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**Exhibit 10.7**

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**Monaco Coach Corporation**

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**Annual Incentive Plan**

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***Introductory Note***

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*Thefollowing Annual Incentive Plan (the “AIP Program was approved by theCompensation 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 begranted pursuant to the accomplishment of pre-established performance measures.*

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*Thedescription provided herein sets forth the specific terms and conditions of theAIP Program covering eligibility, performance measures, performance period andother key factors.  Each fiscal year anew annual performance period will commence.*

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**Purpose**

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Thepurpose of the AIP Program is to provide a means for rewarding employees fortheir contributions in helping the business to achieve the objectives whichdirectly tie to stockholder value creation.

 

**Eligibility**

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Allsalaried employees of the Company or one of its wholly-owned subsidiaries areeligible to participate in the AIP Program, unless otherwise specificallyexcluded.  Each employee participating inthe 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 theCompany through the end of the Performance Period and until the date the actualaward payment is made.  Participation forless than the full Performance Period under certain circumstances set forthherein or upon the occurrence of a Change in Control will allow a Participantto receive all or a portion of his or her Award for a particular PerformancePeriod.  An employee who becomes eligibleto participate in the AIP Program after the commencement of a PerformancePeriod will be eligible for a pro-rated Award for such Performance Period.

 

**Terminationof Employment and Change in Control**

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Inthe event a Participant ceases to be an employee as the result of suchParticipant’s death, Disability or Retirement, Participant will be entitled toreceive a pro-rated amount of the Award that would have actually been earnedduring the Performance Period had Participant remained an employee through theend of the Performance Period based on the amount of time Participant was an employeeduring the Performance Period.  The Awardwill be settled at the time it would have otherwise been paid had Participantremained employed through the end of the Performance Period.  In addition, in the event of a Change inControl that occurs during the Performance Period while a Participant is anemployee, an Award will be deemed earned and paid out as if all performanceobjectives under the AIP Program had been earned at target, which will besettled upon consummation of the Change in Control.

 

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**PerformancePeriod**

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

 

**Award**

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EachParticipant in the AIP Program has a target Award opportunity for thePerformance Period. The Award opportunity is established for each salaried paygrade level considering competitive award opportunities for comparablepositions in a comparator group of other companies. Participants will havetheir actual Award payment determined based upon the Company’s performance,adjusted at management’s discretion for individual performance.

 

**PerformanceGoals**

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Theperformance goals established for a Performance Period and the formula fordetermining the AIP award will be established in the first quarter of thePerformance Period.  The Committee willreview and approve the performance goals.

 

**Section 162(m) ParticipantPerformance Goals**

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Performancegoals for individuals who are participating in the Executive VariableCompensation Plan must be established no later than the latest possible datethat will allow an Award to qualify as performance-based compensation under Section 162(m) ofthe Internal Revenue Code of 1986, as amended. The target performance goals are determined by the Committee.  The Committee will designate thoseindividuals who participate in the Executive Variable Compensation Plan.  In the event any provisions set forth hereinare inconsistent with the terms of the Executive Variable Compensation Plan,the terms of the Executive Variable Compensation Plan will control.

 

**AIPAward Formula**

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Participantsare limited to a maximum Award equal to 200% of the target Award establishedfor each Participant.  Competitive target bonus opportunities have been established and are definedas a percent of base pay, except for bonuses under the Executive VariableCompensation Plan, which are established consistent with the Executive VariableCompensation Plan and the formula set forth in the proposal for the ExecutiveVariable Compensation Plan set forth in the proxy for the Company’s 2004 AnnualMeeting.  A bonus equal to a multiple ofa Participant’s target bonus will be paid 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 |

 

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**TaxWithholding**

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TheAward is considered wages and is therefore subject to tax withholding at thetime of payment.

 

**Auditand Approval of Awards**

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TheChief Financial Officer will review the financial calculations necessary todetermine the performance against target performance goals as well as othersteps in determining the actual Award before Awards are settled and will reporthis findings to the Committee. The Committee will certify the extent to whichthe performance goals have been satisfied for any respective Performance Periodand approve the final payout.

 

**Payment**

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Awardswill be paid as soon as practicable following the completion of the PerformancePeriod and after the Committee has certified in writing that the performancegoals and other material terms are satisfied.

 

## **Definitions**

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## “Changein Control” means the occurrence of any of the following events:

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### (i)    Any “person” (as such termis used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficialowner” (as defined in Rule 13d-3 of the Exchange Act), directly orindirectly, of securities of the Company representing fifty percent (50%) ormore of the total voting power represented by the Company’s then outstandingvoting securities; or

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### (ii)   The consummation of thesale or disposition by the Company of all or substantially all of the Company’sassets; or

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### (iii)  A change in the compositionof the Board occurring within a two-year period, as a result of which fewerthan a majority of the directors are Incumbent Directors.  “Incumbent Directors” means directors whoeither (A) are Directors as of the effective date of the Plan, or (B) areelected, or nominated for election, to the Board with the affirmative votes ofat least a majority of the Incumbent Directors at the time of such election ornomination (but will not include an individual whose election or nomination isin connection with an actual or threatened proxy contest relating to theelection of directors to the Company); or

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### (iv)  The consummation of a mergeror consolidation of the Company with any other corporation, other than a mergeror consolidation which would result in the voting securities of the Companyoutstanding immediately prior thereto continuing to represent (either byremaining outstanding or by being converted into voting securities of thesurviving entity or its parent) at least fifty percent (50%) of the totalvoting power represented by the voting securities of the Company or such survivingentity or its parent outstanding immediately after such merger orconsolidation.

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## “Disability” meanstotal and permanent disability as defined in Section 22(e)(3) of theCode.

 

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## “Retirement” meansan Employee who retires on or after age sixty-two (62) and such individual hasbeen an Employee at least five (5) years at the date of retirement.  In addition, the  Committee may in its discretion grant aneligible retirement that does not otherwise meet the criteria.

 

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