Consumer Products............... 49,500 * 36,000
Frank Effler, Jr., VP of Personal Computer Sales and
Marketing.......................................... 1,700 * --
Howard N. Hideshima, Controller and Chief Accounting
Officer(4)......................................... 31,500 * 30,000
John H. Barnet(5).................................... -- * --
c/o ESS Technology, Inc.
48401 Fremont Blvd., Fremont, CA 94538
Chi-Shin Wang(6)..................................... -- * --
c/o ESS Technology, Inc.
48401 Fremont Blvd., Fremont, CA 94538
All executive officers and directors as a group (13
persons)(7)........................................ 12,091,205 30% 520,168
</TABLE>

- ---------------
* Less than 1%

** IC Works, Inc. was acquired by Cypress Semiconductor Corporation on April 1,
1999.

(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. As
of March 22, 1999, 40,254,064 shares of the Company's common stock were
issued and outstanding. Shares of common stock subject to options that are
currently exercisable or exercisable within 60 days after March 22, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding
such options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.

(2) Includes 900,000 shares held by Mrs. Annie Chan (Mr. Fred Chan's wife) and
10,629,652 shares held by Annie M.H. Chan Living Trust. Also includes
options exercisable on or before May 21, 1999 and held by Mrs. Chan to
purchase 3,750 shares of common stock of the Company and options
exerciseable on or before May 21, 1999 and held by Mr. Chan to purchase
300,000 shares of common stock of the Company.

7
<PAGE> 10

(3) Represents 814,578 shares held by a trust benefiting David Y.W. Chan (the
"David Chan Trust"), 814,576 shares held by a trust benefiting Edward Y.C.
Chan (the "Edward Chan Trust"), 280,000 shares held by a trust benefiting
Michael Y.J. Chan (the "Michael Chan Trust") and 1,771,800 shares held by a
trust benefiting David, Edward and Michael Chan jointly. David, Edward and
Michael Chan are the sons of Fred S.L. Chan and Annie M.H. Chan. Mee Sim
Chan Lee and Sung Kook Kim are trustees of the four above-mentioned trusts.
In addition, Myong Shin Kim is a trustee of the David Chan Trust, the
Michael Chan Trust and the Edward Chan Trust.

(4) Mr. Hideshima was made Vice President of Finance on April 14, 1999.

(5) Mr. Barnet resigned from the Company on August 31, 1998.

(6) Mr. Wang resigned from the Company on July 7, 1998.

(7) Includes an aggregate of 520,168 shares which the directors and executive
officers have the right to acquire by May 21, 1999. Does not include an
aggregate of 3,680,954 shares held by trusts benefiting Mr. & Mrs. Chan's
children.

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by the following
individuals (collectively, the "Named Executive Officers"): (1) the Company's
Chief Executive Officer; (2) the Company's four other most highly compensated
executive officers whose salary and bonus for the fiscal year 1998 were in
excess of $100,000; and (3) Mr. John H. Barnet and Mr. Chi-Shin Wang who
resigned from the Company in August 1998 and July 1998, respectively, and who,
but for the fact that they were not serving as executive officers of the Company
on December 31, 1998, would have been two of the four most highly compensated
executives of the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------------- ----------------------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
--------------------------- ------ -------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Fred S.L. Chan...................... 1998 $248,000 $ -- -- 100,000(2) $ 546
President, CEO & Chairman 1997 247,167 122,686 -- 100,000 1,219
of the Board of Directors 1996 225,500 480,000 -- -- 1,183
Robert L. Blair..................... 1998 $196,667 $ -- -- 340,000(4) $ 546
Executive Vice President, 1997 159,361(3) -- -- 70,000 845
Operations........................ 1996 116,728 -- -- 50,000 845
Johnston Chen(5).................... 1998 $ 80,000 $ 49,317(6) -- 158,000(7) 250
VP of Consumer Products 1997 79,119 52,281(6) -- -- 307
Frank Effler, Jr.(8)................ 1998 $126,538 $ -- -- 125,000(9) $ 468
VP of Personal Computer Sales &
Marketing
Howard N. Hideshima(10)............. 1998 $125,952 $ -- -- 32,000(11) $ 393
Controller & Chief Accounting
Officer 1997 101,174 -- -- -- 461
John H. Barnet(12).................. 1998 $149,294 $ 65,000 -- 240,000(14) $ 546
VP of Finance, CFO & Secretary 1997 191,205 50,000 -- 80,000 401,219(15)
1996 46,250 413,432(13) -- 200,000 203
Chi Shin Wang(16)................... 1998 $ 82,892 $ 15,000 -- 152,000(17) $ 252
Chief Technical Officer 1997 119,358 30,000 -- 52,000 657
1996 116,767 30,000 -- 100,000 102
</TABLE>

- ---------------
(1) Includes dollar value of premiums paid by the Company under the Company's
group term life insurance policy and accidental death and dismemberment
policy on behalf of the Named Executive Officers.

