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  Exhibit 10.38    
    


 
    Douglas Dynamics, Inc.
  2013 Annual Incentive Plan    
    


	1)
	The
Douglas Dynamics, Inc. Annual Incentive Plan ("Plan") is designed to provide an opportunity for the President and the other named executive
officers of the Company selected to participate in the Plan (collectively, the "Participants") to earn a cash bonus upon the achievement of the performance targets established under the Plan.



	a)
	The
performance metrics and weightings used under the Plan will be approved by the Compensation Committee of the Board of Directors (the "Committee"), which
has the authority to change the performance metrics and/or weightings used under the Plan each year:



	i)
	Operating
Income—70% weighting



	ii)
	Free
Cash Flow ("FCF")—30% weighting






	b)
	Target
Bonus:



	i)
	President—100%
of annual base salary



	ii)
	Other
Participants—75% of annual base salary






	c)
	Plan
will be subject to overall maximum bonus:



	i)
	President—150%
of annual base salary



	ii)
	Other
Participants—125% of annual base salary 









Notwithstanding
anything herein to the contrary, the Committee has the authority to change the target and maximum bonuses under the Plan for subsequent years.  



	2)
	Operating
Income



	a)
	For
purposes of the Plan, Operating Income is defined as adjusted EBITDA less depreciation, plus other expense, adjusted for non recurring expenses, as
approved by the Committee



	b)
	Targeted
Operating Income will be set annually by the Committee



	c)
	Performance
is measured by the degree to which Operating Income achieves, exceeds, or falls short of, Targeted Operating Income



	d)
	Achievement
of Targeted Operating Income will result in a bonus as a % of annual base salary equal to the Target Bonus multiplied by the weighting of the
Operating Income metric. For 2013 this would result in a bonus of:



	i)
	President—70%
of annual base salary (100% target × 70% weighting)



	ii)
	Other
Participants—52.5% of annual base salary (75% target × 70% weighting)






	e)
	If
Operating Income falls below 50% of Targeted Operating Income, no Operating Income bonus will be earned



	f)
	If
Operating Income falls between 50% and 100% of Targeted Operating Income, bonus earned will be reduced linearly from the amount determined under
Section 2(d) for each 1% reduction in Operating Income below Targeted Operating Income. For 2013, the reduction would be as follows for each 1% reduction in Operating Income below Targeted
Operating Income:



	i)
	1.4%%
for President



	ii)
	1.05%
for Other Participants 














	g)
	If
Operating Income exceeds Targeted Operating Income, the Operating Income bonus earned will be increased linearly for each 1% increase in Operating Income
above Targeted Operating Income by 1.4% (for both President and other Participants)






	3)
	Free
Cash Flow (FCF)



	a)
	For
purposes of the Plan, FCF is defined as cash generated by operating activities, less net cash used in investing activities, adjusted for non recurring
items, as approved by the Committee



	b)
	Targeted
FCF will be set annually by the Committee



	c)
	Performance
is measured by the degree to which FCF achieves, exceeds, or falls short of, Targeted FCF



	d)
	Achievement
of Targeted FCF will result in a bonus as a % of annual base salary equal to the Target Bonus multiplied by the weighting of the FCF metric. For
2013 this would result in a bonus of:



	i)
	President—30.0%
of annual base salary (100% target × 30% weighting)



	ii)
	Other
Participants—22.5% of annual base salary (75% target × 30% weighting)






	e)
	If
free cash flow falls below $9.5 million, then no FCF bonus will be earned



	f)
	If
FCF falls between $9.5 million and Targeted FCF, then the bonus earned will be reduced linearly from the amounts determined under
Section 3(d), which, for 2013 would be:



	i)
	President—the
FCF bonus reduced linearly from 30% to 0% of annual base salary



	ii)
	Other
Participants—the FCF bonus reduced linearly from 22.5% to 0% of annual base salary






	g)
	If
FCF exceeds Targeted FCF, then the FCF bonus earned will be increased linearly for each $1 million increase in FCF above Targeted FCF by 0.833%
(for both President and other Participants)






	4)
	Overall
Bonus Earned



	a)
	For
2013, the total bonus that may be earned under the Plan is subject to a cap:



	i)
	President—150%
of annual base salary



	ii)
	Other
Participants—125% of annual base salary 









As
noted above, the Committee has the authority to change the maximum bonuses under the Plan for subsequent years. 












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Exhibit 10.38


Douglas Dynamics, Inc. 2013 Annual Incentive Plan