HARLEY-DAVIDSON, INC.

EMPLOYEE SHORT TERM INCENTIVE PLAN

 

ARTICLE I

PURPOSE

 

Harley-Davidson, Inc. intends to continue to provide a total compensation opportunity for substantially all of its employees and the employees of its participating Affiliates that includes incentive compensation dependent upon continuously improving performance. The purpose of the Harley-Davidson, Inc. Employee Short Term Incentive Plan is to provide a consistent framework to offer such employees an increased financial incentive to contribute to the future success and prosperity of Harley-Davidson, Inc.

 

ARTICLE II

DEFINITIONS

 

The following capitalized terms used in the Harley-Davidson, Inc. Employee Short Term Incentive Plan shall have the respective meanings set forth in this Article:

 

Section 2.1.    Affiliate:  Has the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act or any successor rule or regulation thereto.

 

Section 2.2.    Award:  An opportunity granted to a Participant to receive a Performance Award under the Plan, subject to the conditions described in the Plan and that the Committee otherwise imposes.

 

Section 2.3.    Board:  The Board of Directors of Harley-Davidson, Inc.

 

Section 2.4.    Category Percentage:  When two or more of the Performance Categories are selected for a Participant or a group of Participants for any Plan Year, the relative percentage weighting given to each selected Performance Category, if any.

 

Section 2.5.    Change of Control Event:  Any event the occurrence of which constitutes a Change of Control as defined in the Harley-Davidson, Inc. 2004 Incentive Stock Plan, as amended.

 

Section 2.6.    Code:  The Internal Revenue Code of 1986, as amended.

 

Section 2.7.    Committee:  The Human Resources Committee of the Board (including any successor committee thereto); provided, however, that if any member or members of the Human Resources Committee of the Board would cause the Human Resources Committee of the Board not to satisfy the administration requirement of Code section 162(m)(4)(C) or the disinterested administration requirement of Rule 16b-3 under the Exchange Act, the Committee shall be comprised of the Human Resources Committee of the Board without such member or members.

 

Section 2.8.    Common Stock:  The Common Stock of Harley-Davidson, Inc.

 

Section 2.9.    Company:  Harley-Davidson, Inc. and, unless the context otherwise requires, its Affiliates.

 

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Section 2.10.    Compensation:  With respect to a Participant for a Plan Year, means:

 

 

a.

For exempt employees, regular base pay and any workers compensation payments for the Plan Year to the extent provided by the Committee, and

 

 

b.

For non-exempt employees, regular base pay or hourly wages, including shift premiums and overtime, vacation and holiday pay and any workers compensation payments for the Plan Year to the extent provided by the Committee,

 

but, for purposes of clause (a) and (b), excluding any additional or miscellaneous forms of compensation, such as payments under this Plan, relocation expenses, deferred compensation payments, stock-based income or compensation and tuition reimbursement. However, the Committee may, at the time it grants an Award, provide that Compensation for a Participant will include or exclude any types of compensation.

 

Section 2.11.    Disability:  Disability within the meaning of section 22(e)(3) of the Code, as determined by the Committee.

 

Section 2.12.    Eligible Employee:  All regular salaried and hourly full- and part-time employees of the Company or of those Affiliates that the Committee designates, except that salaried U.S. employees who participate in the Sales Incentive Program and executives who participate in the Harley-Davidson, Inc. Corporate Short Term Incentive Plan for any Plan Year may not be Eligible Employees under the Plan for the same Plan Year and except that in designating an Affiliate the Committee may exclude any employees of such Affiliate from participation.

 

Section 2.13.    Exchange Act:  The Securities Exchange Act of 1934, as amended.

 

Section 2.14.    Excluded Items:  Any gains or losses from the sale of assets outside the ordinary course of business, any gains or losses from discontinued operations, any extraordinary gains or losses, the effects of accounting changes, and any unusual, nonrecurring, transition, one-time or similar items or charges.

 

Section 2.15.    Fair Market Value:  “Fair Market Value” as defined in the Harley-Davidson, Inc. 2004 Incentive Stock Plan, as amended, as of the trading date immediately preceding the date on which the Performance Award being paid in Common Stock, in whole or in part, is paid to the Participant.

 

Section 2.16.    Participant:  With respect to a Plan Year, an Eligible Employee selected by the Committee to receive an Award for such Plan Year.

 

Section 2.17.    Performance Award: With respect to a Participant for a Plan Year, an amount equal to the Target Award multiplied by the Total Performance Percentage, subject to reduction pursuant to section 5.5 hereof and the limit of section 5.6 hereof.

 

Section 2.18.    Performance Categories: The following categories (in all cases before Excluded Items), including in each case any measure based on such category:

 

 

a.