(2) Represents repriced options, which are deemed as newly granted.

(3) Includes $40,000 earned in fiscal year 1997 but paid in fiscal year 1998.

8
<PAGE> 11

(4) Includes 240,000 shares of repriced options to purchase the Company's
common stock, which are deemed as newly granted.

(5) Mr. Chen was not an executive officer in fiscal year 1996.

(6) Represents amounts paid for sales incentives.

(7) Includes 138,000 shares of repriced options to purchase the Company's
common stock, which are deemed as newly granted.

(8) Mr. Effler joined the Company in April 1998.

(9) Includes 80,000 shares of repriced options to purchase the Company's common
stock, which are deemed as newly granted.

(10) Mr. Hideshima was not an executive officer in fiscal year 1996.

(11) Includes 28,000 shares of repriced options to purchase the Company's common
stock, which are deemed as newly granted.

(12) Mr. Barnet resigned from the Company in August 31, 1998 but continued to
work as a consultant for the Company until December 31, 1998.

(13) Includes a $400,000 sign-on bonus for Mr. Barnet upon joining the Company
and a $13,432 bonus earned in 1996 but paid in 1997.

(14) Represents repriced options, which are deemed as newly granted.

(15) Includes $400,000 from Mr. Barnet exercise of his right to receive a $5.00
per share appreciation on 80,000 shares of options granted to him pursuant
to his employment agreement entered in October 1996. In addition, Mr.
Barnet paid off the loan of $400,000 from the Company (including all of the
accrued interest) made to him as part of his employment agreement.

(16) Mr. Wang resigned from the Company in July 1998.

(17) Represents repriced options, which are deemed as newly granted.

STOCK OPTION GRANTS IN FISCAL YEAR 1998

The following table sets forth further information for the Named Executive
Officers with respect to grants of options to purchase common stock of the
Company made in the fiscal year 1998 and the value of all options held by such
executive officers on December 31, 1998. In accordance with the rules of the
Securities and Exchange Commission, the table sets forth the hypothetical gains
or "option spreads" that would exist for the options at the end of their
respective ten-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF
OPTIONS EXERCISE STOCK PRICE
GRANTED PRICE APPRECIATION FOR
NUMBER TO EMPLOYEES PER OPTION TERM($)
OF IN FISCAL SHARE EXPIRATION ---------------------
NAME SECURITIES 1998(%) ($) GRANT DATE DATE AT 5% AT 10%
---- ---------- ---------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Chan, Fred......................... 50,000(2) 0.53 2.9563 8/25/98 7/21/06 $ 69,571 $166,200
50,000(2) 0.53 2.9563 8/25/98 7/21/07 $ 80,440 $197,602

Blair, Robert...................... 10,000(1) 0.11 7.6875 2/17/98 9/24/02 $ 19,356 $ 42,333
13,333(1) 0.14 7.6875 2/17/98 9/24/04 $ 38,959 $ 89,820
13,333(1) 0.14 7.6875 2/17/98 9/24/05 $ 46,031 $109,052
13,333(1) 0.14 7.6875 2/17/98 9/24/06 $ 53,458 $130,207
23,333(1) 0.25 7.6875 2/17/98 7/21/05 $ 78,346 $184,720
23,333(1) 0.25 7.6875 2/17/98 7/21/06 $ 91,232 $221,129
23,334(1) 0.25 7.6875 2/17/98 7/21/07 $104,766 $261,190
10,000(2) 0.11 2.6875 8/25/98 9/24/02 $ 5,920 $ 12,776
13,333(2) 0.14 2.6875 8/25/98 9/24/04 $ 12,376 $ 28,136
13,333(2) 0.14 2.6875 8/25/98 9/24/05 $ 14,786 $ 34,533
13,333(2) 0.14 2.6875 8/25/98 9/24/06 $ 17,317 $ 41,570
23,333(2) 0.25 2.6875 8/25/98 7/21/05 $ 25,123 $ 58,397
</TABLE>

9
<PAGE> 12

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF
OPTIONS EXERCISE STOCK PRICE
GRANTED PRICE APPRECIATION FOR
NUMBER TO EMPLOYEES PER OPTION TERM($)
OF IN FISCAL SHARE EXPIRATION ---------------------
NAME SECURITIES 1998(%) ($) GRANT DATE DATE AT 5% AT 10%
---- ---------- ---------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Blair, Robert (cont.).............. 23,333(2) 0.25 2.6875 8/25/98 7/21/06 $ 29,514 $ 70,507
23,334(2) 0.25 2.6875 8/25/98 7/21/07 $ 34,127 $ 83,832
40,000 0.42 4.0625 11/3/98 11/3/04 $ 55,266 $125,379
20,000 0.21 4.0625 11/3/98 11/3/05 $ 33,077 $ 77,083
20,000 0.21 4.0625 11/3/98 11/3/06 $ 38,793 $ 92,917
20,000 0.21 4.0625 11/3/98 11/3/07 $ 44,795 $110,333

