Exhibit 10.7

MONOLITHIC POWER SYSTEMS, INC.

CEO EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) by and between Michael Hsing (the
“President and Chief Executive Officer”, (“CEO”)) and Monolithic Power Systems,
Inc. (the “Company”), is entered into as of March 10, 2008 (the “Effective
Date”).

WHEREAS, the Company desires to continue to employ the CEO and the CEO desires
to continue employment with the Company on the terms and conditions set forth
below;

NOW, THEREFORE, the parties hereto agree as follows:

1. Certain Definitions. For purposes of this Agreement:

(a) “Cause” means (i) the CEO’s failure to perform the duties or
responsibilities of the CEO’s employment, in any material respect, as reasonably
required or directed by the Board of Directors of the Company (the “Board”),
which failure is not cured within 30 days following written notice to the CEO of
the poor performance describing in reasonable detail the poor performance;
(ii) the CEO personally engaging in illegal conduct that is detrimental to the
Company; (iii) the CEO being convicted of or pleading nolo contendere to a
felony or other crime involving moral turpitude; or (iv) the CEO committing a
material act of dishonesty, fraud or misappropriation of property.

(b) “Good Reason” means, without the CEO’s written consent, (i) a reduction by
the Company in the CEO’s Base Salary (as defined in Section 3(a)) as in effect
immediately prior to such reduction, except where a substantially equivalent
percentage reduction in base salary is applied to all other officers of the
Company; (ii) a material, adverse change in the CEO’s authority,
responsibilities or duties, as measured against the CEO’s authority,
responsibilities or duties immediately prior to such change; or (iv) the
relocation of the CEO’s place of work to a facility or a location more than 50
miles from the CEO’s then-present work location, but only if such relocation
results in an increased one-way commute of at least 50 miles based on the CEO’s
primary residence at the time such relocation is announced.

(c) “Disability” means the CEO’s inability to substantially perform the CEO’s
duties as required by the CEO’s employment with or services to the Company as
the result of the CEO’s incapacity due to physical or mental illness.

(d) “Change in Control” means the occurrence of (a) a change in the ownership of
the Company, (b) a change in the effective control of the Company, or (c) a
change in the ownership of a substantial portion of the assets of the Company,
as such terms are defined in Treasury Regulation Section 409A-3(i)(5), but only
to the extent that such change also constitutes one or more of the following
events:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the
Company’s then outstanding voting securities;

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(ii) The consummation of the sale or disposition by the Company of all or
substantially all of the Company’s assets;

(iii) A change in the composition of the Board occurring within a 12-month
period, as a result of which less than a majority of the directors are Incumbent
Directors. “Incumbent Directors” means directors who either (A) are Directors as
of the effective date of the Plan, or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination; or

(iv) The consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least 50% of
the total voting power represented by the voting securities of the Company or
such surviving entity or its parent outstanding immediately after such merger or
consolidation.

2. Employment and Duties. The CEO shall remain President and Chief Executive
Officer of the Company as of the Effective Date. The CEO shall report to the
Board, and shall assume and discharge such responsibilities as are mutually
agreed upon by the Board, and consistent with such office and position. The CEO
shall perform faithfully the duties assigned to the CEO to the best of his or
her ability.

3. Compensation.

(a) In consideration of the CEO’s services, the CEO shall be paid a base salary
at the rate of $400,000 per year during the period of employment, as increased,
if at all, pursuant to the following sentence (the “Base Salary”), to be paid in
installments in accordance with the Company’s standard payroll practices. This
Base Salary shall be reviewed for increases at least annually by the
Compensation Committee on the same basis and at the same time as the
Compensation Committee shall review the compensation of other executive officers
of the Company including any review for the next fiscal year which has not yet
occurred, but such increases are not guaranteed.

(b) Subject to approval by the Compensation Committee, the CEO shall, from time
to time, receive equity awards under the Company’s 2004 Stock Option Plan and
such related grant agreements.

(c) The CEO shall participate in the Company bonus plan. The CEO’s annual target
bonus will be payable on (i) achievement of personal and company specific
performance objectives and (ii) the date established in writing by the Board,
CEO or the Compensation Committee of the Board, subject to the CEO’s continued
Company employment through such payment date, except as otherwise specifically
provided in this Agreement.

4. At-Will Employment. The Company and the CEO acknowledge that the CEO’s
employment is and shall continue at all times to be at-will, as defined under
applicable law, meaning that either the CEO or the Company may terminate the
CEO’s employment at any time and for any reason without any liability therefore,
except as expressly provided in this

 

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Agreement. If the CEO’s employment terminates for any reason, the CEO shall not
be entitled to any payments, benefits, damages, awards or compensation other
than as provided by this Agreement, or as may otherwise be available in
accordance with the Company’s established employee plans and policies at the
time of termination.