Net sales for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

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b.

Cost of goods sold for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

c.

Gross profit for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

d.

Selling, administrative and engineering expenses for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

e.

Income from operations for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

f.

Income before interest and the provision for income taxes for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

g.

Income before provision for income taxes for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

h.

Net income for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

i.

Basic earnings per common share for the Plan Year for the Company on a consolidated basis.

 

 

j.

Diluted earnings per common share for the Plan Year for the Company on a consolidated basis.

 

 

k.

Average accounts receivable during the Plan Year, calculated by taking the average of accounts receivable at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

l.

Average inventories during the Plan Year, calculated by taking the average of inventories at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

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m.

Return on average equity for the Plan Year, with average equity calculated by taking the average of equity at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

n.

Return on year-end equity for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

o.

Return on average assets for the Plan Year, with average assets calculated by taking the average of assets at the end of each fiscal month during the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

p.

Return on capital for the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

q.

Total shareholder return for the Plan Year.

 

 

r.

Economic value added, or other measure of profitability that considers the cost of capital employed, for the Plan Year, (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

s.

Net cash provided by operating activities for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

t.

Net cash provided by operating activities less net cash used in investing activities for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

u.

Net increase (decrease) in cash and cash equivalents for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

v.

Customer satisfaction for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

 

w.

Market share for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

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x.

Product quality for the Plan Year (i) for the Company on a consolidated basis, (ii) for any one or more Affiliates or divisions of the Company and/or (iii) for any other business unit or units of the Company as defined by the Committee at the time of selection.

 

In addition, with respect to Awards that are not intended to comply with Code section 162(m), or with respect to Performance Categories described in section 5.5, the Committee may designate other categories, including categories involving individual performance and subjective targets, not listed above.

 

Section 2.19.    Performance Limit:  A percentage relating to a Performance Category established under section 5.2 hereof that equals or exceeds one hundred percent (100%). The Committee may determine that a Performance Category will not have a Performance Limit.

 

Section 2.20.    Performance Percentage:  The percentage that is equal to or greater than zero percent (0%), and no greater than the Performance Limit (if any), derived from the Performance Scale for the applicable Performance Category for a Plan Year.

 

Section 2.21.    Performance Scale:  A performance scale from which a Performance Percentage may be calculated for any given level of actual performance within that Performance Category during the Plan Year. The Performance Scale may be a linear function, a step function or a combination.

 

Section 2.22.    Plan:  The Harley-Davidson, Inc. Employee Short Term Incentive Plan.

 

Section 2.23.    Plan Year:  The Company’s full fiscal year (or, in the discretion of the Committee, a period consisting of one or more full fiscal months of the Company representing less than a full fiscal year that ends on the last day of a fiscal year).

 

Section 2.24.    Retirement:  Termination from employment from the Company and its Affiliates, for reasons other than death, Disability, Cause (determined as described below) or accepting other full-time employment (a) on or after age sixty-two (62), (b) on or after age fifty-five (55) if the Participant has completed five years of service with the Company and its Affiliates or (c) with the consent of the Committee under other circumstances. “Cause” shall be determined by the Company in its discretion. Each Participant who is considered by the Company to have been terminated for Cause shall have the right to appeal such decision to the Committee if the Participant does so in writing within sixty (60) days after receiving notice of termination for Cause from the Company. If the Participant fails to appeal such decision within sixty (60) days, the Company’s determination shall be final and binding. If the Participant timely files a written appeal with the Committee, the Committee’s decisions shall be final and binding. For purposes hereof, a Participant’s years of service with the Company and its Affiliates shall be determined in the same manner as is specified in the Retirement Annuity Plan for Salaried Employees of Harley-Davidson (as it may be amended), whether or not the Participant is covered under such plan.

 

Section 2.25.    Target Award:  With respect to a Participant in any Plan Year, the amount of such Participant’s Compensation in such Plan Year multiplied by the Target Percentage for such Plan Year.

 

Section 2.26.    Target Percentage:  A percentage with respect to a Participant for a Plan Year.

 

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Section 2.27.    Total Performance Percentage:  With respect to a Participant for a Plan Year, the sum of the Performance Percentage multiplied by the Category Percentage for each Performance Category described in section 5.2 hereof applicable to such Participant for such Plan Year. If there is only one Performance Category for a Plan Year for a Participant under section 5.2 hereof, then the Performance Percentage is also the Total Performance Percentage.

 

ARTICLE III

ADMINISTRATION

 

Section 3.1.    Administrative Authority:  The Committee shall administer the Plan. In addition to the authority specifically described in the Plan, the Committee shall have full discretionary authority to interpret the Plan, to establish and amend rules and regulations for its administration and to perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. The actions and determinations of the Committee on all matters relating to the Plan shall be final and conclusive.