Chen, Johnston..................... 1,000(1) 0.01 7.6875 2/17/98 9/14/02 $ 1,923 $ 4,202
1,000(1) 0.01 7.6875 2/17/98 9/14/03 $ 2,403 $ 5,391
1,000(1) 0.01 7.6875 2/17/98 9/14/04 $ 2,908 $ 6,699
1,000(1) 0.01 7.6875 2/17/98 9/14/05 $ 3,437 $ 8,137
8,000(1) 0.08 7.6875 2/17/98 1/1/03 $ 16,503 $ 36,347
4,000(1) 0.04 7.6875 2/17/98 1/1/04 $ 10,202 $ 23,066
4,000(1) 0.04 7.6875 2/17/98 1/1/05 $ 12,249 $ 28,448
4,000(1) 0.04 7.6875 2/17/98 1/1/06 $ 14,399 $ 34,367
15,000(1) 0.16 7.6875 2/17/98 7/21/05 $ 50,366 $118,750
15,000(1) 0.16 7.6875 2/17/98 7/21/06 $ 58,650 $142,156
15,000(1) 0.16 7.6875 2/17/98 7/21/07 $ 67,348 $167,903
1,000(2) 0.01 2.6875 8/25/98 9/14/02 $ 588 $ 1,267
1,000(2) 0.01 2.6875 8/25/98 9/14/03 $ 751 $ 1,663
1,000(2) 0.01 2.6875 8/25/98 9/14/04 $ 923 $ 2,098
1,000(2) 0.01 2.6875 8/25/98 9/14/05 $ 1,104 $ 2,576
8,000(2) 0.08 2.6875 8/25/98 1/1/03 $ 5,083 $ 11,046
4,000(2) 0.04 2.6875 8/25/98 1/1/04 $ 3,206 $ 7,150
4,000(2) 0.04 2.6875 8/25/98 1/1/05 $ 3,904 $ 8,940
4,000(2) 0.04 2.6875 8/25/98 1/1/06 $ 4,637 $ 10,909
15,000(2) 0.16 2.6875 8/25/98 7/21/05 $ 16,150 $ 37,541
15,000(2) 0.16 2.6875 8/25/98 7/21/06 $ 18,974 $ 45,327
15,000(2) 0.16 2.6875 8/25/98 7/21/07 $ 21,938 $ 53,890
5,000 0.05 4.0625 11/3/98 11/3/04 $ 6,908 $ 15,672
5,000 0.05 4.0625 11/3/98 11/3/05 $ 8,269 $ 19,271
5,000 0.05 4.0625 11/3/98 11/3/06 $ 9,698 $ 23,229
5,000 0.05 4.0625 11/3/98 11/3/07 $ 11,199 $ 27,583

Effler Jr., Frank.................. 20,000(2) 0.21 2.6875 8/25/98 2/17/04 $ 16,468 $ 36,848
20,000(2) 0.21 2.6875 8/25/98 2/17/05 $ 19,979 $ 45,908
20,000(2) 0.21 2.6875 8/25/98 2/17/06 $ 23,665 $ 55,874
20,000(2) 0.21 2.6875 8/25/98 2/17/07 $ 27,536 $ 66,836
25,000 0.26 4.4375 11/1/98 11/1/08 $ 69,768 $176,806
5,000 0.05 4.0625 11/3/98 11/3/04 $ 6,908 $ 15,672
5,000 0.05 4.0625 11/3/98 11/3/05 $ 8,269 $ 19,271
5,000 0.05 4.0625 11/3/98 11/3/06 $ 9,698 $ 23,229
5,000 0.05 4.0625 11/3/98 11/3/07 $ 11,199 $ 27,583

Hideshima, Howard.................. 2,000(1) 0.02 7.6875 2/17/98 9/24/02 $ 3,871 $ 8,467
2,666(1) 0.03 7.6875 2/17/98 9/24/04 $ 7,790 $ 17,960
2,667(1) 0.03 7.6875 2/17/98 9/24/05 $ 9,208 $ 21,814
2,667(1) 0.03 7.6875 2/17/98 9/24/06 $ 10,693 $ 26,045
1,333(1) 0.01 7.6875 2/17/98 7/1/04 $ 3,737 $ 8,562
1,333(1) 0.01 7.6875 2/17/98 7/1/05 $ 4,436 $ 10,443
1,334(1) 0.01 7.6875 2/17/98 7/1/06 $ 5,174 $ 12,522
2,000(2) 0.02 2.6875 8/25/98 9/24/02 $ 1,184 $ 2,555
2,666(2) 0.03 2.6875 8/25/98 9/24/04 $ 2,475 $ 5,626
2,667(2) 0.03 2.6875 8/25/98 9/24/05 $ 2,958 $ 6,908
2,667(2) 0.03 2.6875 8/25/98 9/24/06 $ 3,464 $ 8,315
</TABLE>