5. Benefits. The CEO, together with the CEO’s spouse and dependent children, if
any, shall be permitted, to the extent eligible, to participate at the Company’s
expense in any group medical, dental, life insurance and disability insurance
plans, or similar benefit plans of the Company that are available to other
executive officers in each case pursuant to the terms and conditions of each
such plan or program to the extent that the Company determines that
participation on such terms and conditions would not result in unintended tax
consequences. The CEO shall also be entitled to twenty (20) days of paid time
off (PTO) annually or as otherwise agreed.

6. Termination for Cause and Voluntary Termination without Good Reason. In the
event that the CEO resigns from the Company without Good Reason, or the Company
terminates the CEO’s employment for Cause, the CEO shall not receive any
compensation or benefits under this Agreement on account of, or after, such
termination, except as required by applicable law. The CEO’s rights under any
applicable Company benefit plans upon such termination shall be determined under
the official terms of the respective benefit plans.

7. Termination without Cause and Voluntary Termination with Good Reason. Subject
to Section 10 below, if (i) the Company terminates the CEO’s employment without
Cause or the CEO resigns from the Company for Good Reason, and (ii) such
termination constitutes a “Separation from Service” within the meaning of
Internal Revenue Code Section 409A, then the CEO shall receive severance
payments and partially-accelerated vesting of certain equity grants (together
the “Severance Benefits”) pursuant to sub-sections 7(a) and (b) below. For
purposes of this Agreement, “Separation from Service” shall mean the CEO’s
cessation of employee status and shall be deemed to occur at such time as the
level of the bona fide services the CEO is to perform in employee status (or as
a consultant or other independent contractor) permanently decreases to a level
that is not more than twenty percent of the average level of services the CEO
rendered in employee status during the immediately preceding 36 months (or such
shorter period for which the CEO may have rendered such service). Any such
determination as to Separation from Service, however, shall be made in
accordance with the applicable standards of the Treasury Regulations issued
under Section 409A of the Internal Revenue Code of 1986, as amended (“Code”).
For purposes of determining whether the CEO has incurred a Separation from
Service, the CEO will be deemed to continue in “employee” status for so long as
the CEO remains in the employ of one or more members of the Employer Group,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance. “Employer Group” means
the Company and any other corporation or business controlled by, controlling or
under common control with, the Company as determined in accordance with Sections
414(b) and (c) of the Code and the Treasury Regulations thereunder.

(a) Severance Payments. After the date of such termination, the Company shall,
for a period of twelve (12) months following the date of such termination,
(i) continue to pay the CEO at a rate based on the CEO’s then-current Base
Salary and target annual bonus, in installments in accordance with the Company’s
standard payroll practices (as in effect

 

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immediately prior to such termination), and (ii) pay the CEO and the CEO’s
dependents’ COBRA premiums under all Company-sponsored group health plans (other
than the Company’s Flexible Spending Account) that such individuals are enrolled
in at the time of such termination (to the extent that the Company determines
that doing so would not result in unintended tax consequences). In the event
such termination occurs within one year following a Change of Control, then such
payments and benefits shall continue for a period of one year after the date of
such termination. Notwithstanding the foregoing, however, (A) payments and
benefits under clauses (i) and (ii) shall terminate immediately upon the date
the CEO commences to provide services to another entity for compensation,
whether present or deferred, and the CEO shall provide the Company with written
notice of the CEO’s acceptance of such a service provider position within three
days thereof and (B) benefits under subsection (ii) shall cease on the date that
the CEO (or the CEO’s dependents, as applicable) ceases to be eligible for COBRA
continuation coverage under the normal COBRA rules.

(b) Vesting Acceleration. Effective on such termination, the CEO shall receive
accelerated vesting equivalent to twelve (12) months of service beyond the date
of CEO’s termination with respect to the shares subject to any grant of
restricted stock or stock options (each, an “Equity Grant”) granted to the CEO,
regardless of whether granted prior to, coincident with, or after, the Effective
Date; provided, however, that in the event such termination occurs within one
year following a Change of Control, then one hundred percent of the remaining
shares subject to each such Equity Grant shall become vested in full and the
period during which the CEO is permitted to exercise (if applicable) any such
Equity Grant shall be extended for the full term of such Equity Grant (as of the
date of grant).