 

Section 3.2.    Delegation of Authority:  The Committee may delegate to one or more officers of the Company any or all of the authority and responsibility of the Committee, except with respect to Awards that are intended to comply with section 162(m) of the Code. If the Committee has made such a delegation, then all references to the Committee in this Plan include such officer(s) to the extent of such delegation.

 

ARTICLE IV

ELIGIBILITY AND PARTICIPATION

 

All Eligible Employees shall be eligible to participate in the Plan. The Committee shall select in writing, in its sole discretion, the Eligible Employees who shall participate in the Plan for a Plan Year prior to the commencement of the Plan Year (or such later time as may be determined by the Committee, provided that for Awards intended to be subject to Code section 162(m), the Award must be granted no later than is permitted under Code section 162(m)). Without limitation, the Committee may (a) select an Eligible Employee as a Participant at any time during the course of a Plan Year and (b) take action as a result of which there is an additional Award in respect of an Eligible Employee who, as to a Plan Year that is in progress, is already a Participant and as to whom an Award is already in effect where the additional Award relates to the same Plan Year or a Plan Year ending on the same date. Members of the Board who are not employees of the Company shall not be eligible to participate in the Plan.

 

ARTICLE V

PERFORMANCE AWARDS

 

Section 5.1.    Target Award:  Prior to the commencement of each Plan Year (or such later time as may be permitted under Code section 162(m), if applicable), the Committee shall fix in writing the Target Award for each Participant for such Plan Year.

 

Section 5.2.    Performance Categories:  Prior to the commencement of each Plan Year (or such later time as may be permitted under Code section 162(m), if applicable), the Committee shall

 

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select in writing one or more Performance Categories for each Award for each Participant or group of Participants for such Plan Year. If more than one Performance Category is chosen for any Participant or group of Participants, then the Committee shall assign a Category Percentage to one or more of the Performance Category(ies) selected for such Participant or group of Participants; provided that the total of the Category Percentages selected under this section 5.2 for each Award must equal 100% for such Participant or group of Participants. Performance Categories and/or Category Percentages need not be the same for all Participants for any Plan Year.

 

Section 5.3.    Performance Scale:  Prior to the commencement of each Plan Year (or such later time as may be permitted under Code section 162(m), if applicable), the Committee shall approve in writing a Performance Scale (and if so determined by the Committee, a Performance Limit) for each Performance Category selected under section 5.2 hereof for an Award for such Plan Year.

 

Section 5.4.    Payment of Performance Awards:  As soon as practicable following the end of each Plan Year, the Committee shall certify the actual performance within each Performance Category established under section 5.2 for such year and shall determine whether any reductions shall apply pursuant to section 5.5. The amount of Performance Awards for a Plan Year shall be calculated by the Company following such certification and shall be paid to Participants for such Plan Year as soon as reasonably practicable following the end of such Plan Year, but no later than two and one-half (2˝) months following the end of such Plan Year, except that, in the case of Participants who are employed by Harley-Davidson Motor Company and are represented by a union in Wisconsin, Performance Awards will be calculated and paid in a manner determined by the Committee. Notwithstanding the foregoing, the Company will have no obligation to make payments under the Plan for a Plan Year if such payments will result in the Company reflecting a net loss rather than net income. Payments of Performance Awards shall be made, in the sole discretion of the Committee, in cash, Common Stock pursuant to the Harley-Davidson, Inc. 2004 Incentive Stock Plan, as may be amended, or a combination of cash and Common Stock. If a Performance Award is paid in Common Stock, the Common Stock shall be valued at Fair Market Value. To the extent paid in Common Stock, except as the Committee may otherwise provide, Performance Awards may not be deferred by a Participant under the terms of any deferred compensation or other plan of the Company. A Participant whose employment with the Company terminates prior to the end of a Plan Year shall not be entitled to receive any Performance Award hereunder for such Plan Year. Notwithstanding the foregoing sentence:

 

 

a.

If a Participant terminates employment due to Retirement, or as a result of death, or if a Participant experiences a Disability, the Participant will be entitled to receive a payment (at the same time and in the same manner as payments are made to other Participants as described above) calculated in a manner determined by the Committee; and

 

 

b.

Prior to, and for a period of ninety (90) days following, a Change of Control Event during a Plan Year, the Committee may, in its sole discretion and in lieu of any other payments under the Plan for such Plan Year, provide for the payment to all Participants of either (i) the Participant’s Performance Award for such Plan Year based on annualizing the actual performance for each Performance Category and the Participant’s Compensation through the end of the Company’s most recently completed fiscal month prior to such Change of Control Event or (ii) the Participant’s Target Award for such Plan Year based on annualizing the Participant’s Compensation through the end of the Company’s most recently completed fiscal month prior to such Change of Control Event, except that, in

 

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each instance, in the case of Participants who are employed by Harley-Davidson Motor Company and are represented by a union in Wisconsin, the amount paid will be calculated and paid in a manner determined by the Committee.

