EXHIBIT 10.4

 

Monaco Coach Corporation

 

Annual Incentive Plan

 

Introductory Note

 

The following Annual Incentive Plan (the “AIP Program” – previously known as the
Short Term Incentive Compensation Plan) was approved by the Compensation
Committee (the “Committee”) of the Board of Directors (the “Board”) of Monaco
Coach Corporation (the “Company”) on March 28, 2005. “Awards” under the AIP
Program will be granted pursuant to the accomplishment of pre-established
performance measures.

 

The description provided herein sets forth the specific terms and conditions of
the AIP Program covering eligibility, performance measures, performance period
and other key factors. Each fiscal year a new annual performance period
commences.

 

Purpose

 

The purpose of the AIP Program is to provide a means for rewarding employees for
their contributions in helping the business to achieve the objectives which
directly tie to stockholder value creation.

 

Eligibility

 

All salaried employees of the Company or one of its wholly-owned subsidiaries
are eligible to participate in the AIP Program, unless otherwise specifically
excluded. Each employee participating in the AIP Program is referred to as a
“Participant.”  To be eligible to receive an Award payment, an employee must be
actively employed by the Company or a subsidiary of the Company through the end
of the Performance Period and until the date the actual award payment is made.
Participation for less than the full Performance Period under certain
circumstances set forth herein or upon the occurrence of a Change in Control
will allow a Participant to receive all or a portion of his or her Award for a
particular Performance Period. An employee who becomes eligible to participate
in the AIP Program after the commencement of a Performance Period will be
eligible for a pro-rated Award for such Performance Period.

 

Termination of Employment and Change in Control

 

In the event a Participant ceases to be an employee as the result of such
Participant’s death, Disability or Retirement, Participant will be entitled to
receive a pro-rated amount of the Award that would have actually been earned
during the Performance Period had Participant remained an Employee through the
end of the Performance Period based on the amount of time Participant was an
Employee during the Performance Period. The Award will be settled at the time it
would have otherwise been paid had Participant remained employed through the end
of the Performance Period. In addition, in the event of a Change in Control that
occurs during the Performance Period while a Participant is an employee, an
Award will be deemed earned and

 

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paid out as if all performance objectives under the AIP Program had been earned
at target, which will be settled upon consummation of the Change in Control.

 

Performance Period

 

A “Performance Period” will begin on the first day of each fiscal year and end
on the last day of the same fiscal year.

 

Award

 

Each Participant in the AIP Program has a target Award opportunity for the
Performance Period. The Award opportunity is established for each salaried pay
grade level considering competitive award opportunities for comparable positions
in a comparator group of other companies. Participants will have their actual
Award payment determined based upon the Company’s performance, adjusted at
management’s discretion for individual performance.

 

Performance Goals

 

The performance goals established for a Performance Period and the formula for
determining the AIP award will be established in the first quarter of the
Performance Period. The Committee will review and approve the performance goals.

 

Section 162(m) Participant Performance Goals

 

Performance goals for individuals who are participating in the Executive
Variable Compensation Plan must be established no later than the latest possible
date that will allow an Award to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended. The target
performance goals are determined by the Committee. The Committee will designate
those individuals who participate in the Executive Variable Compensation Plan.

 

AIP Award Formula

 

Participants are limited to a maximum Award equal to 200% of the target Award
established for each Participant. Competitive target bonus opportunities have
been established and are defined as a percent of base pay.  A bonus equal to a
multiple of a Participant’s target bonus will be paid on a 2:1 sliding scale as
follows:

 

•      Threshold (50% of established Target Performance Goal(s))

 

No Bonus

•      75% of Target Performance Goal(s)

 

50% of Target Bonus

•      Target (100% of Target Performance Goal(s))

 

100% of Target Bonus

•      125% of Target Performance Goal(s)

 

150% of Target Bonus

•      Maximum (150% of Target Performance Goal(s))

 

200% of Target Bonus

 

Tax Withholding

 

The Award is considered wages and is therefore subject to tax withholding at the
time of payment.

 

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Audit and Approval of Awards

 

The Chief Financial Officer will review the financial calculations necessary to
determine the performance against target performance goals as well as other
steps in determining the actual Award before Awards are settled and will report
his findings to the Committee. The Committee will approve the final payout.

 

Payment

 

Awards will be paid as soon as practicable following the completion of the
Performance Period and after the Corporate Compensation Committee has certified
in writing that the performance goals and other material terms are satisfied.

 

DEFINITIONS

 

“RETIREMENT” MEANS AN EMPLOYEE WHO RETIRES ON OR AFTER AGE SIXTY-TWO (62) AND
SUCH INDIVIDUAL HAS BEEN AN EMPLOYEE AT LEAST FIVE (5) YEARS AT THE DATE OF
RETIREMENT. IN ADDITION, THE CORPORATE COMPENSATION COMMITTEE MAY IN ITS
DISCRETION GRANT AN ELIGIBLE RETIREMENT THAT DOES NOT OTHERWISE MEET THE
CRITERIA.

 

“CHANGE IN CONTROL” MEANS THE OCCURRENCE OF ANY 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; OR

 

(II)           THE CONSUMMATION OF THE SALE OR DISPOSITION BY THE COMPANY OF ALL
OR SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS; OR

 

(III)          A CHANGE IN THE COMPOSITION OF THE BOARD OCCURRING WITHIN A
TWO-YEAR PERIOD, AS A RESULT OF WHICH FEWER 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 (BUT WILL NOT
INCLUDE AN INDIVIDUAL WHOSE ELECTION OR NOMINATION IS IN CONNECTION WITH AN
ACTUAL OR THREATENED PROXY CONTEST RELATING TO THE ELECTION OF DIRECTORS TO THE
COMPANY); 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 FIFTY
PERCENT (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.

 

“DISABILITY” MEANS TOTAL AND PERMANENT DISABILITY AS DEFINED IN SECTION 22(E)(3)
OF THE CODE.

 

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