(c) Six-Month Delay. Notwithstanding anything in this Agreement to the contrary,
if the CEO is a “Specified Employee,” for purposes of Section 409A of the Code,
on the date on which the CEO incurs a Separation from Service, any payment
hereunder that provides for the “deferral of compensation” within the meaning of
Section 409A of the Code shall not be paid or commence to be paid on any date
prior to the first business day after the date that is six (6) months following
the CEO’s “Separation from Service” (the “409A Suspension Period”); provided,
however, that a payment delayed pursuant to the preceding clause shall commence
earlier in the event of the CEO’s death prior to the end of the six-month
period. Within 14 calendar days after the end of the 409A Suspension Period, the
CEO shall be paid a lump sum payment in cash equal to any cash payments delayed
because of the preceding sentence. Thereafter, the CEO shall receive any
remaining benefits as if there had not been an earlier delay.

8. Death. In the event of the CEO’s death, except as required by applicable law,
the Company shall have no obligation to pay or provide any compensation or
benefits under this Agreement. The CEO’s rights under the Company’s benefit
plans in the event of the CEO’s death shall be determined under the official
provisions of such benefit plans.

9. Disability. In the event of the CEO’s Disability, except as required by law,
the Company may terminate the CEO’s employment and no compensation or benefits
will be paid or provided to the CEO under this Agreement. The CEO’s rights under
the Company’s benefit plans shall be determined under the official provisions of
such benefit plans.

 

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10. Other Activities. The CEO shall devote substantially all of the CEO’s
working time and efforts to the business and affairs of the Company and its
subsidiaries and to the diligent and faithful performance of the duties and
responsibilities duly assigned to the CEO pursuant to this Agreement, except for
vacations, holidays and sickness. However, to the extent that doing so does not
materially interfere with the CEO’s obligations to the Company, the CEO may
devote a reasonable amount of the CEO’s time to civic, community, or charitable
activities and, with the prior written approval of the Company, serve as a
director of other corporations and to other types of business or public
activities not expressly mentioned in this paragraph, but only to the extent
that such businesses or activities are not competitive with the Company’s actual
or planned business activities.

11. Proprietary Information. During the period of employment and thereafter, the
CEO shall not, without the prior written consent of the Company, disclose or use
for any purpose (except in the course of the CEO’s employment under this
Agreement and in furtherance of the business of the Company or any of its
affiliates or subsidiaries) any confidential information or proprietary data of
the Company or any of its affiliates or subsidiaries. The CEO agrees to execute
the Company’s form of Proprietary Information Agreement, which is attached
hereto as Exhibit A and incorporated herein by reference. The provisions of this
Section 11 shall survive the termination of this Agreement and the CEO’s
employment with the Company.

12. Covenant Not to Solicit. Beginning with the date of the CEO’s termination
and until one year thereafter, the CEO agrees that CEO will not:

(i) solicit any employee of the Company or any of its affiliates or subsidiaries
for employment, or

(ii) interfere in any manner prohibited by applicable law with the contractual
or employment relationship between the Company or any of its affiliates or
subsidiaries and any employee of the Company or any of its affiliates or
subsidiaries.

The provisions of this Section 12 shall survive the termination of this
Agreement and the CEO’s employment with the Company.

13. Tax Provisions. In the event that the benefits provided for in the
Agreement, when aggregated with any other payments or benefits received by the
CEO, would (i) constitute “parachute payments” within the meaning of
Section 280G of the Code, and (ii) would be subject to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then the CEO’s benefits hereunder
shall be either

(a) delivered in full, or

(b) delivered as to such lesser extent that would result in no portion of such
benefits being subject to the Excise Tax, whichever of the foregoing amounts,
taking into account the applicable federal, state and local income taxes and the
Excise Tax, results in the receipt by the CEO on an after-tax basis, of the
greatest amount of benefits, notwithstanding that all or some portion of such
benefits may be taxable under Section 4999 of the Code. Unless the Company and
the CEO otherwise agree in writing, any determination required under this
paragraph shall be made in writing by the Company’s independent public
accountants (the

 

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“Accountants”) whose determination shall be conclusive and binding upon the CEO
and the Company for all purposes. For purposes of making the calculations
required by this paragraph, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the CEO shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this paragraph. The provisions of this Section 14
shall survive the termination of this Agreement and the CEO’s employment with
the Company.