 

Amounts payable under this section 5.4(b) shall be paid upon the occurrence of the Change of Control Event or immediately following the Committee’s decision to make such payment, whichever is later.

 

Section

5.5.    Reduction of Performance Award:

 

 

a.

The Committee may determine at the time an Award is made that the Performance Award will be reduced or eliminated depending on the performance under one or more Performance Categories.

 

 

b.

In addition, the Committee may, in its sole discretion, at any time prior to payment, reduce the amount of any Performance Award by up to fifty percent (50%). Such reductions need not be uniform among Participants. The Committee may, but shall not be required to, give one or more reasons for any such reduction. The Committee shall not have the discretionary authority to increase the amount of any Performance Award above the amount determined in accordance with the terms of the Plan and the Award. This section 5.5(b) shall not apply following a Change of Control Event.

 

Section 5.6.    Maximum Performance Award: Notwithstanding anything in the Plan to the contrary, no Participant shall be entitled to receive more than three million dollars (before any withholding pursuant to section 6.2 hereof and whether paid in cash, Common Stock or a combination) in the aggregate under Awards in respect of one Plan Year or in respect of more than one Plan Year where the Plan Years end on the same date.

 

ARTICLE VI

MISCELLANEOUS

 

Section 6.1.    Nonassignability:  Awards (including any payments due thereunder) shall not be assigned, pledged or transferred, other than by the laws of descent and distribution, and shall not be subject to levy, attachment, execution or other similar process. If a Participant attempts to assign, pledge or transfer any right to an Award or in the event of any levy, attachment, execution or similar process upon the rights or interests conferred by the Plan, the Committee may terminate the participation of the Participant in the Plan effective as of the date of such notice and the Participant shall have no further rights hereunder.

 

Section 6.2.    Withholding Taxes:  The Company shall withhold from the payment of each Performance Award the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state and local income or other taxes incurred by reason of the payment of the Performance Award.

 

Section 6.3.    Amendment or Termination of the Plan.  The Committee may from time to time or at any time amend, suspend or terminate the Plan.

 

Section 6.4.    Other Compensation:  Nothing contained in this Plan shall be deemed in any way to restrict or limit the Company from making any award or payment to a Participant under any other plan, policy, program, understanding or arrangement, whether now existing or hereinafter in effect.

 

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Section 6.5.    Payments to Other Persons:  If payment of a Performance Award, in whole or in part, is legally required to be made to any person other than the applicable Participant, any such payment will be a complete discharge of the liability of the Company to such Participant for such amount.

 

Section 6.6.    Unfunded Plan:  The Company shall have no obligation to purchase assets, place assets in trust or otherwise take any action to fund, secure or segregate any amounts to be paid under the Plan.

 

Section 6.7.    Indemnification:  In addition to any other rights of indemnification they may have as members of the Board or the Committee or as officers of the Company, the members of the Board and the Committee and any officers to whom authority is delegated under the Plan shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan and against all amounts paid by them in settlement thereof (provided that such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgement in any such action, suit or proceeding, except a judgement based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding, the Board or Committee member or officer shall give the Company notice thereof in writing and an opportunity, at the Company’s expense, to handle and defend such action, suit or proceeding before such Board or Committee member or officer undertakes to handle and defend such action, suit or proceeding on his or her own behalf.

 

Section 6.8.    No Employment Rights:  Nothing in this Plan shall confer upon any Eligible Employee or Participant any right to continued employment with the Company or any participating Affiliate.

 

Section 6.9.    Plan Expenses:  Any expenses of administering the Plan shall be borne by the Company.

 

Section 6.10.    In Writing:  For purposes of this Plan, actions taken by the Committee “in writing” shall include, without limitation, actions recorded in the minutes of any meeting of the Committee and any unanimous consent action of the Committee in lieu of a meeting thereof.

 

Section 6.11.    Section Headings:  The section headings contained herein are for convenience only, and in the event of any conflict between the text of the Plan and the section headings, the text of the Plan shall control.

 

Section 6.12.    Applicable Law:  The Plan shall be governed by the internal laws of the State of Wisconsin without regard to the conflict of law principles thereof.

 

Section 6.13.    Effective Date:  The Plan is effective for the Plan Year beginning January 1, 2006, if approved by the requisite vote of the Company’s shareholders under Code section 162(m) at the first meeting of the Company’s shareholders held after December 31, 2004.

 

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