SETTLEMENT AGREEMENT

This Settlement Agreement (Agreement) is made and effective the 21^st day of September 2006 (Settlement Date), by and among the Parties:

Micrel, Incorporated, with offices at 2180 Fortune Drive, San Jose, California 95131 (Micrel),

Monolithic Power Systems, Inc., with offices at 983 University Avenue, Building A, Los Gatos, California 95032 (MPS),

Michael R. Hsing (Hsing), and

James C. Moyer (Moyer) (Micrel, MPS, Hsing and Moyer are collectively referred to as the Parties, and each separately as a Party, and MPS, Hsing, and Moyer are collectively referred to as Defendants).

WHEREAS, Micrel is the assignee and owner of all rights, title and interest in and to United States Patent Nos. 5,517,046 (the 046 Patent) and 5,556,796 (the 796 Patent) (collectively the Patents-in-Suit);

WHEREAS, the Parties have been parties to a patent infringement lawsuit filed in the United States District Court, Northern District of California, San Francisco Division, styled Micrel, Incorporated v. Monolithic Power Systems, Inc., et. al. Case No. 04-4770 JSW (JCS) (the Litigation);

WHEREAS, the Litigation also includes allegations against Defendants for misappropriation of trade secrets, common law misappropriation, breach of confidentiality agreement, and statutory unfair competition involving confidential/proprietary Micrel information (collectively referred to as the Trade Secret Claims);

WHEREAS, Defendants have filed an answer alleging that the Patents-in-Suit are invalid and/or not infringed, and denying Micrels Trade Secret Claims;

WHEREAS, Defendants have maintained that MPS does not utilize the Patents-in-Suit in any product manufactured by or for MPS;

WHEREAS, on December 9, 2005, Micrels misappropriation of trade secrets and common law misappropriation claims were dismissed by the Court without leave to amend; and

WHEREAS, the Parties desire to avoid the time and expense of litigation, to compromise the disputed claims, and to fully and finally resolve and settle the Litigation through the exchange of mutual releases, and other valuable and adequate considerations as set forth in this Agreement;

NOW, THEREFORE, in consideration of mutual promises and obligations recited herein, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

1.1 An Affiliate of a Party means any other Person that directly or indirectly controls, is controlled by, or is under common control with such Party, but provided, however, that any Person shall be deemed to be an Affiliate for the purposes of this Agreement only for so long as such control exists. For purposes of this definition, control, as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 50% or more of the Voting Stock of a Person will be deemed to be control.

1.2 Claims shall mean any and all claims, counterclaims, demands, actions and causes of action, and any related damages, liabilities, losses, payments, obligations, costs and expenses (including, without limitation, attorneys fees and costs), of any kind or nature, fixed or contingent, direct or indirect, in law or equity, several or otherwise, known or unknown, suspected or unsuspected.

1.3 Confidential/Proprietary Information shall mean any and all information that Micrel considers to be confidential and/or proprietary to Micrel existing as of the Settlement Date, including but not limited to the confidential and/or proprietary information that is the subject of the Litigation.

1.4 Micrel Patents shall mean the Patents-in-Suit as well as their related provisionals, continuations, continuations-in-part, divisionals, or reissues or re-examinations thereof, and all foreign patents and foreign patent applications counterpart thereto.

1.5 Person shall mean an individual, trust, corporation, partnership, joint venture, limited liability, association, unincorporated organization or other legal or governmental entity.

1.6 Voting Stock of any specified Person as of any date means the capital stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

ARTICLE 2

SETTLEMENT AND RELEASE

2.1 The Parties agree to dismiss with prejudice the Litigation.

2.1.1 Each Party shall pay its own attorney fees, expenses, expert fees, and costs incurred as a result of the Litigation and settlement thereof.

2.1.2 No later than three (3) business days after the Settlement Date, the Parties shall execute and file a stipulation and order in the form set forth in Exhibit A dismissing with prejudice all Claims, affirmative defenses, and any counterclaims in the Litigation.

2.1.3 The Parties shall proceed promptly with any and all additional procedures needed or necessary to dismiss with prejudice the Litigation.

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