14. Arbitration. Except as set forth in this Section 14, the Company and the CEO
agree to resolve any disputes by binding arbitration. The Company and the CEO
understand that this agreement to arbitrate covers all disputes that the CEO may
have against the Company or its related entities or employees, including those
that relate to the CEO’s employment or termination of employment (for example
claims of unlawful discrimination or harassment). The arbitration will be
conducted by an impartial arbitrator experienced in employment law (selected
from the JAMS panel of arbitrators) in accordance with JAMS’ then-current
employment arbitration rules (except as otherwise provided in this agreement).
The Company and the CEO waive the right to institute a court action, except for
requests for injunctive relief pending arbitration, and understand that they are
giving up their right to a jury trial. The arbitrator’s award and opinion shall
be in writing and in the form typically rendered in labor and employment
arbitrations. The COMPANY will pay any filing fee and the fees and costs of the
arbitrator, unless the CEO initiates the claim, in which case the CEO only will
be required to contribute an amount equal to the filing fee for a claim
initiated in a court of general jurisdiction in the California. Each of the
Company and the CEO shall be responsible for their own attorneys’ fees and
costs; however, the arbitrator may award attorneys’ fees to the prevailing
party, if permitted by applicable law. This arbitration agreement does not
prohibit either the Company or the CEO from filing a claim with an
administrative agency (e.g., the EEOC), nor does it apply to claims for workers’
compensation or unemployment benefits, or claims for benefits under an employee
welfare or pension plan that specifies a different dispute resolution procedure.
The arbitration shall take place in Santa Clara County, California, unless the
parties agree otherwise.

15. Former Employers. The CEO is not subject to any employment, confidentiality,
or other agreement or restriction that would prevent the CEO from fully
satisfying the CEO’s duties under this Agreement or that would be violated if
the CEO did so. Without the Company’s prior written approval, the CEO promises
that the CEO will not:

(a) disclose proprietary information belonging to a former employer or other
entity without its written permission;

(b) contact any former employer’s customers or employees to solicit their
business or employment on behalf of the Company or its affiliates; or

(c) distribute announcements about or otherwise publicize my employment with the
Company or its affiliates.

 

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The CEO will indemnify and hold the Company harmless from any liabilities,
including defense costs, it may incur because the CEO is alleged to have broken
any of these promises or improperly revealed or used such proprietary
information or to have threatened to do so, or if a former employer challenges
the CEO’s entering into this Agreement or rendering services pursuant to it.

16. Department of Homeland Security Verification Requirement. The CEO agrees to
timely file all documents required by the Department of Homeland Security to
verify the CEO’s identity and the CEO’s lawful employment in the United States.
Notwithstanding any other provision of this Agreement, if the CEO fails to meet
any such requirements promptly after receiving a written request from the
Company to do so, the CEO agrees that the CEO’s employment shall terminate
immediately and that the CEO shall not be entitled to any compensation or
benefits from the Company of any type.

17. Governing Law. To the extent not governed by U.S. federal law, this
Agreement shall be governed by and construed in accordance with the laws of the
State of California applicable to agreements made and to be performed entirely
within such state, without regard to principles of conflicts of laws.

18. Entire Agreement. This Agreement and all existing Equity Grants represent
the entire agreement and understanding between the parties as to the subject
matter hereof and thereof and supersede all prior or contemporaneous agreements
as to the subject matter hereof and thereof, whether written or oral including,
but not limited to, that certain Employment Agreement between the Company and
the CEO, dated August 23, 2002, which is hereby terminated and superseded in its
entirety. No modification or amendment to this Agreement will be effective
unless in writing signed by the party to be charged. Any subsequent change or
changes in the CEO’s duties, salary or compensation will not affect the validity
or scope of this Agreement. The CEO understands and agrees that the Company may,
in its sole discretion, amend or terminate any Company-sponsored employee
benefit plans.

19. Notices. Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by U.S. registered or certified mail, return receipt
requested and postage prepaid. In the case of the CEO, mailed notices shall be
addressed to him at the home address that he most recently communicated to the
Company in writing. In the case of the Company, mailed notices shall be
addressed to its corporate headquarters, and all notices shall be directed to
the attention of its CEO.

20. Waiver etc. No waiver, alteration, or modification, if any, of the
provisions of this Agreement shall be binding unless in writing and signed by
duly authorized representatives of the parties hereto. If either party should
waive any breach of any provisions of this Agreement, such party shall not
thereby be deemed to have waived any preceding or succeeding breach of the same
or any other provision of this Agreement.

21. Severability. If any term of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder of the
terms of this Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.

 

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22. Counterparts. This Agreement may be executed in counterparts, which together
will constitute one instrument.

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The parties have executed this Agreement as of the date first above written.

 

MONOLITHIC POWER SYSTEMS, INC. By:   /s/ Herbert Chang Name:   Herbert Chang
Title:   Chairman, MPS Compensation Committee “CEO” By:   /s/ Michael Hsing
Name:   Michael Hsing

 

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