Exhibit 10.2


 


Monaco Coach Corporation


 


Executive Pay Reduction Program


 


The following Executive Pay
Reduction Program (the “Program”) was approved by the Compensation Committee
(the “Committee”) of the Board of Directors (the “Board”) of Monaco Coach Corporation
(the “Company”) on July 21, 2008.


 


Purpose


 


The purpose of the Program
is to allow the Company to reduce expenses through a temporary reduction of
executive salaries, while providing a potential means for participants to earn
a performance-based award (bonus) equivalent to their lost salaries and for
their previous salary levels to be restored through the achievement of business
objectives.  The Program is designed to
focus executive behavior on reducing debt by increasing cash flows, reducing
expenses and returning the Company to profitability resulting in increased
shareholder value.


 


Participants


 


The participants in the
Program are the executive management of the Company as well as designated
executive management of certain wholly-owned subsidiaries.  The Company may also designate other key
director-level employees as participants.


 


Executive
Pay Reductions


 


Effective during the
Performance Period (as defined below), the base salaries of participants are
reduced by the following percentages:


 


Chief Executive Officer –
50%


President – 30%


Executive Pay Grades E2 - E4
– 15%


Executive Pay Grade E5
(others as appropriate) – 10%


 


Depending on prevailing
business conditions, the Company will seek to restore base salary levels in
effect prior to the Program upon termination of the Performance Period.  The Committee with input from the Chief
Executive Officer retains the discretion to adjust the rate of pay for any
participant during or following the Performance Period.


 


Performance
Bonus


 


Each participant will be
eligible to earn a cash bonus equivalent to all or a portion of the amount of
the forgone base salaries as a result of the pay reductions during the
Performance Period if the pre-established performance goal (described below) is
achieved by the Company, subject to the participant remaining employed by the 


 

















 


Company or an Affiliate
through the end of the Performance Period (except as set forth below).


 


Performance
Period


 


The Performance Period will
be the twelve-month period beginning with the third quarter of 2008 and ending
with the close of the second quarter of 2009, or earlier at the close of the
quarter during which the performance goals are achieved prior to the second
quarter of 2009, as described below.


 


Performance
Goals


 


The performance goal for
earning a performance bonus related to forgone salaries through the Program is
the achievement of Operating Cash Flow of $58 million during the Performance
Period (the “Operating Cash Flow Goal”). 
Performance bonuses relating to the Operating Cash Flow Goal may only be
earned prior to the second quarter of 2009 by achievement of 100% of the
Operating Cash Flow Goal with the determination made on a quarter-by-quarter
basis.  All or a portion of the performance
bonus relating to forgone base salaries not previously earned in the
Performance Period may be earned at the end of the second quarter of 2009 as
set forth below in “Performance Bonus Formula for the Operating Cash Flow Goal.”


 


If the Operating Cash Flow
Goal is achieved at 100% prior to the second quarter of 2009 and provided that
a participant remains employed with the Company through the end of the quarter
during which the Operating Cash Flow Goal is achieved at 100%, the participant
will be eligible to earn 100% of the foregone base salary for such quarter and
prior quarters of the Performance Period to the extent performance bonuses
relating to forgone salaries for such prior quarters have not previously been
earned.


 


Any earned performance
bonuses relating to the Operating Cash Flow will be paid according to the
payment schedule set forth below in “Performance Bonus Formula for the
Operating Cash Flow Goal”.


 


The performance goal for the
reinstatement of base salaries is the return of the Company to positive
Operating Income in any single quarter of the Performance Period (the “Operating
Income Goal”).  The Performance Period
for the Operating Income Goal will terminate upon the achievement of such
goal.  Base salaries will be restored to
their pre-Program levels effective at the beginning of the first quarter
following the quarter in which the Operating Income Goal is achieved.


 


Target
Bonus


 


The target performance bonus
will equal 100% of the amount of forgone base salary during the Performance
Period as a result of the Program.  In no
event will the actual performance bonus exceed 100% of the forgone base
salaries during the Performance Period as a result of the Program.


 


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Performance
Bonus Formula for the Operating Cash Flow Goal


 


During the first three
quarters of the Performance Period, the performance bonus will only be earned
upon 100% achievement of the Operating Cash Flow Goal, with the determination
of the achievement of the goal to be determined quarterly.


 


Performance bonuses relating
to forgone base salaries for the second quarter of 2009, and for previous
quarters for which no performance bonus was earned, may be earned at the end of
the second quarter of 2009 as follows:


 


·                  Threshold (50% achievement
of Operating Cash Flow Goal) = 50% of the target performance bonus.


 


·                  75% achievement of Operating
Cash Flow Goal = 75% of target performance bonus.


 


·                  Maximum (100% achievement of
Operating Cash Flow Goal) = 100% of target performance bonus.


 


If 100% of the Operating
Cash Flow Goal is not attained during any of the first three quarters of the
Performance Period or the threshold performance level is not attained by the
completion of the second quarter of 2009, participants will not be entitled to
receive any performance bonus pursuant to the Program.  If the Company’s performance falls between
the levels shown for the second quarter of 2009, the actual performance bonus
will be interpolated accordingly.


 


Earned performance bonuses
will be paid as soon as practical following the quarter in which they are
earned, but in no event later than the date that is two-and-one-half months
from the later of (i) the end of the Company’s tax year in which the
performance bonus is earned, or (ii) the end of the participant’s tax year
in which the performance bonus is earned, subject to the provisions set forth
below in “Termination of Employment and Change in Control.”