10
<PAGE> 13

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF
OPTIONS EXERCISE STOCK PRICE
GRANTED PRICE APPRECIATION FOR
NUMBER TO EMPLOYEES PER OPTION TERM($)
OF IN FISCAL SHARE EXPIRATION ---------------------
NAME SECURITIES 1998(%) ($) GRANT DATE DATE AT 5% AT 10%
---- ---------- ---------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Hideshima, Howard (cont.).......... 1,333(2) 0.01 2.6875 8/25/98 7/1/04 $ 1,183 $ 2,674
1,333(2) 0.01 2.6875 8/25/98 7/1/05 $ 1,422 $ 3,300
1,334(2) 0.01 2.6875 8/25/98 7/1/06 $ 1,673 $ 3,991
4,000 0.04 2.5625 8/26/98 7/1/07 $ 5,533 $ 13,570

Barnet, John(3).................... 80,000(1) 0.84 7.6875 2/17/98 9/17/02 $ -- $ --
40,000(1) 0.42 7.6875 2/17/98 9/17/03 $ -- $ --
40,000(1) 0.42 7.6875 2/17/98 9/17/04 $ -- $ --
40,000(1) 0.42 7.6875 2/17/98 9/17/05 $ -- $ --
13,333(1) 0.14 7.6875 2/17/98 7/21/05 $ -- $ --
13,333(1) 0.14 7.6875 2/17/98 7/21/06 $ -- $ --
13,334(1) 0.14 7.6875 2/17/98 7/21/07 $ -- $ --

Wang, Chi Shin(4).................. 50,000(1) 0.53 7.6875 2/17/98 1/20/03 $ -- $ --
16,666(1) 0.18 7.6875 2/17/98 1/20/03 $ -- $ --
16,667(1) 0.18 7.6875 2/17/98 1/20/04 $ -- $ --
16,667(1) 0.18 7.6875 2/17/98 1/20/05 $ -- $ --
4,000(1) 0.04 7.6875 2/17/98 1/3/03 $ -- $ --
5,333(1) 0.06 7.6875 2/17/98 1/3/05 $ -- $ --
5,333(1) 0.06 7.6875 2/17/98 1/3/06 $ -- $ --
5,334(1) 0.06 7.6875 2/17/98 1/3/07 $ -- $ --
10,666(1) 0.11 7.6875 2/17/98 7/21/05 $ -- $ --
10,667(1) 0.11 7.6875 2/17/98 7/21/06 $ -- $ --
10,667(1) 0.11 7.6875 2/17/98 7/21/07 $ -- $ --
</TABLE>

- ---------------
* Total number of options granted by the Company for the fiscal year 1998 is
9,477,828 options. This includes 3,338,275 number of options repriced, which
are considered newly granted pursuant to the repricing program effected in
February and 3,565,378 number of options repriced pursuant to the repricing
program effected on August 25, 1998.

(1) Represents a replacement option granted on February 17, 1998 pursuant to the
option repricing program. The repriced option has an exercise price of
$7.6875, which was the closing sales price of the Company's common stock on
the Nasdaq National Market as of the close of February 13, 1998. The
repriced options have a new vesting schedule pursuant to which unvested
options as of February 17, 1998 will vest in three equal annual installments
starting February 17, 1999. For non-executive officers, the options may not
be exercised until February 17, 1999. For executive officers, repriced
options may not be exercised until the earlier of the Company's common stock
trading at or above $15 for ten consecutive trading days or February 17,
2001. Furthermore, even if the Company's common stock trades at or above $15
for ten consecutive days prior to February 17, 1999, the options may not be
exercised until February 17, 1999. The repriced options that were not vested
as of February 17, 1998 expire in three equal installments starting two
years prior to the tenth anniversary date of the original grant.

(2) Represents a replacement option granted on August 25, 1998 pursuant to the
option repricing program. The repriced option has an exercise price of
$2.6875, which was the closing sales price of the Company's common stock on
the Nasdaq National Market as of the close of August 24, 1998. The repricing
options have the same terms as the cancelled options, except that the new
options are subject to a one year restriction on exercise until August 25,
1999.

(3) Mr. Barnet resigned from the Company in August, 1998 and subsequently his
options were cancelled unexercised.

(4) Mr. Wang resigned from the Company in July, 1998 and subsequently his
options were cancelled unexercised.

11
<PAGE> 14

AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END VALUES

The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during fiscal year 1998,
including the aggregate amount of gains on the date of exercise. In addition,
the table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 1998. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $5.00 per share, which was the
closing price of the Company's common stock as reported on the Nasdaq National
Market on December 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred S.L. Chan.............. -- -- 225,000 250,000 524,992 354,365
Robert Blair................ -- -- 60,000 250,000 216,000 479,250
Johnston Chen............... -- -- 24,000 113,000 86,400 264,712
Frank Effler, Jr. .......... -- -- -- 125,000 -- 217,812
Howard N. Hideshima......... -- -- 30,000 33,000 108,000 96,125
John H. Barnet(3)........... -- -- -- -- -- --
Chi Shin Wang(4)............ -- -- -- -- -- --
</TABLE>

- ---------------
(1) "Value Realized" represents the fair market value of the shares of common
stock underlying the option on the date of exercise less the aggregate
exercise price of the option.

