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 


 

















 


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.


 

















 


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.