MONACO COACH CORPORATION

EXECUTIVE VARIABLE COMPENSATION PLAN

        1.    PURPOSES OF THE PLAN.    The purpose of the Monaco Coach Corporation Executive Variable Compensation Plan (the "Plan") is to motivate and reward eligible executives of the Company by making a significant portion of their cash compensation directly dependent upon achieving key strategic, financial, and operational objectives. It is the Company's intention that the compensation paid hereunder will qualify as "performance-based" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and will thereby be deductible by the Company.

        2.    DEFINITIONS.    

        (a)   "AWARD" means, with respect to each Participant, the award determined for a Performance Period. Each Award is determined by a formula for a Performance Period, subject to the Committee's authority under 6(e) to reduce the Award otherwise payable.

        (b)   "BOARD" means the Board of Directors of the Company.

        (c)   "COMMITTEE" means the Compensation Committee of the Board, or a sub-committee of the Compensation Committee, which shall consist solely of two or more members of the Board who are not employees of the Company and who otherwise qualify as "outside directors" within the meaning of Section 162(m).

        (d)   "COMPANY" means Monaco Coach Corporation.

        (e)   "COVERED EMPLOYEE" means a "covered employee" within the meaning of Section 162(m).

        (f)    "PARTICIPANT" means an eligible executive of the Company participating in the Plan for a Performance Period.

        (g)   "PERFORMANCE-BASED COMPENSATION" means compensation that is intended to qualify as "performance-based compensation" within the meaning of Section 162(m).

        (h)   "PERFORMANCE PERIOD" means the time period with respect to which an Award is earned and paid. Performance Periods under the Plan shall be annual, semi-annual and/or quarterly periods.

        (i)    "PLAN" means this Executive Variable Compensation Plan.

        (j)    "PLAN YEAR" means the Company's fiscal year, which is currently the twelve (12) month period that ends on the Saturday closest to December 31.

        (k)   "SECTION 162(m)" means Section 162(m) of the Internal Revenue Code of 1986, as amended, or any successor to Section 162(m), as that Section may be interpreted from time to time by the Internal Revenue Service, whether by regulation, notice or otherwise.

        3.    ADMINISTRATION OF THE PLAN.    

        (a)   The Committee shall be responsible for the general administration and interpretation of the Plan and for carrying out its provisions. The Committee may delegate specific administrative tasks to Company employees or others as appropriate for proper administration of the Plan. Subject to the limitations on Committee discretion imposed under Section 162(m), the Committee

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shall have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers and duties, but subject to the terms of the Plan:

          (i)  discretionary authority to construe and interpret the terms of the Plan, and to determine eligibility, Awards and the amount, manner and time of payment of any Awards hereunder;

         (ii)  to prescribe forms and procedures for purposes of Plan participation and distribution of Awards; and

        (iii)  to adopt rules, regulations and bylaws and to take such actions as it deems necessary or desirable for the proper administration of the Plan.

        (b)   All decisions of the Committee are subject to ratification by the Board.

        (c)   Any rule or decision by the Committee that is not inconsistent with the provisions of the Plan shall be conclusive and binding.

        4.    ELIGIBILITY.    The employees eligible to participate in the Plan for a given performance Period shall be all executive officers and other key employees of the Company designated by the Committee who are or may reasonably be expected to become Covered Employees, as determined by the Committee in its sole discretion. No person shall be automatically entitled to participate in the Plan.

        5.    PERFORMANCE TARGETS.    For each Performance Period the Committee shall establish Company performance measures and objectives as provided herein. Such performance measures and objectives shall be established in writing in advance of such date as is permitted by Section 162(m). A Participant's bonus opportunity shall become payable as an Award based upon the extent to which the Company meets or exceeds such pre-established performance measures.

        (a)    PERFORMANCE MEASURES.    The primary measure of Company performance shall be earnings before interest, taxes, depreciation and amortization (EBITDA).

        (b)    EFFECTS OF MERGER AND ACQUISITIONS.    Non-recurring expenses related to the impact of any acquisitions or mergers shall be excluded in determining whether the performance measures described above have been achieved.

        6.    AWARD PAYMENT.    

        (a)    CERTIFICATION.    The Committee shall certify in writing that all of the applicable performance criteria have been met prior to any payments under this Plan.

        (b)    FORM OF DISTRIBUTIONS.    The Company shall distribute all Awards to the Participant in cash.

        (c)    TIMING OF DISTRIBUTIONS.    Subject to Sections 6(d) and (e) below, the Company shall distribute amounts payable to Participants as soon as is practicable following the determination of the Award for a Performance Period.

        (d)    DEFERRAL.    The Committee may defer payment of Awards, or any portion thereof, to Covered Employees as the Committee, in its discretion, determines to be necessary or desirable to preserve the deductibility of such amounts under Section 162(m). In addition, a Participant may, subject to such terms and conditions as the Committee may prescribe, elect to defer payment of all or a portion of his or her Award.

        (e)    LIMITATIONS.    The Committee may not increase a Covered Employee's Award(s), but may, in its sole discretion, decrease a Covered Employee's Award(s).

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        7.    TERM OF PLAN.    The Plan shall first apply to the Company's 1999 Plan Year. The Plan shall continue until terminated under Section 8 of the Plan.

        8.    AMENDMENT AND TERMINATION OF THE PLAN.    The Committee may amend, modify, suspend or terminate the Plan, in whole or in part, at any time, including the adoption of amendments deemed necessary or desirable to correct any defect or to supply omitted data or to reconcile any inconsistency in the Plan or in any Award granted hereunder; provided, however, that no amendment, alteration, suspension or discontinuation shall be made which would (i) impair any payments to Participants made prior to such amendment, modification, suspension or termination, unless the Committee has made a determination that such amendment or modification is in the best interests of all persons to whom Awards have theretofore been granted; provided further, however, that in no event may such an amendment or modification result in an increase in the amount of compensation payable pursuant to such Award or (ii) cause compensation that is, or may become, payable hereunder to fail to qualify as Performance-Based Compensation. To the extent necessary or advisable under applicable law, including Section 162(m), Plan amendments shall be subject to shareholder approval. At no time before the actual distribution of funds to Participants under the Plan shall any Participant accrue any vested interest or right whatsoever under the Plan except as otherwise stated in this Plan.

        9.    TERMINATION OF EMPLOYMENT.    

        (a)   In the event that a Participant's employment with the Company terminates by reason of the Participant's retirement, total and permanent disability or death, the Committee may, in its discretion, pay to the Participant or the Participant's representative, as the case may be, all or a portion of the Award for the Performance Period in which such termination occurs.

        (b)   No Award shall be paid to a Participant whose employment terminates during a Performance Period except as provided in Section 9(a) above.

        10.    WITHHOLDING.    Distributions pursuant to this Plan shall be subject to all applicable federal and state tax and withholding requirements.

        11.    EMPLOYMENT.    This Plan does not constitute a contract of employment or compensation or impose on either the Participant or the Company any obligation to retain the Participant as an employee. This Plan does not change the status of the Participant as an employee at will, the policies of the Company regarding termination of employment, nor guarantee further continuing participation in the Plan.

        12.    SUCCESSORS.    The provisions of this Plan shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. The Plan replaces any other variable compensation plan for the Participants.

        13.    NONASSIGNMENT.    The rights of a Participant under this Plan shall not be assignable or transferable by the Participant except by will or the laws of intestacy.

        14.    GOVERNING LAW.    The Plan shall be governed by the laws of the State of Oregon