(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's common stock on December 31,
1998, the last day of trading for the fiscal year.

(3) Mr. Barnet left the Company in August 1998.

(4) Mr. Wang left the Company in July 1998.

12
<PAGE> 15

PERFORMANCE GRAPH

The graph below compares the cumulative total shareholder return on the
common stock of the Company from the first day of trading of the Company's
common stock upon the Company's initial public offering (October 6, 1995) to
December 31, 1998 with the cumulative total return on the Nasdaq Stock Market
and the Hambrecht & Quist Technology Index (assuming the investment of $100 in
the Company's common stock and in each of the indexes on the date of the
Company's initial public offering, and reinvestment of all dividends). The stock
price performance on the following graph is not necessarily indicative of future
stock price performance.

(PERFORMANCE GRAPH)

The following description data are supplied in accordance with Rule 304(d)
of Regulation S-T:

<TABLE>
<CAPTION>
NASDAQ STOCK
ESS TECHNOLOGY, INC. MARKET -- US INDEX H&Q TECHNOLOGY INDEX
-------------------- --------------------- ----------------------
MARKET INVESTMENT INVESTMENT INVESTMENT
PRICE VALUE INDEX VALUE INDEX VALUE
------ ---------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
10/6/1995.................... $15.00 $100.00 331.320 $100.00 839.63 $100.00
12/31/1995................... $23.00 $153.33 345.448 $104.26 836.78 $ 99.66
3/31/1996.................... $18.75 $125.00 361.546 $109.12 852.89 $101.58
6/30/1996.................... $18.50 $123.33 391.052 $118.03 913.62 $108.81
9/30/1996.................... $17.13 $114.17 404.904 $122.21 969.86 $115.51
12/31/1996................... $28.13 $187.50 424.801 $128.21 1,040.00 $123.86
3/31/1997.................... $24.25 $161.67 401.759 $121.26 991.30 $118.06
6/30/1997.................... $13.44 $ 89.58 475.401 $143.49 1,193.17 $142.11
9/30/1997.................... $15.19 $101.25 555.790 $167.75 1,446.03 $172.22
12/31/1997................... $ 7.59 $ 50.63 521.159 $157.30 1,219.28 $145.22
3/31/1998.................... $ 6.38 $ 42.50 609.792 $184.05 1,476.33 $175.83
6/30/1998.................... $ 4.69 $ 31.25 627.449 $189.38 1,511.43 $180.01
9/30/1998.................... $ 3.38 $ 22.50 568.036 $171.45 1,343.55 $160.02
12/31/1998................... $ 5.00 $ 33.33 732.615 $221.12 1,896.52 $225.88
</TABLE>

13
<PAGE> 16

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following and the
Performance Graph in this proxy shall not be incorporated by reference into any
such filing.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

GENERAL

The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee reviews base salary levels and target bonuses for the Chief Executive
Officer ("CEO") at or about the beginning of each year. The Committee
administers the Company's incentive and equity plans, including the 1992 Stock
Option Plan, the 1995 Equity Incentive Plan, the 1995 Employee Stock Purchase
Plan, the 1995 Directors Stock Option Plan, and the 1997 Equity Incentive Plan.

The Committee's philosophy in compensating the CEO is to relate
compensation directly to corporate performance. Thus, the Company's compensation
policy for the CEO relates a portion of his total compensation to the Company
profit objectives and individual objectives set forth at the beginning of the
Company's year. Consistent with this policy, a designated portion of the CEO's
compensation is contingent on corporate performance, and is also based on his
performance as measured against objectives established under the CEO Incentive
Plan, as determined by the Committee in its discretion. Long-term equity
incentives for the CEO are effected through the granting of stock options under
the 1995 Equity Incentive Plan and the 1997 Equity Incentive Plan. Stock options
have value for the CEO only if the price of the Company's stock increases above
the fair market value (in Mr. Chan's case, 110% of the fair market value) on the
grant date and the CEO remains in the Company's employ for the period required
for the shares to vest.

The base salary, incentive compensation and stock option grants of the CEO
are determined in part by the Committee reviewing data on prevailing
compensation practices in technology companies with whom the Company competes
for executive talent and by their evaluating such information in connection with
the Company's corporate goals. To this end, the Committee attempts to compare
the compensation of the Company's CEO with the compensation practices of
comparable companies to determine base salary, target bonuses and target total
cash compensation. In addition to his base salary, the Company's CEO is eligible
to receive cash bonuses and to participate in the 1995 Equity Incentive Plan and
the 1997 Equity Incentive Plan.

