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10-K - ANNUAL REPORT - MONOLITHIC POWER SYSTEMS INCmonolithic_10k-123110.htm












This Amendment to the Employment Agreement (the “Amendment”) is made as of February 9, 2010, by and between Monolithic Power Systems, Inc. (the “Company”), and Meera Rao (the “Executive”).
WHEREAS, the Company and the Executive entered into that certain Employment Agreement dated January 5, 2009 (the “Agreement”).
WHEREAS, the Company and the Executive desire to amend the Agreement to (i) comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and (ii) to make certain other changes in light of Executive’s new position and greater responsibilities as a Section 16 Officer of the Company.
NOW, THEREFORE, the Company and the Executive agree that in consideration of the foregoing and the promises and covenants contained herein, the parties agree as follows:
1. Executive.  All references in the Agreement to “Employee” shall be deemed to amended to refer instead to “Executive”.

2. Employment and Duties.  Section 2 of the Agreement, entitled “Employment and Duties,” is hereby amended to read in its entirety as follows:
“The Executive shall remain Vice President of Finance, Corporate Controller of the Company and report to the Company as of January 5, 2009 (“Effective Date”).  The Executive shall report to the Sr. Vice President and CFO, and shall assume and discharge such responsibilities as are mutually agreed upon by the Executive and the CFO, and consistent with such office and position.  The Executive shall perform faithfully the duties assigned to the Executive to the best of his or her ability.”

3. Compensation.  Sections 3 of the Agreement, entitled “Compensation,” is hereby amended to read in its entirety as follows:
“(a) In consideration of the Executive’s services, the Executive shall be paid a base salary at the rate of $230,000 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 Executive shall, from time to time, receive equity awards under the Company’s 2004 Equity Incentive and such related grant agreements.

(c) The Executive shall participate in the Company bonus plan.  The Executive’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 Executive’s continued Company employment through such payment date, except as otherwise specifically provided in this Agreement.”

4. Benefits.  Section 5 of the Agreement, entitled “Benefits” is hereby amended to read in its entirety as follows:
“The Executive, together with the Executive’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 Executive shall also be entitled to twenty (20) days of paid time off (PTO) or as otherwise agreed.”

5. Termination without Cause and Voluntary Termination with Good Reason. Section 7 of the Agreement, entitled “Termination without Cause and Voluntary Termination with Good Reason,” is hereby amended to read in its entirety as follows:
“7. Termination without Cause and Voluntary Termination with Good Reason. Subject to Section 12 below, if (i) the Company terminates the Executive’s employment without Cause or the Executive resigns from the Company for Good Reason, then subject to Section 7(c), the Executive 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.
(a) Severance Payments. After the date of such termination, the Company shall, for a period of six (6) months following the date of such termination, (i) continue to pay the Executive at a rate based on the Executive’s then-current Base Salary and target annual bonus, in installments in accordance with the Company’s standard payroll practices (as in effect immediately prior to such termination), and (ii) pay the Executive and the Executive’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 (unless the Company determines in its sole discretion that such payment of COBRA premiums could result in the imposition of any additional tax on the Executive, in which case the Company will instead reimburse the Executive for the cost of the Executive’s and the Executive’s dependents’ COBRA premiums, with such reimbursements to be made within thirty (30) days of the date such premiums are made). In the event such termination occurs within one (1) year following a Change of Control, then such payments and benefits shall continue for a period of one (1) 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 Executive commences to provide services to another entity for compensation, whether present or deferred, and the Executive shall provide the Company with written notice of the Executive’s acceptance of such a service provider position within three (3) days thereof and (B) benefits under subsection (ii) shall cease on the date that the Executive (or the Executive’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 Executive shall receive accelerated vesting equivalent to six (6) months of service beyond the date of Executive’s termination with respect to the shares subject to any grant of restricted stock or stock options (each, an “Equity Grant”) granted to the Executive, regardless of whether granted prior to, coincident with, or after, the Effective Date; provided, however, that in the event such termination occurs within one (1) year following a Change of Control, then one hundred percent (100%) of the remaining shares subject to each such Equity Grant shall become vested in full and the period during which the Executive is permitted to exercise (if applicable) any such Equity Grant shall be extended until the earlier of (i) ten (10) years from the date of grant, or (ii) the expiration date of such Equity Grant (as of the date of grant).
(c) Section 409A.
(i) Notwithstanding anything to the contrary in this Agreement, no severance payable to the Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits that are considered deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the final regulations and any guidance promulgated thereunder (“Section 409A”) (together, the “Deferred Compensation Separation Benefits”) will be payable until the Executive has a “separation from service” within the meaning of Section 409A.
(ii) Notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” within the meaning of Section 409A at the time of the Executive’s termination (other than due to death), then the Deferred Compensation Separation Benefits that are payable within the first six (6) months following the Executive’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of the Executive’s separation from service. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if the Executive dies following the Executive’s separation from service but prior to the six (6) month anniversary of the separation, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of the Executive’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
(iii) Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Compensation Separation Benefits for purposes of clause (i) above.