 


Termination
of Employment and Change in Control


 


In the event a participant
ceases to be an employee of the Company or any Affiliate as the result of the
participant’s death, Disability, Retirement or termination by the Company (or
the Affiliate employing the participant) without Cause, the participant will be
entitled to receive a pro-rated portion of the full performance bonus that
would have been earned during the Performance Period had the participant
remained an employee through the end of the Performance Period based on the
amount of time participant was employed during the Performance Period.  In such event, the performance bonus will be
paid at the time it would have otherwise been paid had the participant remained
employed through the end of the Performance Period.  In addition, in the event of a Change in
Control (as defined below) that occurs during the Performance Period while a
participant is an employee, the target performance bonus will be deemed earned
and will be paid upon consummation of the Change in Control.  The transactions contemplated hereunder and
the duration of the 


 


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Performance Period set forth
herein do not constitute an express or implied promise to any participant that
he or she will continue to be an employee for the Performance Period, or at
all, and will not interfere with the participant’s right or the right of the
Company (or the Affiliate employing the participant) to terminate the
participant as an employee at any time, with or without cause.


 


Notwithstanding the
foregoing, if a participant is a “specified employee” within the meaning of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), and the final
regulations and any guidance promulgated thereunder (“Section 409A”) at
the time of the participant’s termination (other than due to death), and the
bonus payable to the participant, if any, pursuant to the Program, when
considered together with any other severance or other payments or separation
benefits that are considered deferred compensation under Section 409A
(together, the “Deferred Compensation Separation Benefits”) that are payable
within the first six (6) months following the participant’s
termination of employment, 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 participant’s termination of employment.  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 participant dies
following his termination but prior to the six (6) month anniversary of
his termination, 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 participant’s death and all other Deferred Compensation Separation
Benefits will be payable in accordance with the payment schedule applicable to
each payment or benefit.


 


Section 162(m) Participant
Performance Goals


 


Executives who are
participating in the Executive Variable Compensation Plan will participate in
the Program on the same terms and conditions as other participants to allow the
performance bonus to qualify as “performance-based compensation” under Section 162(m) of
the Code.  The Committee will designate
those individuals who participate in the Executive Variable Compensation
Plan.  In the event any provisions set
forth herein are inconsistent with the terms of the Executive Variable
Compensation Plan, the terms of the Executive Variable Compensation Plan will control.


 


Tax
Withholding


 


The actual performance bonus
will be subject to tax withholding and other applicable deductions at the time
of payment.


 


Audit and
Approval of Awards


 


The Chief Financial Officer
will review the financial calculations necessary to determine achievement of
the Performance Goals and will report his findings to the Committee.  The Committee will certify in writing the
extent to which the Performance Goal(s) has been satisfied and approve the
actual performance bonus or salary reinstatement.


 


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Applicability
to Future Annual Incentive Plan Bonuses and Long Term Incentive Plan Grants


 


In the event the Operating
Income Goal has not yet been achieved at the time the 2008 Annual Incentive Plan
bonuses would be paid, if such bonuses are earned, the Company will have the
option to calculate the bonus using the participant’s base salary prior to the
reduction pursuant to the Program, after the reduction pursuant to the Program,
or a combination of the two, except for participants in the Executive Variable
Compensation Plan who will have their respective bonuses calculated in
accordance with the terms of that plan. 
Similarly, if the Operating Income Goal has not yet been met at the time
target bonuses are established under the 2009 Long Term Incentive Plan, the
Company will have the option to calculate the bonuses using the participant’s
base salary prior to the reduction pursuant to the Program, after the reduction
pursuant to the Program, or a combination of the two, except for participants
in the Executive Variable Compensation Plan. 
The Committee retains the authority to determine the structure of
bonuses for participants in the Executive Variable Compensation Plan in
accordance with the terms of that plan, as it may be amended from time to time.


 


The Committee, with input
from the Chief Executive Officer, will determine the appropriate pay basis to
use for establishing such awards.


 


Definitions


 


“Affiliate” means any
corporation or any other entity (including, but not limited to, partnerships
and joint ventures) controlling, controlled by, or under common control with
the Company.


 


“Cause” means (i) an
act of dishonesty made by the participant in connection with the participants
responsibilities as an employee of the Company (or an Affiliate), (ii) the
participant’s conviction of, or plea of nolo contendere, to, a felony, (iii) the
participant’s gross misconduct, or (iv) the participant’s continued
substantial violations of his employment duties after the participant has
received a demand for performance from the Company (or the Affiliate employing
the participant).


 


“Change in Control”


 


(i)        Any “person” (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(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 more than fifty percent (50%) of the total voting power
represented by the Company’s then outstanding voting power; or


 


(ii)       A change in the ownership of a
substantial portion of the Company’s assets which occurs on the date that any
one person, or more than one person acting as a group acquires (or has acquired
during the twelve (12) month period ending on the date of the most recent
acquisition by such person or persons) assets from the Company that have a
total gross fair market value equal to or more than fifty percent (50%) of the
total 


 


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gross fair market value of
all of the assets of the Company immediately prior to such acquisition; or


 


(iii)      A change in the composition of the Board
occurring within a twelve (12) month 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 Program, 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) fifty percent (50%) or more 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.


 


“Operating Cash Flow”
for purposes of the Program is defined as the marginal cash flow created by the
reduction of inventory (material, work in progress and finished goods), but
excludes resort segment inventories.


 


“Operating Income” is
defined for purposes of the Program as pre-bonus consolidated operating income
at the end of any given quarter of the Performance Period.


 


“Retirement” means an
employee of the Company or any Affiliate who retires on or after age sixty-two
(62) and such individual has been an employee of the Company or an Affiliate at
least five (5) years at the date of retirement.  In addition, the Committee may in its
discretion grant an eligible retirement that does not otherwise meet the
criteria.


 


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