COMPENSATION OF EXECUTIVE OFFICERS

During the fiscal year that ended on December 31, 1998, the Company's
executive compensation program was comprised of the following key components:
base salary, annual bonus, and equity-based incentives.

Base Salary. The Company sets the base salaries of its executives at the
levels of comparably sized companies engaged in similar industries.

Annual Bonus. The Company's cash bonus program seeks to motivate executives
to work effectively to achieve the Company's financial individual performance
objectives and to reward them when objectives are met. Fiscal year 1998
executive bonus payments for Messrs. Barnet, and Wang were based upon individual
performance objectives.

Equity-Based Incentive Compensation. Stock options are an important
component of the total compensation of executives. The Company believes that
stock options align the interests of each executive with those of the
shareholders. They also provide executives a significant, long-term interest in
the Company's success and help retain key executives in a competitive market for
executive talent. The Company's 1995 Equity Incentive Plan and 1997 Equity
Incentive Plan authorize the Committee to grant stock options to executives. The
number of shares owned by, or subject to options held by, each executive officer
is periodically reviewed and additional awards are considered based upon past
performance of the executive and the relative holdings
14
<PAGE> 17

of other executives in the Company. The option grants generally utilize
four-year vesting periods to encourage executives to continue contributing to
the Company, and they expire not later than ten years from the date of grant.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

The Company's CEO's compensation plan includes the same elements and
performance measures as the plans of the Company's other executive officers. The
Compensation Committee evaluates the performance of the Company's CEO, sets his
base compensation and determines bonuses and awards stock or option grants, if
any. Mr. Chan's salary, which reflects no increase for fiscal year 1998, was
$248,000 compared to $247,167 for fiscal year 1997. Although he was eligible for
a bonus in 1998, Mr. Chan declined to receive any bonus for fiscal year 1998. He
received a bonus of $122,686 for fiscal year 1997.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code, which section disallows a deduction for any publicly held
corporation for individual compensation exceeding $1 million in any taxable year
for the CEO and four other most highly compensated executive officers, unless
such compensation meets the requirements for the "performance-based" exception
to the general rule. Since the cash compensation paid by the Company to each of
its executive officers is expected to be below $1 million, the Committee
believes that this section will not affect the tax deductions available to the
Company. It will be the Committee's policy to qualify, to the extent reasonable,
the executive officers' compensation for deductibility under applicable tax law.

STOCK OPTION REPRICING

In order to reincentivize its employees, the Board of Directors of the
Company, upon recommendation of the Compensation Committee, on February 17, 1998
approved an option repricing program pursuant to which employees could surrender
options granted by the Company having exercise prices greater than the closing
price of the Company's common stock on February 13, 1998 as reported on the
Nasdaq national market and receive in the place of such surrendered options new
options having an exercise price of $7.6875 per share, the fair market value of
the Company's stock on February 13, 1998. The options that were vested as of
February 17, 1998 remained vested. The options that did not vest as of that date
would vest in three equal installments, commencing on February 17, 1999. For
non-executive officers, the repriced options may not be exercised until February
17, 1999. For executive officers, repriced options may not be exercised until
the earlier of the Company's common stock trading at or above $15 for ten
consecutive trading days or February 17, 2001. Furthermore, even if the
Company's common stock trades at or above $15 for ten consecutive days prior to
February 17, 1999, the options may not be exercised until February 17, 1999. As
a result of this repricing program, options to purchase 3,338,275 shares were
exchanged, which represents approximately 52% of the outstanding common stock
options held by the Company's employees (including executives). Mr. Chan's
options were not repriced.
.

In August 1998, the Company again repriced the exercise price of 3,565,378
options, which represented approximately 58% of the outstanding common stock
options held by the Company's employees (including executives). Mr. Chan's
options were also repriced. Each new option contained the same terms as the
surrendered option except that the repriced options are subject to a one-year
restriction on exercise until August 25, 1999.

The Company repriced these employee stock options in an effort to retain
employees at a time when a significant percentage of stock options had exercise
prices that were above fair market value. The Company believes that stock
options are a valuable tool in compensating and retaining employees. The
following table sets forth certain information as of December 31, 1998 with
respect to the repricing of certain stock options held by the Company's
executive officers during the last ten fiscal years.