 (iv) Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that do not exceed the Section 409A Limit (as defined below) will not constitute Deferred Compensation Separation Benefits for purposes of clause (i) above.
(v) “Section 409A Limit” will mean the lesser of two (2) times: (A) the Executive’s annualized compensation based upon the annual rate of pay paid to the Executive during the Executive’s taxable year preceding the Executive’s taxable year of the Executive’s termination of employment as determined under, and with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto, or (B) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which the Executive’s employment is terminated.

(vi) The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. The Company and the Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to the Executive under Section 409A.”
6. Tax Provisions.  Section 13 of the Agreement, entitled “Tax Provisions,” is hereby amended to read in its entirety as follows:
“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 Executive, 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 Executive shall receive a payment from the Company sufficient to pay the Excise Tax, less applicable tax withholding.  The payment of any additional excise tax and federal and state income, employment or other taxes arising from the payment made by the Company to the Executive pursuant to the previous sentence shall be the sole responsibility of the Executive.  The Company shall pay any amount as soon as reasonably practicable, but in no event later than the end of the Executive’s taxable year next following the Executive’s taxable year in which the Executive remits the related taxes.  Unless the Company and the Executive otherwise agree in writing, any determination required under this paragraph shall be made in writing by the Company’s independent public accountants (the “Accountants”) whose determination shall be conclusive and binding upon the Executive 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 Executive 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 13 shall survive the termination of this Agreement and the Executive’s employment with the Company.”
7. Full Force and Effect. To the extent not expressly amended hereby, the Agreement shall remain in full force and effect.
8. Entire Agreement. Section 18 of the Agreement, entitled “Entire Agreement,” is hereby amended to read in its entirety as follows:
“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 Executive, dated January 5, 2009, 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 Executive’s duties, salary or compensation will not affect the validity or scope of this Agreement.  The Executive understands and agrees that the Company may, in its sole discretion, amend or terminate any Company-sponsored Executive benefit plans.”

9. Successors and Assigns. This Amendment and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns, and legal representatives.
10. Counterparts. This Amendment may be executed in counterparts, all of which together shall constitute one instrument, and each of which may be executed by less than all of the parties to this Amendment.
11. Governing Law. This Amendment shall be governed in all respects by the internal laws of California, without regard to principles of conflicts of law.
12. Amendment. Any provision of this Amendment may be amended, waived or terminated by a written instrument signed by the Company and the Executive.
(Signature page follows)


IN WITNESS WHEREOF, the undersigned parties have caused this Amendment to be executed as of the date first set forth above.
/s/ Meera Rao
/s/ Michael Hsing
Meera Rao
Michael Hsing
Print Name
Print Name
President and CEO
Print Title
(Signature page to Amendment to Meera Rao Employment Agreement)