15
<PAGE> 18

TEN-YEAR OPTION REPRICINGS

Blair, Robert...................... 2/17/98 10,000 7.6875 16.0000 7.6875 4.6
(Executive Vice President, 2/17/98 13,333 7.6875 16.0000 7.6875 6.6
Operations) 2/17/98 13,333 7.6875 16.0000 7.6875 7.6
2/17/98 13,333 7.6875 16.0000 7.6875 8.6
2/17/98 23,333 7.6875 14.4375 7.6875 7.4
2/17/98 23,333 7.6875 14.4375 7.6875 8.4
2/17/98 23,334 7.6875 14.4375 7.6875 9.4
8/25/98 10,000 2.6875 7.6875 2.6875 4.1
8/25/98 13,333 2.6875 7.6875 2.6875 6.1
8/25/98 13,333 2.6875 7.6875 2.6875 7.1
8/25/98 13,333 2.6875 7.6875 2.6875 8.1
8/25/98 23,333 2.6875 7.6875 2.6875 6.9
8/25/98 23,333 2.6875 7.6875 2.6875 7.9
8/25/98 23,334 2.6875 7.6875 2.6875 8.9

Chen, Johnston..................... 9/14/96 1,000 14.7500 20.2500 14.7500 6.0
(VP of Consumer Products) 9/14/96 1,000 14.7500 20.2500 14.7500 7.0
9/14/96 1,000 14.7500 20.2500 14.7500 8.0
9/14/96 1,000 14.7500 20.2500 14.7500 9.0
2/17/98 1,000 7.6875 14.7500 7.6875 4.6
2/17/98 1,000 7.6875 14.7500 7.6875 5.6
2/17/98 1,000 7.6875 14.7500 7.6875 6.6
2/17/98 1,000 7.6875 14.7500 7.6875 7.6
2/17/98 8,000 7.6875 20.2500 7.6875 4.9
2/17/98 4,000 7.6875 20.2500 7.6875 5.9
2/17/98 4,000 7.6875 20.2500 7.6875 6.9
2/17/98 4,000 7.6875 20.2500 7.6875 7.9
2/17/98 15,000 7.6875 14.4375 7.6875 7.4
2/17/98 15,000 7.6875 14.4375 7.6875 8.4
2/17/98 15,000 7.6875 14.4375 7.6875 9.4
8/25/98 1,000 2.6875 7.6875 2.6875 4.1
8/25/98 1,000 2.6875 7.6875 2.6875 5.1
8/25/98 1,000 2.6875 7.6875 2.6875 6.1
8/25/98 1,000 2.6875 7.6875 2.6875 7.1
8/25/98 8,000 2.6875 7.6875 2.6875 4.4
8/25/98 4,000 2.6875 7.6875 2.6875 5.4
8/25/98 4,000 2.6875 7.6875 2.6875 6.4
8/25/98 4,000 2.6875 7.6875 2.6875 7.4
8/25/98 15,000 2.6875 7.6875 2.6875 6.9
8/25/98 15,000 2.6875 7.6875 2.6875 7.9
8/25/98 15,000 2.6875 7.6875 2.6875 8.9
Effler Jr., Frank.................. 8/25/98 20,000 2.6875 7.6875 2.6875 5.5
(VP of Personal Computer Sales 8/25/98 20,000 2.6875 7.6875 2.6875 6.5
and Marketing)
</TABLE>

16
<PAGE> 19

<TABLE>
<CAPTION>
LENGTH OF
MARKET ORIGINAL
NUMBER OF PRICE OF EXERCISE OPTION TERM
SECURITIES STOCK AT PRICE AT REMAINING AT
UNDERLYING TIME OF TIME OF NEW DATE OF
OPTIONS REPRICED REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE OR AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
---- -------- ---------------- ------------ ------------ -------- ------------
(#) ($) ($) ($) (YEARS)
<S> <C> <C> <C> <C> <C> <C>
Effler Jr., Frank.................. 8/25/98 20,000 2.6875 7.6875 2.6875 7.5
8/25/98 20,000 2.6875 7.6875 2.6875 8.5
Hideshima, Howard.................. 2/17/98 2,000 7.6875 16.0000 7.6875 4.6
(Controller & Chief Accounting 2/17/98 2,666 7.6875 16.0000 7.6875 6.6
Officer)
2/17/98 2,667 7.6875 16.0000 7.6875 7.6
2/17/98 2,667 7.6875 16.0000 7.6875 8.6
2/17/98 1,333 7.6875 13.4375 7.6875 6.4
2/17/98 1,333 7.6875 13.4375 7.6875 7.4
2/17/98 1,334 7.6875 13.4375 7.6875 8.4
8/25/98 2,000 2.6875 7.6875 2.6875 4.1
8/25/98 2,666 2.6875 7.6875 2.6875 6.1
8/25/98 2,667 2.6875 7.6875 2.6875 7.1
8/25/98 2,667 2.6875 7.6875 2.6875 8.1
8/25/98 1,333 2.6875 7.6875 2.6875 5.9
8/25/98 1,333 2.6875 7.6875 2.6875 6.9
8/25/98 1,334 2.6875 7.6875 2.6875 7.9
Barnet, John (3)................... 2/17/98 80,000 7.6875 14.8125 7.6875 4.6
(VP of Finance, CFO & Secretary) 2/17/98 40,000 7.6875 14.8125 7.6875 5.6
2/17/98 40,000 7.6875 14.8125 7.6875 6.6
2/17/98 13,333 7.6875 14.4375 7.6875 7.4
2/17/98 40,000 7.6875 14.8125 7.6875 7.6
2/17/98 13,333 7.6875 14.4375 7.6875 8.4
2/17/98 13,334 7.6875 14.4375 7.6875 9.4
Wang, Chi Shin(4).................. 2/17/98 50,000 7.6875 19.2500 7.6875 4.9
(Chief Technical Officer) 2/17/98 16,666 7.6875 19.2500 7.6875 4.9
2/17/98 16,667 7.6875 19.2500 7.6875 5.9
2/17/98 16,667 7.6875 19.2500 7.6875 6.9
2/17/98 4,000 7.6875 27.8750 7.6875 4.9
2/17/98 5,333 7.6875 27.8750 7.6875 6.9
2/17/98 5,333 7.6875 27.8750 7.6875 7.9
2/17/98 5,334 7.6875 27.8750 7.6875 8.9
2/17/98 10,666 7.6875 14.4375 7.6875 7.4
2/17/98 10,667 7.6875 14.4375 7.6875 8.4
2/17/98 10,667 7.6875 14.4375 7.6875 9.4
Aretakis, Nicholas................. 2/17/98 25,000 7.6875 14.4375 7.6875 6.4
(VP of Sales) 2/17/98 25,000 7.6875 14.4375 7.6875 7.4
2/17/98 25,000 7.6875 14.4375 7.6875 8.4
2/17/98 25,000 7.6875 14.4375 7.6875 9.4
</TABLE>

- ---------------
(1) Mr. Barnet resigned in August 1998.

(2) Mr. Wang resigned in July 1998.

(3) Mr. Aretakis resigned in April 1998.

17
<PAGE> 20

COMPENSATION COMMITTEE

/s/ Ilbok Lee & Peter T. Mok
Ilbok Lee
Peter T. Mok

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Neither Mr. Lee nor Mr. Mok has been an officer or employee of the Company
or any of its subsidiaries.

EMPLOYMENT AGREEMENTS AND CERTAIN TRANSACTIONS

Since January 1, 1998, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer, or holder of more than 5% of the Company's common
stock had or will have a direct or indirect material interest other than (i)
normal compensation arrangements, which are described under "Executive
Compensation" above, (ii) the transactions described under "Compensation
Committee Interlocks and Insider Participation" above, and (iii) the
transactions described below.

Fred S.L. Chan, the Company's Chief Executive Officer, President and
Chairman of the Board of Directors, together with his spouse, Annie M.H. Chan, a
director of the Company, announced on April 28, 1998, that they would be
purchasing between $5 and $10 million of the Company's common stock on the open
market. As of December 31, 1998, such purchases had totaled $1.4 million
representing 241,000 shares at prices ranging from $5.15 to $6.56.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and officers, and persons who own more than 10% of the
Company's common stock to file initial reports of ownership and reports of
changes in ownership with the SEC and the Nasdaq National Market. Such persons
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file.

Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements for the year
ended December 31, 1998 were met, except that Mr. Ng, a director, filed a form 3
late.

18
<PAGE> 21

OTHER BUSINESS

The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Dale R. Lindly
Dale R. Lindly
Chief Financial Officer, and Secretary

Dated: April 27, 1999

19
<PAGE> 22

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ESS TECHNOLOGY, INC.
1999 ANNUAL MEETING OF SHAREHOLDERS

The undersigned shareholder of ESS Technology, Inc., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 27, 1999, and hereby appoints
Fred S. L. Chan and Dale R. Lindly, and each of them, with full power to each of
substitution, as proxies and attorneys-in-fact, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Shareholders
of ESS Technology, Inc. to be held on May 25, 1999 at 1:30 p.m. local time, at
the Westin Hotel, 5101 Great America Parkway, Santa Clara, CA 95054, and at any
adjournment or postponement thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth on the reverse side.

This Proxy will be voted as directed or, if no contrary direction is
indicated, will be voted as follows: (1) FOR the Election of Directors in the
manner described in the Proxy Statement, and (2) FOR the proposal to ratify the
selection of PricewatehouseCoopers LLP as the Company's independent accountants
for the fiscal year ending December 31, 1999.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE

- ------------------------------------------------------------------------------
- FOLD AND DETACH HERE -

<PAGE> 23
Please mark
votes as in [X]
this example.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR ALL NOMINEES FOR DIRECTORS AND PROPOSAL 2.

1. Election of Directors.

Nominees: Fred S.L. Chan, Annie M.H. Chan, Matthew Fong, Ilbok Lee,
Peter T. Mok, and Dominic Ng

FOR WITHHOLD
[ ] [ ]

______________________________________
For all nominees except as noted above

2. To ratify the appointment of PricewaterhouseCooper LLP as independent
accountants of the Company for the fiscal year ending December 31, 1999.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

and, in their discretion, the proxies are authorized to vote on such other
business as may properly come before the meeting or any adjournment thereof.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

SIGNATURE(S)_______________________________________________ DATE ______________

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. Where shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership by authorized person.

- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -