DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No._ )

 

Filed by the Registrant:

     X
   ____

Filed by a Party other than the Registrant:

   ____

 

Check the appropriate box:

_______  

Preliminary Proxy Statement

_______  

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

X

_______

 

Definitive Proxy Statement

_______  

Definitive Additional Materials

_______  

Soliciting Material Pursuant to §240.14a-12

Navistar International Corporation

      

(Name of Registrant as Specified In Its Charter)

 

      

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

X

_______

    

No fee required.

    
_______     

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

    
    

(1)    Title of each class of securities to which transaction applies:

    

(2)    Aggregate number of securities to which transaction applies:

    

(3)    Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

    

(4)    Proposed maximum aggregate value of transaction:

    

(5)    Total fee paid:

    
_______     

Fee paid previously with preliminary materials.

    

_______

    

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

    

(1)    Amount Previously Paid:

    

(2)    Form, Schedule or Registration Statement No.:

    

(3)    Filing Party:

    

(4)    Date Filed:


Table of Contents

LOGO

NAVISTAR INTERNATIONAL CORPORATION

4201 WINFIELD ROAD

P.O. BOX 1488

WARRENVILLE, ILLINOIS 60555

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TUESDAY, FEBRUARY 16, 2010

11:00 A.M. – CENTRAL TIME

HYATT LISLE HOTEL

1400 CORPORETUM DRIVE

LISLE, ILLINOIS 60532

January 12, 2010

To our stockholders:

On behalf of the Board of Directors of Navistar International Corporation you are cordially invited to attend our 2010 Annual Meeting of Stockholders to:

 

  ¨

Elect as directors the nominees named in the attached proxy statement;

 

  ¨

Ratify the selection of our Independent Registered Public Accounting Firm;

 

  ¨

Approve an amendment to our 2004 Performance Incentive Plan to increase the number of shares available for issuance thereunder from 3,250,000 to 5,750,000;

 

  ¨

Approve an amendment to our 2004 Performance Incentive Plan to modify the performance measures; and

 

  ¨

Conduct any other business properly brought before the meeting.

This proxy statement and the form of proxy are first being made available to our stockholders on January 12, 2010. In order to attend our 2010 Annual Meeting of Stockholders, you must have an admission ticket to attend. Procedures for requesting an admission ticket are detailed on page 69 of this proxy statement. Attendance and voting is limited to stockholders of record at the close of business on January 4, 2010.

 

  By Order of the Board of Directors,
  LOGO
 

Curt A. Kramer

Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE STOCKHOLDERS MEETING TO BE HELD ON FEBRUARY 16, 2010:

THE ANNUAL REPORT AND PROXY STATEMENT ARE AVAILABLE AT

HTTP://IR.NAVISTAR.COM/ANNUALPROXY.CFM

 

       Page i        
    


Table of Contents

TABLE OF CONTENTS

 

PART ONE – ATTENDANCE AND VOTING MATTERS

   2

Frequently Asked Questions regarding Attendance and Voting

   2

PART TWO – PROPOSALS AND CORPORATE GOVERNANCE INFORMATION

   7

Corporate Governance Guidelines

   7

Board of Directors

   7

þ Proposal 1 – Election of Directors

   7

Related Party Transactions and Approval Policy

   11

Director Independence Determinations

   14

Nominating Directors

   14

Board Meetings, Communications and Committees

   15

Code of Conduct

   17

Audit Committee Report

   18

Independent Registered Public Accounting Firm Fee Information

   19

þ Proposal 2 – Ratification of Independent Registered Public Accounting Firm

   20

2004 Performance Incentive Plan

   20

þ Proposal 3 – Approval of an amendment to our 2004 Performance Incentive Plan to increase the number of shares available for issuance thereunder from 3,250,000 to 5,750,000

   21

þ Proposal 4 – Approval of an amendment to our 2004 Performance Incentive Plan to modify the performance measures

   21

PART THREE – OTHER IMPORTANT INFORMATION

   29

Persons Owning More than Five Percent of Navistar Common Stock

   29

Navistar Common Stock Owned by Executive Officers and Directors

   31

Compensation

   32

Compensation Discussion & Analysis

   32

Compensation Committee Report

   42

Executive Compensation Tables

   43

Compensation of Directors

   61

Equity Compensation Plan Information

   65

Other Matters

   68

Section 16(a) Beneficial Ownership Reporting Compliance

   68

Availability of Form 10-K and Annual Report to Stockholders

   68

Matters Raised at the Meeting not Included in this Proxy Statement

   68

Admission & Ticket Request Procedure

   69

Appendix A 2004 Performance Incentive Plan

   A-1

Appendix B Total Compensation by Industry Executive – 2009

   B-1

 

       Page 1        
    


Table of Contents

 

PART ONE – ATTENDANCE AND VOTING MATTERS

 

FREQUENTLY ASKED QUESTIONS REGARDING ATTENDANCE AND VOTING

Q:  Why am I receiving this proxy statement?

A:   You are receiving this proxy statement because the Board of Directors (the “Board”) of Navistar International Corporation (“Navistar” or the “Company”) is soliciting your proxy to vote your shares at our 2010 annual meeting of stockholders (the “Annual Meeting”). This proxy statement includes information that we are required to provide to you under the rules of the U.S. Securities and Exchange Commission (“SEC”) and is designed to assist you in voting your shares.

Q:  What is the purpose of the Annual Meeting?

A:   The purpose of the Annual Meeting is to have stockholders act upon the matters outlined in the notice of annual meeting and this proxy statement, which include (i) the election of the nominees named in this proxy statement as directors, (ii) the ratification of Navistar’s independent registered public accounting firm, (iii) the approval of an amendment to our 2004 Performance Incentive Plan to increase the number of shares available for issuance thereunder from 3,250,000 to 5,750,000 and (iv) the approval of an amendment to our 2004 Performance Incentive Plan to modify the performance measures. In addition, management may report on the performance of Navistar and respond to questions from stockholders.

Q:  Who can attend the Annual Meeting?

A:   Anyone wishing to attend the Annual Meeting must have an admission ticket issued in his or her name. Admission is limited to:

 

   

stockholders of record on January 4, 2010, or

   

a stockholder’s authorized proxy holder or representative.

You must provide evidence of your ownership of shares with your ticket request. The specific requirements for obtaining an admission ticket are specified in the “Admission & Ticket Request Procedure” on page 69 of this proxy statement.

Q:  What is the difference between a stockholder of record and stock held in “street name”?

A:   A stockholder of record or registered stockholder is a stockholder whose ownership of Navistar stock is reflected directly on the books and records of our transfer agent, Mellon Investor Services (the “Transfer Agent”). If you hold stock through a bank, broker or other intermediary, you hold your shares in “street name” and are not a stockholder of record. For shares held in a street position, the record owner of the shares is your bank, broker or other intermediary. Navistar only has access to ownership records for the registered shares so, if you are not a registered stockholder, for the purpose of requesting a ticket to attend the Annual Meeting, the Company needs additional documentation to evidence your stock ownership as of the record date, such as, a copy of your brokerage account statement, a letter from your broker, bank or other nominee or a copy of your voting instruction card.

Q:  When is the record date and who is entitled to vote?

A:   The Board set January 4, 2010, as the record date for the Annual Meeting. Holders of Navistar common stock on that date are entitled to one vote per share. As of January 4, 2010, there were approximately 70,827,477 shares of Navistar common stock outstanding. If you are a participant in any

 

       Page 2        
    


Table of Contents

of the Company’s 401(k) or retirement savings plans, your proxy card will represent the number of shares allocated to your account under the plan and will serve as a direction to the plan’s trustee as to how the shares in your account are to be voted.

A list of all registered holders will be available for examination by stockholders during normal business hours at 4201 Winfield Road, Warrenville, Illinois 60555 at least ten days prior to the Annual Meeting and will also be available for examination at the Annual Meeting.

Q:  How do I vote?

A:   For stockholders of record: You may vote by any of the following methods:

 

   

in person stockholders who obtain an admission ticket (following the specified procedure) and attend the Annual Meeting will receive a ballot for voting.

 

   

by mail use the proxy and/or voting instruction card provided.

 

   

by phone or via the Internet follow the instructions on the enclosed proxy and/or voting instruction card.

If you vote by phone or via the Internet, please have your proxy and/or voting instruction card available. The control number appearing on your card is necessary to process your vote. A phone or Internet vote authorizes the named proxies in the same manner as if you marked, signed and returned the card by mail.

For holders in street name: You will receive instructions from the holder of record that you must follow in order for your shares to be voted.

Q:  How can I authorize someone else to vote for me?

A:   If you want to authorize someone other than the individual(s) named on the proxy card to vote for you:

 

   

cross out the individual(s) named and insert the name of the individual you are authorizing to vote; or

 

   

provide a written authorization to the individual you are authorizing to vote along with your proxy card.

For holders in street name: You should contact your broker to obtain documentation with authorization to attend or vote at the Annual Meeting.

To obtain an admission ticket for your authorized proxy representative, see the requirements specified in the “Admission & Ticket Request Procedure” on page 69 of this proxy statement.

Q:  How can I change or revoke my proxy?

A:   For stockholders of record: You may change or revoke your proxy at any time before it is exercised by (i) submitting a written notice of revocation to Navistar c/o the Corporate Secretary at 4201 Winfield Road, P.O. Box 1488, Warrenville, Illinois 60555, (ii) providing a later dated proxy, (iii) voting by telephone or Internet at a later time or (iv) attending the Annual Meeting and voting in person. For all methods of voting, the last vote cast will supersede all previous votes.

For holders in street name: You may change or revoke your voting instructions by following the specific directions provided to you by your bank or broker.

 

       Page 3        
    


Table of Contents

Q:  Is my vote confidential?

A:   Yes. Proxy cards, ballots and voting tabulations that identify stockholders are kept confidential. There are exceptions for contested proxy solicitations or when necessary to meet legal requirements. Broadridge Financial Solutions, Inc., the independent proxy tabulator used by Navistar, counts the votes and acts as the inspector of election for the meeting.

Q:  Will my shares be voted if I do not provide my proxy?

A:   If your shares are held in street name, your shares may be voted even if you do not provide the brokerage firm with voting instructions. Under New York Stock Exchange (“NYSE”) rules, your broker may vote shares held in street name on certain “routine” matters.

NYSE rules consider the ratification of the selection of independent auditors and the modification of the performance measurements and goals under Section 162(m) of the Internal Revenue Code to be routine matters. As a result, your broker is permitted to vote your shares on those matters at its discretion without instruction from you. When a proposal is not a routine matter, such as the election of directors or the approval of an increase in the number of shares authorized and available for issuance under our 2004 Performance Incentive Plan and the beneficial owner of the shares has not provided voting instructions to the brokerage firm with respect to that proposal, the brokerage firm cannot vote the shares on that proposal. This is called a broker non-vote.

Q:  What is the quorum requirement for the Annual Meeting?

A:   Under Navistar’s bylaws, holders of at least one-third of the shares of Navistar common stock outstanding must be present in person or represented by proxy in order to constitute a quorum. Abstentions and broker non-votes are counted as present for purposes of establishing a quorum.

Q:  What vote is necessary for action to be taken on proposals?

A:   Directors are elected by a plurality vote of the shares present at the Annual Meeting, meaning that the director nominees with the most affirmative votes are elected to fill the available seats. As outlined in our Corporate Governance Guidelines, any director who receives more “withheld” votes than “for” votes in an uncontested election is required to tender his or her resignation to the Nominating and Governance Committee for consideration and recommendation to the Board. All other actions require an affirmative vote of the majority of shares present or represented at the Annual Meeting. Abstentions and broker non-votes have the effect of a vote against matters other than ratification of the selection of independent auditors and the modification of the performance measurements and goals under Section 162(m) of the Internal Revenue Code, which are considered routine matters as discussed above.

Votes submitted by mail, telephone or Internet will be voted by the individuals named on the card (or the individual properly authorized) in the manner indicated. If you do not specify how you want your shares voted, they will be voted in accordance with management’s recommendations. If you hold shares in more than one account, you must vote each proxy and/or voting instruction card you receive to ensure that all shares you own are voted.

Q:  What is house-holding?

A:   If you and other residents at your mailing address own shares of Navistar common stock in street name, your broker or bank may have notified you that your household will receive only one annual report and proxy statement for each corporation in which you hold stock through that broker or bank. In this practice known as “house-holding,” you were deemed to have consented to that process. House-holding benefits both you and the Company because it reduces the volume of duplicate information

 

       Page 4        
    


Table of Contents

received at your household and helps the Company to reduce expenses. Accordingly, the Company and your broker or bank will send one copy of our annual report and proxy statement to your address. Each stockholder will continue to receive a separate proxy card or voting instruction card. We will promptly deliver an additional copy of either document to you if you call or write us at the following address or phone number: Investor Relations, Navistar International Corporation, 4201 Winfield Road, P.O. Box 1488, Warrenville, Illinois 60555, (630) 753-2143.

Q:  What does it mean if I receive more than one proxy card?

A:   Whenever possible, registered shares and plan shares for multiple accounts with the same registration will be combined into the same proxy card. Shares with different registrations cannot be combined and as a result, the stockholder may receive more than one proxy card. For example, registered shares held individually by John Doe will not be combined on the same proxy card as registered shares held jointly by John Doe and his wife.

Street shares are not combined with registered or plan shares and may result in the stockholder receiving more than one proxy card. For example, street shares held by a broker for John Doe will not be combined with registered shares for John Doe.

If you hold shares in more than one account, you must vote each proxy and/or voting instruction card you receive to ensure that all shares you own are voted. If you receive more than one card for accounts that you believe could be combined because the registration is the same, contact our stock transfer agent (for registered shares) or your broker (for street shares) to request that the accounts be combined for future mailings.

Q:  Who pays for the solicitation of proxies?

A:   Navistar pays the cost of soliciting proxies. This solicitation is being made by mail, but also may be made by telephone, e-mail or in person. We have hired The Altman Group, Inc. to assist in the solicitation of proxies. The Altman Group’s fees are estimated to be $10,500, plus out-of-pocket expenses, to assist in the solicitation. Proxies may also be solicited by our directors, officers and employees who will not be additionally compensated for those activities. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to stockholders and obtaining their votes.

Q:  When are stockholder proposals or nominations due for the 2011 annual meeting?

A:   Our annual meeting of stockholders is typically held on the third Tuesday in February. Accordingly, we expect to hold our 2011 annual meeting of stockholders on or around February 15, 2011. Under the rules of the SEC, we must receive any stockholder proposals to be included in our proxy statement for the 2011 annual meeting of stockholders no later than the close of business on September 14, 2010.

To otherwise seek to present a proposal at an annual meeting of stockholders or nominate directors, under our bylaws notice must be given not more than 180 days and not less than 120 days in advance of the first anniversary of the preceding year’s meeting. Therefore, based on the date of our Annual Meeting, advance notice of any nominations for directors and any other proposals sought to be presented at the 2011 annual meeting of stockholders must be received between August 20, 2010 and October 19, 2010. All stockholder proposals and director nominations must be in accordance with our bylaws and delivered to Navistar by mail c/o the Corporate Secretary at 4201 Winfield Road, P.O. Box 1488, Warrenville, Illinois 60555.

 

       Page 5        
    


Table of Contents

Q:  Are there any matters to be voted on at the Annual Meeting that are not included in the proxy?

A:   We do not know of any matters to be acted upon at the Annual Meeting other than those discussed in this proxy statement. If any other matter is presented, proxy holders will vote on the matter in their discretion.

Q:  May stockholders ask questions at the Annual Meeting?

A:   Yes. During the Annual Meeting, stockholders may ask questions or make remarks directly related to the matters being voted on. In order to ensure an orderly meeting, we ask that stockholders direct questions and comments to the Chairman. In order to provide the opportunity to every stockholder who wishes to speak, each stockholder’s remarks will be limited to two minutes. Stockholders may speak a second time only after all other stockholders who wish to speak have had their turn.

 

       Page 6        
    


Table of Contents

PART TWO – PROPOSALS AND CORPORATE GOVERNANCE INFORMATION

 

CORPORATE GOVERNANCE GUIDELINES

Our Board has adopted Corporate Governance Guidelines, which are available on the Investor Relations section of our website at http://ir.navistar.com/documentdisplay.cfm?DocumentID=1309. These guidelines reflect the Board’s commitment to oversee the effectiveness of policy and decision-making both at the Board and management level, with a view to enhancing stockholder value over the long term.

 

 

BOARD OF DIRECTORS

 

þ   PROPOSAL 1—ELECTION OF DIRECTORS

Our Board consists of 10 directors. One director is appointed by the United Automobiles, Aerospace and Agricultural Implement Workers of America (the “UAW”) and is not part of our classified Board. The remaining 9 directors are divided into three equal classes for purposes of election (i.e., Class I, Class II and Class III). Only members of Class II of our classified Board are up for election at the Annual Meeting. The nominees were evaluated and recommended by the Nominating and Governance Committee in accordance with the process for nominating directors as found on page 14 of this proxy statement. If elected, the Class II Directors will hold office for an additional three year term expiring in 2013, or until their earlier death, resignation or retirement.

If a nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NOMINEES PRESENTED IN PROPOSAL 1.

Class II Directors Whose Term Expires at the 2010 Annual Meeting – THIS IS THE ONLY CLASS OF DIRECTORS UP FOR ELECTION AT THE ANNUAL MEETING.

 

LOGO

  

Eugenio Clariond,* 66, Director since 2002. He retired as Chairman of the Board of Directors and Chief Executive Officer of Group IMSA, S.A., a producer of steel processed products, steel and plastic construction products and aluminum and other related products, in 2006. He served as Chief Executive Officer from 1985 through 2006 and as Chairman from 2003 through 2006. He is a director of Grupo Financiero Banorte, S.A., Mexichem S.A., the Mexico Fund, Inc. and Johnson Controls, Inc. He is also Chairman of the Mexican Fund for Nature Conservancy and President of the USA-Mexico Business Council. Committees: Finance and Nominating and Governance.

 

       Page 7        
    


Table of Contents
LOGO   

Diane H. Gulyas,* 53, Director since 2009. She is the President responsible for E.I. DuPont De Nemours and Company’s (“DuPont”) performance polymers, which contains three business units – engineering polymers, elastomers and films, with annual revenues of approximately $4 billion. She joined DuPont in 1978 and spent her first 10 years in a variety of sales, marketing, technical and systems development positions, primarily in the company’s polymers business. She later served as vice president and general manager for DuPont’s advanced fiber business and then group vice president of the $3 billion electronic and communication technologies platform. In April 2004, she was named chief marketing and sales officer, where she was responsible for corporate branding and marketing communications, market research, e-business and marketing/sales capability worldwide. She was named to her current position in October 2009. Committee: Finance.

LOGO

  

William H. Osborne,* 49, Director since 2009. He is President and Chief Executive Officer of Federal Signal Corporation, a $1 billion manufacturer and marketer of fire, safety and municipal infrastructure equipment, since September 2008. Prior to joining Federal Signal Corporation he served in a number of senior-level positions with Ford Motor Company. Most recently, he served as president and chief executive officer of Ford of Australia from February 2008 to September 2008. Previously, he served as president and chief executive officer of Ford of Canada from November 2005 to January 2008, and as Executive Director, Pickup Truck and Commercial Vehicles, North American Truck Business of Ford Motor Company from December 2003 to November 2005. His earlier assignments included a variety of roles in product design, development and engineering. Prior to joining Ford, he held positions at Chrysler and General Motors from 1977 to 1990. He is also a director of Federal Signal Corporation. Committee: Finance.

THE FOLLOWING CLASSES OF DIRECTORS ARE NOT UP FOR ELECTION AT THE ANNUAL MEETING.

Class III Directors Whose Term Expires at the 2011 Annual Meeting

 

LOGO   

James H. Keyes,* 69, Director since 2002. He retired as Chairman of the Board of Johnson Controls, Inc., an automotive system and facility management and control company, in 2003, a position he had held since 1993. He served as Chief Executive Officer of Johnson Controls, Inc. from 1988 until 2002. He is a director of Pitney Bowes, Inc. and on the Board of Trustees of Fidelity Mutual Funds. Committees: Audit (Chair), Compensation, Nominating and Governance and Executive.

LOGO   

John D. Correnti,* 62, Director since 1994. He is Chairman and Chief Executive Officer of Steel Development Co., LLC, a steel mill operational and development company. Prior to this position he was President and Chief Executive Officer of SeverCorr, LLC, a manufacturer of high quality flat-rolled steel products, from 2005 until 2008 and Chairman of the Board of Directors and Chief Executive Officer of Birmingham Steel Corporation, a manufacturer of steel and steel products, from 1999 to 2002. Mr. Correnti served as Chief Executive Officer, President and Vice Chairman of Nucor Company, a mini mill manufacturer of steel products, from 1996 to 1999, and as its President and Chief Operating Officer and as a director from 1991 to 1996. He is a director of Corrections Corporation of America and also serves on the Clarkson University Board of Trustees and the Mississippi University for Women Foundation Board. Committees: Audit, Nominating and Governance and Compensation (Chair).

 

       Page 8        
    


Table of Contents
LOGO   

Daniel C. Ustian, 59, Director since 2002. He is President and Chief Executive Officer of Navistar since 2003 and Chairman of the Board of Directors of Navistar since 2004. He is also Chairman of Navistar, Inc. since 2004 and President and Chief Executive Officer of Navistar, Inc. since 2003 and a director since 2002. Prior to these positions he was President and Chief Operating Officer, from 2002 to 2003, and President of the Engine Group of Navistar, Inc. from 1999 to 2002, and he served as Group Vice President and General Manager of Engine & Foundry from 1993 to 1999. He is a member of the Business Roundtable and the Society of Automotive Engineers. Committee: Executive.

Class I Directors Whose Term Expires at the 2012 Annual Meeting

 

LOGO

  

David D. Harrison,* 62, Director since 2007. He served as Executive Vice President and Chief Financial Officer of Pentair, Inc., a $3 billion global manufacturing company, with more than 15,000 employees, from 2000 until his retirement in February 2007. Prior to joining Pentair, he held several executive positions with General Electric Co. and Borg Warner Corp., including positions in Europe and Canada. Mr. Harrison is currently managing partner of HCI, Inc., a real estate investment firm, a director of National Oilwell Varco, Inc., a leading global manufacturer of oil well drilling equipment and a director of James Hardie, a world leader in fibre cement technology. Committees: Audit and Compensation.

LOGO

  

Steven J. Klinger,* 50, Director since 2008. He has been President and Chief Operating Officer of Smurfit-Stone Container Corporation since 2006. On January 26, 2009, Smurfit-Stone Container Corporation filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. Prior to this position, he served as Executive Vice President, Packaging, Pulp & Global Procurement at Georgia-Pacific Corporation from 2003 to 2006 and President of Packaging, Georgia-Pacific from 2000 to 2002. Prior to 2000, he held numerous other positions within Georgia-Pacific. He is also a director of Smurfit-Stone Container Corporation since December 2008. Committees: Audit and Compensation.

LOGO

  

Michael N. Hammes,* 68, Director since 1996. He served as Chairman and Chief Executive Officer of Sunrise Medical Inc., which designs, manufacturers and markets home medical equipment worldwide, from 2000 until his retirement as CEO in 2007 and as Chairman in 2008. He was Chairman and Chief Executive Officer of the Guide Corporation, an automotive lighting business, from 1998 to 2000. He was also Chairman and Chief Executive Officer of The Coleman Company, Inc., a manufacturer and distributor of camping and outdoor recreational products and hardware/home products, from 1993 to 1997. He is Chairman of James Hardie, a public company and the world leader in fibre cement technology. In addition, Mr. Hammes is a member of the board of two private companies (DynaVox Mayer-Johnson and DeVilbiss) and chairman of another private company (Joerns Healthcare Inc.). All of these private companies are involved in medical equipment for the health care industry. Committees: Compensation, Finance (Chair), Nominating and Governance (Chair) and Executive. He is also Lead Director of Navistar since December 2007.

 

       Page 9        
    


Table of Contents

Additional Director Who Is Not Elected by Stockholders

 

LOGO

  

Dennis D. Williams,* ** 56, Director since 2006. The UAW employs Mr. Williams as a director of UAW Region 4, a position he has held since 2001. Prior to this position, Mr. Williams served as Assistant Director of Region 4 since 1995. Prior to joining the UAW, Mr. Williams was employed by Case Company from 1977 to 1988. Mr. Williams also served for four years in the United States Marine Corps. Committee: Finance.

 

 

 

*

Indicates each director deemed independent in accordance with our Corporate Governance Guidelines and Section 303A of the NYSE Listed Company Manual Corporate Governance Standards.

 

**

In July 1993, we restructured our postretirement health care and life insurance benefits pursuant to a settlement agreement, which required, among other things, the addition of a seat on our Board. The director’s seat is filled by a person appointed by the UAW. This director is not part of our classified Board and is not elected by stockholders at the Annual Meeting. Mr. Williams was elected as a director in June 2006 to fill the seat previously held by David McAllister, the former UAW director who held this position from 2001 until his removal by the UAW in June 2006.

 

       Page 10        
    


Table of Contents

RELATED PARTY TRANSACTIONS AND APPROVAL POLICY

We established the Navistar International Corporation Executive Stock Ownership Program in 1997 to more closely align the interests of stockholders and our senior management. Under this program all of our executive officers and certain senior managers are required to purchase and hold a specified amount of our common stock equal to a multiple of his or her annual base salary. Certain executive officers received full-recourse loans for the purchase price of our common stock they purchased through the program. Effective July 30, 2002, we ceased offering to our executive officers loans under this program. The loans extended to our executive officers prior to July 30, 2002, however, remain in effect in accordance with their then existing terms and conditions. These existing loans accrue interest at the applicable federal rate (as determined by Section 1274(d) of the Internal Revenue Code) on the purchase date (or date of refinance) for loans of stated maturity, compounded annually, are unsecured obligations and have a nine-year term.

For current outstanding loans, principal and interest is due at maturity in a balloon payment. The payment of the loan will be accelerated if a participant’s employment is terminated for cause or for certain other reasons prior to, or following, a change of control. The loan may be prepaid at any time at the participant’s option.

The following executive officers of the Company have outstanding loans under this program. The table indicates the largest amount of the indebtedness outstanding during fiscal 2009, the interest rate charged and the aggregate outstanding balance as of December 31, 2009.

 

     Name   

Maximum Indebtedness
During Fiscal

2009($)

  

Aggregate Outstanding
Balance as of

December 31, 2009($)

   Interest Rate (%)
   

Gregory W. Elliott

   $132,306    $132,306    4.77% & 5.02%
   

Daniel C. Ustian

   $410,761    $410,761    4.77%

Our Policy and Procedures with Respect to Related Person Transactions governs the review, approval and ratification of transactions involving the Company and related persons where the amount involved exceeds $120,000. Related persons include our executive officers, directors, director nominees, 5% stockholders and immediate family members of such persons and entities in which one of these persons has a direct or indirect material interest. Under this policy, prior to entering into any related-person transaction, the General Counsel or Corporate Secretary of Navistar is to be notified of the facts and circumstances of the proposed transaction, including: (i) the related person’s relationship to the Company and interest in the transaction; (ii) the material facts of the proposed transaction, including the proposed aggregate value of such transaction or, in the case of indebtedness, the amount of principal that would be involved; (iii) the benefits to the Company of the proposed transaction; (iv) if applicable, the availability of other sources of comparable products or services; and (v) an assessment of whether the proposed transaction is on terms that are comparable to the terms available to an unrelated third party or to employees generally.

The General Counsel or Corporate Secretary then assesses whether the proposed transaction is a related-person transaction for purposes of the policy and SEC rules. If the General Counsel or Corporate Secretary determines that the proposed transaction is a related-person transaction, the proposed transaction is then submitted to the Audit Committee of the Board for its consideration. The Audit Committee considers all of the relevant facts and circumstances available, including (if applicable) but not limited to: (i) the benefits to the Company; (ii) the impact on a director’s independence, in the event such person is a director; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to

 

       Page 11        
    


Table of Contents

unrelated third parties or to employees generally. No member of the Audit Committee shall participate in any review, consideration or approval of any related-person transaction with respect to which such member or any of his or her immediate family members is the related person. The Audit Committee approves only those proposed transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders, as determined by the Audit Committee in good faith. In the event that the Company becomes aware of a related-person transaction that has not been previously approved or ratified, a similar process will be undertaken in order to determine if the existing transaction should continue or be terminated and/or if any disciplinary action is appropriate. The General Counsel or Corporate Secretary may also develop, implement and maintain from time to time certain administrative procedures to ensure the effectiveness of this policy.

A copy of our Policy and Procedures with Respect to Related Person Transactions is available on the Investor Relations section of our website at http://ir.navistar.com/documentdisplay.cfm?DocumentID=3617.

For fiscal year 2009 and to the date of this proxy statement, the following five related-person transactions occurred:

 

   

The first occurred in June 2009 and related to a lump sum payment in the amount of $2.5 million to the surviving spouse of the Company’s former Director and Chief Financial Officer, Terry M. Endsley. Mr. Endsley passed away in April 2009. The Compensation Committee determined that in light of Mr. Endsley’s career-long commitment, major contributions to the Company, positive impact during the restatement process and the fact that he missed the Company’s Management Retirement Objective (“MRO”) eligibility by months at the time of his death, it was appropriate to make this lump sum payment to Mrs. Endsley. Since Mr. Endsley was a Director and Chief Financial Officer during a portion of fiscal year 2009, he and his spouse were subject to our Policy and Procedures with Respect to Related Person Transactions. The Audit Committee determined that the lump sum payment to the surviving spouse of the Company’s former Director and Chief Financial Officer, Terry M. Endsley, is not inconsistent with the best interests of the Company and approved the transaction.

 

   

The second originally occurred in June 2009 and was ratified in December 2009 and related to Diane H. Gulyas, a Director of the Company, and her service as fundraising chair of the United Way, Delaware. The Company contributed in excess of $120,000 to the United Way in support of its fundraising campaign and expects to do so again in 2010. None of these contributions were made to United Way, Delaware and Ms. Gulyas did not participate in the solicitation of these contributions, nor did she receive any direct or indirect material benefit from that relationship. After consideration of the matter the Audit Committee determined that this related person transaction is not inconsistent with the best interests of the Company and ratified and approved the transaction.

 

   

The third originally occurred in August 2008 and related to our Vice President and Treasurer, James M. Moran, in regards to his wife Kristin Moran’s employment as the General Counsel of our finance subsidiary, Navistar Financial Corporation. As General Counsel of Navistar Financial Corporation, Mrs. Moran receives compensation in excess of $120,000 per year. Since Mrs. Moran’s employment pre-dated Mr. Moran’s appointment as our Vice President and Treasurer, that relationship was permissible under the applicable provisions of our Policy and Procedures with Respect to Related Person Transactions and did not require Audit Committee approval. Any material change in the terms of Mrs. Moran’s employment would, however, need to be approved by the Audit Committee.

 

       Page 12        
    


Table of Contents
   

The fourth originally occurred in December 2007 and was ratified in December 2009 and related to the retention of Evercore Trust Company as an investment manager for certain of our employee benefit plan trusts as more fully described in footnote (D) to the table disclosing more than 5% owners of our common stock on page 29 of this proxy statement. As compensation for its investment manager services, Evercore Trust Company is paid an aggregate yearly service fee of $250,000. The Audit Committee determined that the investment manager service provided by Evercore Trust Company is not inconsistent with the best interests of the Company and ratified and approved the transaction.

 

   

The fifth occurred in September 2009 and relates to our Chief Financial Officer, Andrew Cederoth, whose brother in law, Daniel McEachern, is a sourcing manager at Navistar, Inc. As sourcing manager at Navistar, Mr. McEachern received compensation in excess of $120,000 per year. Since Mr. McEachern’s employment predated Mr. Cederoth’s appointment as our Executive Vice President and Chief Financial Officer, that relationship was permissible under the applicable provisions of our Policy and Procedures with Respect to Related Person Transactions and did not require Audit Committee approval. Any material change in the terms of Mr. McEachern’s employment would, however, need to be approved by the Audit Committee.

 

       Page 13        
    


Table of Contents

DIRECTOR INDEPENDENCE DETERMINATIONS

We believe that a majority of our members of our Board should be independent non-employee directors. Our Board has affirmatively determined that each of Messrs. Clariond, Correnti, Hammes, Harrison, Keyes, Klinger, Osborne and Williams and Ms. Gulyas qualifies as an “independent director” in accordance with the NYSE’s independence requirements and our own internal guidelines for determining director independence and is financially literate. All of the members of our Audit Committee, Compensation Committee, Finance Committee and the Nominating and Governance Committee are independent and financially literate.

Both the NYSE requirements and our own guidelines include a series of objective tests for determining the independence of a director, such as that the director is not an employee of Navistar and has not engaged in various types of commercial or charitable relationships with Navistar. A copy of our existing guidelines for determining director independence, as included in our Corporate Governance Guidelines, is available on the Investor Relations section of our website at http://ir.navistar.com/documentdisplay.cfm?DocumentID=1309. Our Board has made a determination as to each independent director that no relationship exists which, in the opinion of the Board, would interfere with the exercise of the director’s independent judgment in carrying out his or her responsibilities as a director. In making these determinations, our Board reviewed and discussed information provided by the directors and Navistar with regard to each director’s business and personal activities as they may relate to Navistar, its management and/or its independent registered public accounting firm. We intend to explain in our public filings the basis for any determination by the Board that a relationship is not material if the relationship does not satisfy one of the specific categories of immaterial relations contained in our existing guidelines.

NOMINATING DIRECTORS

If you want to recommend a director candidate, you must do so in accordance with our bylaws that require advance notice to the Company and provide the information described therein. If you are interested in recommending a director candidate, you should request a copy of the bylaw provisions by writing to our Corporate Secretary at 4201 Winfield Road, P.O. Box 1488, Warrenville, Illinois 60555.

The Nominating and Governance Committee identifies nominees for directors from various sources, including suggestions from Board members and management, and in the past has used third party consultants to assist in identifying and evaluating potential nominees. The Nominating and Governance Committee will consider persons recommended by the stockholders in the same manner as a committee-recommended nominee. The Nominating and Governance Committee has specified the following minimum qualifications that it believes must be met by a nominee for a position on the Board:

 

   

have the highest personal and professional ethics and integrity and values that are compatible with the Company’s values;

 

   

have had experiences and achievements that have given them the ability to exercise good business judgment;

 

   

can make significant contributions to the Company’s success;

 

   

are willing to devote the necessary time to the work of the Board and its committees which includes being available for the entire time of meetings;

 

   

can assist and evaluate the Company’s management;

 

       Page 14        
    


Table of Contents
   

are involved only in other activities or interests that do not create a conflict with their responsibilities to the Company and its stockholders;

 

   

understand and meet their responsibilities to the Company’s stockholders including the duty of care (making informed decisions) and the duty of loyalty (maintaining confidentiality and avoiding conflicts of interest); and

 

   

have the potential to serve on the Board for at least five years.

The Nominating and Governance Committee believes that consideration should also be given to having a diversity of backgrounds, skills, and perspectives among the directors, and that generally directors should not be persons whose primary activity is investment banking, law, accounting, or consulting. In addition, the selection of directors should consider the need to strengthen the Board by providing a diversity of persons in terms of their expertise, age, sex, race, education, and other attributes which contribute to the Board’s diversity. As outlined in our Corporate Governance Guidelines, any director who receives more “withheld” votes than “for” votes in an uncontested election is required to tender his or her resignation to the Nominating and Governance Committee for consideration and recommendation to the Board. The Board will publicly disclose its decision.

BOARD MEETINGS, COMMUNICATIONS AND COMMITTEES

The Board has documented its governance practices in our Corporate Governance Guidelines. These governance standards embody many of our long-standing practices, policies and procedures, which are the foundation of our commitment to best practices. In December 2009, the Board conducted an evaluation of the directors, the committees and the Board.

The Board has five standing committees: an Audit Committee, a Compensation Committee, an Executive Committee, a Finance Committee and a Nominating and Governance Committee. Each of the committees, except for the Executive Committee, is governed by a written charter, copies of which are available on the Investor Relations section of our website at http://ir.navistar.com/documents.cfm.

In fiscal year 2009, the full Board met 13 times. In addition, the Board’s independent directors met 2 times in regularly scheduled executive sessions to evaluate the performance of the Chief Executive Officer and to discuss corporate strategies. The Chairs of our Audit, Compensation, Nominating and Governance and Finance committees of the Board each preside as the chair at meetings or executive sessions of outside directors at which the principal items to be considered are within the scope of the authority of his or her committee. Any interested party may communicate with the chair of any of these committees by sending an e-mail to presiding.director@navistar.com or by writing to the Presiding Director c/o the Corporate Secretary, at 4201 Winfield Road, P.O. Box 1488, Warrenville, Illinois 60555. In addition, you can contact any of our directors or our Board as a group by writing to them c/o the Corporate Secretary at the same address. All communications will be received and processed by the Corporate Secretary in his discretion. Communications that relate to ordinary business matters that are not within the scope of the Board’s responsibilities will be forwarded to the appropriate employee within the Company. Solicitations, junk email and obviously frivolous or inappropriate communications will not be forwarded. You will receive a written acknowledgement from the Corporate Secretary’s Office upon receipt of your communication.

All of the directors attended 75% or more of all the meetings of the Board and the committees on which he or she serves. The Company encourages all Board members to attend all meetings, including the Annual Meeting. Nine out of the then eleven directors attended our 2009 annual meeting of stockholders.

 

       Page 15        
    


Table of Contents

Below is a table indicating committee membership and a description of each committee of the Board.

 

Committee Membership(1)

(as of January 12, 2010)

 

     

Audit

 

 

Compensation

 

 

Executive

 

 

Finance

 

 

Nominating &
Governance

 

William H. Osborne

         ü  

Eugenio Clariond

               ü   ü

John D. Correnti

   ü   ü*           ü

Diane H. Gulyas

               ü    

Michael N. Hammes

       ü   ü   ü*   ü*

David D. Harrison

   ü   ü            

James H. Keyes

   ü*   ü   ü       ü

Steven J. Klinger

   ü   ü            

Daniel C. Ustian

           ü*        

Dennis D. Williams

               ü    

 

(1)

On August 25, 2009, Y. Marc Belton retired from the Board and each committee he served on and Terry M. Endsley passed away on April 14, 2009.

 

*

Indicates the chair of the committee

Audit Committee – The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. The Audit Committee reviewed the fiscal 2009 audit plans of the Company’s independent registered public accounting firm and internal audit staff, reviewed the audit of the Company’s accounts with the independent public accountants and the internal auditors, considered the adequacy of audit scope and reviewed and discussed with the auditors and management the auditors’ reports. The Audit Committee also reviewed environmental surveys and compliance activities for the Company’s facilities and the expense accounts of executive officers and directors. The Audit Committee also reviews and decides on conflicts of interest and related person transactions that may affect executive officers and directors. In December 2009 the Board designated Mr. James H. Keyes, Mr. Steven J. Klinger and Mr. David D. Harrison as Audit Committee financial experts, as defined by applicable law, rules and regulations. In fiscal year 2009, the Audit Committee held 9 meetings. The Audit Committee conducted an evaluation of its performance in December 2009.

Compensation Committee – The Compensation Committee makes recommendations to the Board with respect to the election and responsibilities of all executive officers, reviews and approves the compensation of executive officers who are not also directors of the Company, recommends to the independent members of the Board the compensation of executive officers who also are directors of the Company, administers the Company’s equity compensation plans, furnishes an annual Compensation Committee Report on executive compensation and reviews and discusses the Compensation Discussion & Analysis (“CD&A”) with management and recommends to the Board the inclusion of the CD&A in the Company’s proxy statement. Upon management’s recommendation, the Compensation Committee also reviews basic changes to non-represented employees’ base compensation and incentive and benefit plans. Additional information on the roles and responsibilities of the Compensation Committee is provided in the CD&A on page 32 of this proxy statement. The Compensation Committee held 5 meetings in fiscal year 2009. The Compensation Committee conducted an evaluation of its performance in December 2009.

 

       Page 16        
    


Table of Contents

Executive Committee The Executive Committee is composed of 3 directors, 2 of whom are independent directors. The Executive Committee represents the Board between meetings for the purpose of consulting with officers, considering matters of importance and either taking action or making recommendations to the Board. The Executive Committee held no meetings in fiscal year 2009.

Finance Committee The Finance Committee reviews the Company’s financing requirements, custody and management of assets which fund the pension and retirement savings plans of the Company’s subsidiaries, procedures by which projections and estimates of cash flow are developed, dividend policy and operating and capital expenditure budgets. The Finance Committee held 6 meetings in fiscal year 2009. The Finance Committee conducted an evaluation of its performance in December 2009.

Nominating and Governance Committee The Nominating and Governance Committee is responsible for the organization of the Board, reviewing and making recommendations to the Board concerning nominees for election as directors and reviewing and recommending corporate governance practices, policies of the Company and changes to the Company’s charter and by-laws. In addition, the Nominating and Governance Committee leads the Board in its self-evaluation process. The Nominating and Governance Committee held 5 meetings in fiscal year 2009. The Nominating and Governance Committee conducted an evaluation of its performance in December 2009.

CODE OF CONDUCT

Our Code of Conduct embodies a code of ethics (the “Code”) applicable to all of our directors, officers and employees which establishes the principles, policies and conduct for professional behavior in the workplace. Every director, officer and employee is required to read and follow the Code. A copy of our Code of Conduct is available on the Investor Relations section of our website at http://ir.navistar.com/documentdisplay.cfm?DocumentID=4850. Any waiver of the Code for executive officers or directors of the Company requires the approval of the Audit Committee and must be promptly disclosed to the Company’s stockholders. We intend to disclose on the Investor Relations section of our website (http://ir.navistar.com/documents.cfm) any amendments to, or waivers from, the Code that is required to be publicly disclosed under the rules of the SEC.

The Audit Committee has established procedures for employees, vendors and others interested parties to communicate concerns with respect to our accounting, internal controls or financial reporting to the Audit Committee, which has responsibility for these matters. Concerns may be reported as follows:

 

Via the Navistar Business Abuse and Compliance Hotline    Write to the Audit Committee    E-mail the Audit Committee

1 -877-734-2548

or via the Internet at

tnwinc.com/webreport/default.asp

  

Audit Committee

c/o Corporate Secretary

Navistar International Corporation

4201 Winfield Road

P.O. Box 1488

Warrenville, IL 60555

   Audit.committee@navistar.com

 

       Page 17        
    


Table of Contents

AUDIT COMMITTEE REPORT

Management of the Company has the primary responsibility for the integrity of the accounting, auditing and financial reporting practices of the Company, including the system of internal controls. The Independent Registered Public Accounting Firm (the “Auditors”) are responsible for performing an independent audit of the Company’s consolidated financial statements and internal controls over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (United States) and issuing a report thereon. The Audit Committee’s responsibility is to monitor these processes. In this regard, the Audit Committee meets periodically with management, the internal auditors and the Auditors. The Audit Committee has the authority to conduct or authorize investigations into any matters within the scope of its responsibilities and the authority to retain such outside counsel, experts and other advisors as it determines appropriate to assist it in conducting any such investigations. The Audit Committee is responsible for selecting and, if appropriate, replacing our auditors, KPMG LLP (“KPMG”).

The Audit Committee has discussed with the Company’s auditors the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. Discussions about the Company’s audited financial statements included the auditors’ judgments about not only the acceptability of the accounting principles, but also the quality, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with the auditors other matters required by Statement on Auditing Standards No. 114 The Auditor’s Communication With Those Charged With Governance. The Auditors provided to the Audit Committee the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee discussed the auditors’ independence with management and the Auditors. The Audit Committee concluded that the Auditors’ independence had not been impaired.

Based on the above-mentioned review and discussions with management and KPMG, and subject to the limitations on the roles and responsibilities of the Audit Committee referred to above and in the Audit Committee’s written charter, the Audit Committee recommended to the Board that the Company’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the fiscal year ended October 31, 2009 for filing with the SEC. In addition, the Audit Committee has engaged KPMG to serve as the Company’s Independent Registered Accounting Firm for 2010.

Audit Committee

James H. Keyes, Chairman

John D. Correnti

David D. Harrison

Steven J. Klinger

 

       Page 18        
    


Table of Contents

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEE INFORMATION

In January 2009 our Audit Committee approved the engagement of KPMG as our independent registered public accounting firm. The following table presents aggregate fees billed or expected to be billed by KPMG for audit services and fees for audit-related services (including associated out-of-pocket costs) incurred for the years ended October 31, 2009 and 2008, on our behalf:

 

 

(in millions)

 

  2009   2008

 

Audit fees

 

  $21.3   $25.3

 

Audit-related fees

 

      0.4       0.2

 

Tax fees

 

        –         –

 

All Other fees

 

        –         –

 

Total fees

 

  $21.7   $25.5

A description of the types of services provided in each category is as follows:

Audit FeesThese are fees for professional services for the audit of our annual consolidated financial statements, limited review of our quarterly consolidated financial statements, and services that are normally provided in connection with statutory and regulatory filings. This includes fees for the audit of Navistar Financial Corporation (“NFC”) and fees in connection with the SEC investigation related to our financial statements.

Audit-Related Fees These are fees for the assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including procedures related to our and NFC’s financing transactions.

Tax Fees – These are fees for professional services rendered for tax compliance, tax advice and tax planning. For 2009 and 2008, the Company incurred less than $100,000 in tax fees.

All Other Fees – These are fees for permissible products and services provided by KPMG that do not meet the above categories. For 2009 and 2008, the Company did not incur any other fees.

The Audit Committee pre-approved all audit and non-audit services provided to us in accordance with the Audit Committee’s pre-approval policy. In accordance with the Audit Committee’s pre-approval policy, the Audit Committee annually considers for pre-approval all proposed audit and non-audit services which are known early in the year to be performed in the coming year by our independent registered public accounting firm and the estimated fees for such services. Additional fees related to certain audit-related or non-audit services proposed to be provided by our independent registered public accounting firm may be pre-approved by management, so long as the fees for such additional services individually or in the aggregate do not exceed $400,000 in any 12-month period, and are reported to the Audit Committee at the next regularly scheduled committee meeting. Other proposed audit-related or non-audit services (not within the scope of the approved engagement) may be considered and, if appropriate, pre-approved by the chair of the Audit Committee if the related additional fees are estimated to be less than $250,000, otherwise the Audit Committee must pre-approve all additional audit-related and non-audit services to be performed by our independent registered public accounting firm. In making its decision to utilize our independent registered public accounting firm, the Audit Committee considers whether the provision of such services is compatible

 

       Page 19        
    


Table of Contents

with maintaining that firm’s independence and to that end receives certain representations from the firm regarding their independence and permissibility under applicable laws and regulations of non-audit services provided by the firm to us.

 

 

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

þ PROPOSAL 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board seeks an indication from stockholders of their approval or disapproval of the Audit Committee’s appointment of KPMG as the Company’s Independent Registered Public Accounting Firm for fiscal 2010. KPMG has been the Company’s auditors since 2006. For additional information regarding the Company’s relationship with KPMG, please refer to the Audit Committee Report on page 18 of this proxy statement and the Audit Fees presented on page 19 of this proxy statement.

If the appointment of KPMG as auditors for 2010 is not approved by the stockholders, the adverse vote will be considered a direction to the Audit Committee to consider other auditors for next year. However, because of the difficulty in making any substitution of auditors after the beginning of the current year, the appointment for fiscal 2010 will stand, unless the Audit Committee finds other good reason for making a change.

Representatives of KPMG will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. The representatives will also be available to respond to questions at the Annual Meeting.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2.

 

 

2004 PERFORMANCE INCENTIVE PLAN MODIFICATIONS

 

On February 17, 2004, the stockholders of the Company approved our 2004 Performance Incentive Plan (the “Plan”), including the performance measurements and goals set forth therein. The Plan has been amended from time to time. The Plan is an “omnibus” type of equity compensation plan that provides the Company the means by which to grant annual incentive compensation (i.e., bonuses) as well as long-term incentive compensation to its key employees. The types of awards that are used for employees under the Plan are primarily performance-based cash and stock awards, restricted stock and stock unit awards, stock appreciation rights (“SARs”) and stock options. The Plan also allows the Company to provide equity compensation to its non-employee directors and consultants. Set forth below the Proposals is a description of the material features of the Plan.

On December 15, 2009, the Compensation Committee of the Board approved amendments to the Plan to (i) increase the number of shares authorized and available for issuance under the Plan from 3,250,000 to 5,750,000, (ii) modify the performance measurements and goals set forth in Section VI the Plan to include earnings before interest and taxes (“EBIT”), (iii) extend the period of time in which an option holder is permitted under the Plan (other than on account of death, total and permanent disability or qualified retirement) to exercise vested stock options from 90 days to 12 months and (iv) modify the change in control provisions set forth in Section XX of the Plan to provide for the vesting of awards only upon both a change in control and a termination event (a “double trigger event”) as opposed to the original vesting of awards solely upon a change in control (a “single trigger event”). The amendments numbered (iii) and (iv) discussed above do not require approval of stockholders and therefore your approval is not being requested hereunder. Amendment number (i) discussed above requires stockholder approval under NYSE rules and amendment number (ii) discussed above requires stockholder approval under the provisions of Section 162(m) of the Internal Revenue Code. Accordingly, stockholder approval is solely being requested on matters (i) and (ii) discussed above.

 

       Page 20        
    


Table of Contents

þ PROPOSAL 3—APPROVAL OF AN AMENDMENT TO OUR 2004 PERFORMANCE INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE THEREUNDER FROM 3,250,000 TO 5,750,000

We are asking for the approval of an amendment to our Plan to increase the number of shares available for issuance thereunder from 3,250,000 to 5,750,000. We believe that issuing these additional shares under the Plan is necessary to continue to meet the Company’s objectives of attracting, motivating and retaining employees, directors and consultants. You are being asked to approve this amendment to the Plan.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 3.

þ PROPOSAL 4—APPROVAL OF AN AMENDMENT TO OUR 2004 PERFORMANCE INCENTIVE PLAN TO MODIFY THE PERFORMANCE MEASURES

In accordance with Section 162(m) of the Internal Revenue Code, as amended (the “Code”) and the regulations promulgated thereunder, we are also asking for the authority to amend the Plan to include “earnings before interest and taxes” as one of the performance measures of the Plan. Specifically, the approval of the material terms of the performance measurements under the Plan is required under Section 162(m) of the Code to preserve the Company’s deduction for compensation relating to certain awards granted under the Plan to certain executive officers. We believe that revising the performance measures is necessary to continue to meet the Company’s objectives of attracting, motivating and retaining employees, directors and consultants. You are being asked to approve this amendment to the Plan.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 4.

Material Features of the Plan

The following is a summary of the material features of the Plan and is qualified in its entirety by reference to the complete text of the Plan, which, as amended and restated, is attached to this proxy statement as Appendix A.

Eligibility. Employees eligible to be considered for awards under the Plan are key employees of the Company and its subsidiaries, including the Company’s executive officers, who are designated by the Compensation Committee (typically senior managers and above). All non-employee directors and consultants are also eligible to be considered for certain awards under the Plan. As of January 4, 2010, there were approximately 10 current or former non-employee directors, 2 current consultants and 303 current or former key employees eligible to participate in the Plan.

Shares Authorized under the Plan. A total of 3,250,000 shares of common stock are reserved for awards under the Plan. If the amendment authorizing the issuance of 2,500,000 additional shares is approved, there will be a total of 5,750,000 shares of common stock reserved for awards under the Plan. No more than 1,000,000 of these shares may be used over the term of the Plan for awards other than stock options. In addition, the total number of shares of common stock that will be available as awards under the Plan in any calendar year to any one individual will not exceed 1,000,000 shares. Shares subject to awards under the Plan or any other prior plan that are cancelled, expired, forfeited, settled in cash, tendered to satisfy the purchase price of an award, withheld to satisfy tax obligations or otherwise terminated without a delivery of shares to the participant again become available for awards under the Plan. The Compensation Committee may make appropriate adjustments in the number of shares available under the Plan to reflect any stock dividend, recapitalization, merger, consolidation, split-up, combination or exchange of shares, spinoffs or other similar event. As of January 4, 2010, 561,090 shares of common stock remain available for issuance under the Plan.

 

       Page 21        
    


Table of Contents

Plan Benefits. Future benefits under the Plan are not currently determinable. Moreover, the benefits to any director, officer, employee or consultant from future equity awards will not increase by reason of approval of these proposals. Whether future awards will be made will depend on Compensation Committee action, and the value of any future equity awards will ultimately depend on the future price of the Company’s common stock, among other factors, and will be subject to such vesting conditions as the Compensation Committee determines from time to time. For further details on the awards granted for fiscal 2009, please refer to the executive and director compensation tables beginning on pages 43 and 61, respectively, of this proxy statement.

In accordance with SEC rules, the following table lists all options granted to the individuals and groups indicated below since the adoption of the Plan in 2004. The option awards listed below for the covered executives and directors include the option awards listed in the executive and director compensation tables beginning on pages 43 and 61, respectively, of this proxy statement and are not additional awards. As of January 4, 2010, the closing price of Navistar stock on the NYSE was $40.145 per share.

 

Persons or Groups of Persons

   Number of
Shares
Underlying
Options
 

Daniel C. Ustian

   456,912   

Chairman, President and Chief Executive Officer

  

William A. Caton(1)

   89,642   

Executive Vice President and Chief Risk Officer

  

Terry M. Endsley(2)

   52,759   

Former Executive Vice President and Chief Financial Officer

  

Andrew J. Cederoth

   49,581   

Executive Vice President and Chief Financial Officer

  

Deepak T. Kapur

   159,318   

President, Truck Group

  

Pamela J. Turbeville(3)

   123,117 (4) 

Senior Vice President and Chief Executive Officer

Navistar Financial Corporation

  

Steven K. Covey

   103,206   

Senior Vice President, Chief Ethics Officer

and General Counsel

  

All current executive officers as a group(5)

   962,676   

All current directors who are not executive officers as a group

   85,600   

Each nominee for election as a director

   23,600   

Each associate of any such director, executive officer or nominees

     

Each other person who received or is to receive 5% of such options, warrants or rights

     

All employees, including all current officers who are not executive officers as a group

   1,559,980   

 

(1)

Mr. Caton retired from the Company effective October 31, 2009.

 

(2)

Mr. Endsley passed away on April 14, 2009.

 

       Page 22        
    


Table of Contents
(3)

Ms. Turbeville’s employment terminated as of January 31, 2009.

 

(4)

Includes 40,614 restoration stock option grants.

 

(5)

Includes the executives listed above.

Administration. The Compensation Committee has been designated by the Board to administer all awards under the Plan. The Compensation Committee has the discretion to determine the employees, non-employee directors and consultants who will participate in the Plan, the size and types of the awards, the performance levels at which awards will be earned and the terms and conditions of such awards, subject to certain limitations set forth in the Plan. In addition, the Compensation Committee has full and final authority to interpret the Plan.

Effective Date; Term of the Plan. The effective date of the Plan is February 17, 2004 and the effective date of the amendments contemplated by these proposals if approved would be February 16, 2010. The term of the Plan is ten years from February 17, 2004. No awards may be granted under the Plan after February 16, 2014, but awards made before that date may continue to be exercisable and/or to vest after that date, and will otherwise be governed by the terms of the Plan.

Awards under the Plan. At the discretion of the Compensation Committee, (i) employees may be granted awards under the Plan in the form of annual cash incentive awards, stock options, restricted stock or stock unit awards, SARs or other awards, as described below, (ii) non-employee directors may be granted awards in the form of non-qualified stock options or restricted stock or stock units awards, as described below and (iii) consultants may be granted awards in the form of non-qualified stock options, restricted stock or stock units awards, SARs or other stock based awards as described below. Such awards may be granted singly, in combination, or in tandem.

Stock Options. The Plan provides for the granting of incentive stock options, which are intended to meet the requirements of Section 422 of the Code, to employees and non-qualified stock options to employees, directors and consultants. A stock option is a right to purchase a specified number of shares of common stock at a specified grant price. All stock options granted under the Plan must have an exercise price per share that is not less than 100% of the fair market value of the common stock on the date of grant and a term of no more than ten years. The grant price, number of shares, term and conditions of exercise, whether an option will qualify as an incentive stock option under the Code or a non-qualified stock option, and other terms of a stock option grant will be determined by the Compensation Committee as of the grant date.

Unless otherwise determined by the Compensation Committee, one-third of the stock options will become exercisable after one year from the date of the grant, an additional one-third after two years from the date of the grant and the final one-third after three years after the date of the grant. Subject to certain exceptions, (i) for stock options granted prior to December 15, 2009, they will expire three months after the termination of a participant’s employment or service with the Company and (ii) for stock options granted on or after December 15, 2009, they will expire twelve months after the termination of a participant’s employment or service with the Company. If a participant dies while employed by or serving the Company or after retirement, all outstanding stock options will fully vest, and may be exercised by the personal representatives or distributees, for a period of two years after the date of death. If an employee terminates employment or service on or after age 55 with ten or more years of continuous service, or in the case of a non-employee director, retires from the Board in accordance with Board’s retirement policy, the participant may thereafter exercise stock options according to their original terms.

The exercise price of any stock option must be paid in full at the time the stock option is exercised in cash, by means of net settlement or in common stock owned by the participant or by

 

       Page 23        
    


Table of Contents

a combination of cash and common stock. In addition, the participant must remit an amount in cash or common stock sufficient to satisfy tax withholding requirements or choose to net settle the stock option exercise.

Provisions that permit a participant to elect to “restore” a stock option upon exercise may be contained in the terms of the stock options awarded to employees or consultants. However, the Compensation Committee may not reprice, or otherwise discount, any outstanding stock option. Restoration provisions under the Plan generally permit the exercise of vested non-qualified stock options (the “underlying option”) by use of common stock that has been owned by the participant, for at least six months if acquired from the Company. New “restoration” stock options are then granted to the participant at the fair market value of the common stock on the date of the grant of the restoration option in an amount equal to the number of shares that were used to exercise the underlying stock option, plus the number of shares that were withheld for the required tax liability. The restoration stock option will have a term equal to the remaining term of the underlying option, will generally become exercisable six months after the date of grant, and otherwise will have the same general terms and conditions of other non-qualified stock option granted under the Plan. The shares that represent the difference between the exercise price of the underlying option and the value of the shares on the date of exercise (less withholding taxes) generally cannot be transferred by the participant for a period of three years after exercise of the underlying option. Prior to January 1, 2005, a participant may have elected to defer delivery of those shares. For any grants made under the Plan after January 1, 2005, participants may no longer defer delivery of those shares. Non-employee directors may not be granted restoration stock options under the Plan. In December 2008, the Compensation Committee approved the elimination of the Restoration Stock Option Program under the Plan in connection with future long-term incentive grants, beginning with the grants made in December 2008.

Restricted Stock and Stock Units. The Plan also provides for the granting of stock awards to employees, consultants and non-employee directors that consist of grants of restricted common stock or units denominated in common stock. The terms, conditions and limitations applicable to any award of restricted stock or stock unit will be decided by the Compensation Committee. However, any restricted stock and stock unit award must have a minimum restriction period of three years from the date of grant, except that the Plan provides for earlier vesting upon a termination due to death. Participants holding restricted stock awarded under the Plan will be entitled to receive dividends, if and when declared by the Board.

Other Stock-Based Awards. The Plan also provides for the granting of stock appreciation rights (“SARs”) and other stock-based awards to employees and consultants that the Compensation Committee deems consistent with the purposes of the Plan. A SAR is a right to receive a payment, in cash or common stock, equal to the excess of the fair market value of a specified number of shares of common stock over a specified grant price. A SAR may be granted to the holder of a stock option with respect to all or a portion of the shares of common stock subject to such stock option (a “tandem” SAR) or may be granted separately. The holder of a tandem SAR may elect to exercise either the stock option or the SAR, but not both. All SARs granted under the Plan must have an exercise price per share that is not less than the fair market value of the common stock on the date of grant and a term of no more than ten years. The grant price, term, number of shares, terms and conditions of exercise, and other terms of a SAR grant will be fixed by the Compensation Committee as of the grant date.

Annual Cash Incentive Awards. The Plan also provides for the granting of annual cash incentive awards to employees contingent on attainment of performance or other objectives established by the Compensation Committee at the beginning of each fiscal year. Generally, the terms, conditions and limitations applicable to any cash incentive award will be decided in the

 

       Page 24        
    


Table of Contents

discretion of the Compensation Committee. At the discretion of the Compensation Committee, amounts payable in respect of cash incentive awards granted under the Plan may be deferred.

Performance Measures. At the discretion of the Compensation Committee, any of the above-described awards to employees may be contingent on attainment of performance goals which are based on one or more of the following pre-established criteria: (a) income measures; (b) return measures; (c) cash flow, cash flow return on investments, which equals net cash flows divided by owners equity; (d) gross revenues from operations; (e) total revenue; (f) cash value added; (g) economic value added; (h) share price; (i) sales growth; (j) market share; (k) the achievement of certain quantitatively and objectively determinable non-financial performance measures; (l) earnings before interest and taxes; and (m) any combination of, or a specified increase in, any of the foregoing (the “Performance Measures”). As noted in Proposal 4 on page 21, we are asking for authority to amend the Plan to include “earnings before interest and taxes” as one of the Performance Measures of the Plan.

Where applicable, Performance Measures will be expressed in terms of attaining a specified level of the particular criteria or attaining a specified increase (or decrease) in the particular criteria and may be applied to the performance of the employee or the Company as a whole, at a subsidiary level or at an operating unit level, or a combination thereof, all as determined by the Compensation Committee. Generally, the terms, conditions and limitations applicable to any award that is subject to the attainment of the Performance Measures will be decided by the Compensation Committee. Performance Measures may include varying levels of performance at which different percentages of the award will be made (or specified vesting will occur). The achievement of Performance Measures will be subject to certification by the Compensation Committee. The Compensation Committee has the authority to make equitable adjustments to the Performance Measures. In no event will the performance period for any performance-based equity award be less than one year.

At the discretion of the Compensation Committee, certain awards granted under the Plan that are subject to the attainment of one or more of the Performance Measures will be intended to qualify as performance-based compensation under Section 162(m) of the Code. Section 162(m) generally disallows deductions for compensation in excess of $1,000,000 for some executive officers unless the compensation qualifies as performance-based compensation. The Plan contains provisions consistent with the Section 162(m) requirements for performance-based compensation. However, the Compensation Committee may award non-deductible compensation when such grants are in the best interest of the Company, balancing tax efficiency with long-term strategic objectives.

Employee Award Limitations. Under the Plan, no employee may be granted during any fiscal year:

• Stock Options and/or SARs that are exercisable for more than 1,000,000 shares of common stock in the aggregate;

• Restricted stock and/or stock units covering or relating to more than 1,000,000 shares of common stock in the aggregate; or

• Cash incentive awards having a value, as determined on the date of grant, in excess of $4,000,000.

Transferability. Awards made under the Plan may not be assigned or otherwise encumbered, except as provided by the participant’s last will and testament and by the applicable laws of descent and distribution.

 

       Page 25        
    


Table of Contents

Change in Control. For any award issued prior to January 1, 2010, the Plan provided that upon the occurrence of a Change in Control (as defined in the Plan), all restricted stock and stock unit awards would be immediately vested and free of all restrictions, and all outstanding unexercised stock options would become immediately exercisable and remain fully exercisable for a period of three years from the date of the Change in Control. For any award issued on or after January 1, 2010, the Plan provides that upon both (x) the occurrence of a Change in Control (as defined in the Plan) and (y) either immediately before the date on which the Change in Control occurred or during the 36 month period after the date of the then-most recent Change in Control, certain termination events should occur with respect to such Plan participant, then all of such participant’s restricted stock and stock unit awards will be immediately vested and free of all restrictions, and all outstanding unexercised stock options will become immediately exercisable and remain fully exercisable for a period of three years from the date of the Change in Control.

Amendment, Modification, and Termination. The Compensation Committee may amend, modify, or terminate the Plan, at any time, except that stockholder approval is required for any amendment that would (i) increase the number of shares of common stock available for issuance under the Plan or increase the limits applicable to awards under the Plan; (ii) lower the exercise price of a stock option or SAR grant value below 100% of the fair market value of the common stock on the date of grant; (iii) remove the prohibition on repricing set forth in the Plan; or (iv) require stockholder approval as a matter of law or under rules of the New York Stock Exchange.

Federal Income Tax Consequences

The following is a brief summary of the federal income tax aspects of awards that may be made under the Plan based on existing U.S. federal income tax laws. This summary is general in nature and does not address issues related to the tax circumstances of any particular participant. This discussion is not to be construed as tax advice.

Restricted Stock and Stock Units Awards. Generally, the grant of restricted stock has no federal income tax consequences at the time of grant. Rather, at the time the shares are no longer subject to a substantial risk of forfeiture (as defined in the Code), the grantee will recognize ordinary income to the extent of the excess of the fair market value of the stock on the date the risk of forfeiture ceases over the participant’s cost for such stock (if any). A grantee may, however, elect to be taxed at the time of the grant. The Company generally will be entitled to a tax deduction at the time and in the amount that the grantee recognizes ordinary income.

In general, no taxable income is realized by a participant in the Plan upon the award of stock units. Such participant generally would include in ordinary income the fair market value of the award of stock at the time shares of stock are delivered free of any substantial risk of forfeiture. The Company generally will be entitled to a tax deduction at the time and in the amount that the grantee recognizes ordinary income.

Stock Options and SARs. Some of the stock options issuable under the Plan may constitute incentive stock options within the meaning of Section 422 of the Code, while other options granted under the Plan may be non-qualified stock options. Generally, in the case of an incentive stock option, the optionee will not recognize any income for U.S. federal income tax purposes upon the grant of the incentive stock option. However, upon the exercise of an incentive stock option, the difference between the exercise price of the incentive stock option and the fair market value of the common stock at the time of exercise is an item of tax preference that may require payment of an alternative minimum tax. An optionee will generally realize taxable income upon the sale of shares acquired by exercise of an incentive stock option. If certain holding period requirements have been satisfied with respect to outstanding shares so acquired, taxable income will constitute long-term capital gain and the Company will not be entitled to a tax deduction.

 

       Page 26        
    


Table of Contents

In the case of the exercise of a non-qualified stock option, the optionee will generally not be taxed upon the grant of an option. Rather, at the time of exercise of the non-qualified stock option, the optionee will generally recognize ordinary taxable income (subject to withholding) in an amount equal to the difference between the fair market value of the shares on the date of exercise and the exercise price. The Company is generally entitled to a deduction at the time and in an amount equal to the income recognized by the optionee.

A grant of SARs has no federal income tax consequences at the time of grant. Upon exercise of SARs the amount of any cash received by the holder under the Plan will be subject to ordinary income tax in the year of receipt, and the Company will be entitled to a corresponding deduction for federal income tax purposes.

Cash Incentive Awards. The recipient of a cash incentive award normally will recognize ordinary income at the time the payment is received, and the Company will be entitled to a corresponding deduction for federal income tax purposes.

General. In addition to ordinary income tax, amounts that are treated as wages will be subject to payroll tax and withholding by the Company.

Outstanding Stock Options

In order to provide stockholders with a better understanding of the outstanding stock options held by executives, employees and directors, we have provided the following tables, which sets forth information regarding stock options outstanding on January 4, 2010. As noted in the table below, our executives and employees have continued to hold their stock options after they vested, and, in some cases for periods in excess of 6 years. Consequently, as more stock options remain outstanding, this overhang increases our total potential dilution. Our total potential dilution, including all outstanding equity awards, as well as the shares being requested in this proposal would be 12.44%(1). If we exclude the in-the-money stock options that have been outstanding for more than 6 years, our dilution is only 10.38% (1).

 

      Vested Options
Outstanding (in millions)
   Weighted Average
Exercise Price
   Weighted Average Remaining
Years of Contractual Life

Substantially in-the-money options outstanding in excess of six years

   1,860,275    $ 29.9786    2.2 Years

Other options outstanding in excess of six years

   1,074,489    $ 42.6870    3.6 Years

All options outstanding less than six years

   2,958,831    $ 30.9234    6.9 Years

 

(1)

Dilution was calculated as all shares remaining available for grant under existing plans, plus the 2,500,000 shares requested in this proposal, plus all shares issuable upon exercise of outstanding stock options (with or without the in-the-money options outstanding for more than 6 years) and vesting of outstanding restricted stock, restricted stock units and performance shares divided by (i) basic common shares outstanding + (ii) shares in the numerator – all as of January 4, 2010.

 

       Page 27        
    


Table of Contents

“Substantially in-the-money options outstanding in excess of six years” was determined with an exercise price of less than $40.005, which was the average of the high and low of Navistar’s stock on January 4, 2010. Additional information regarding these options is as follows:

 

Grant Date   Outstanding Options   Exercise Price   Remaining Contractual Life (in years)

5/2/2002

  1,800   34.5625   .3

6/1/2000

  1,208   32.6250   .4

9/1/2000

  483   37.7200   .6

12/12/2000

  187,259   21.2200   .9

12/13/2000

  8,500   21.4350   .9

2/1/2001

  800   27.9500   1

7/1/2001

  1,733   27.9500   1.5

7/2/2001

  1,067   28.5900   1.5

8/1/2001

  800   32.1800   1.5

12/11/2001

  705,262   38.2000   1.9

12/12/2001

  12,500   37.9250   1.9

12/21/2001

  6,189   39.9200   .9

1/8/2002

  6,000   39.7050   2

2/11/2002

  4,280   39.0300   .9

6/1/2002

  1,375   35.1850   2

12/10/2002

  836,015   26.3850   2.9

12/11/2002

  16,000   25.8200   2.9

1/1/2003

  3,250   23.9550   2.9

2/15/2003

  3,754   22.8000   3.1

2/19/2003

  58,100   23.9650   3.1

3/26/2003

  2,275   25.4300   3.2

7/1/2003

  1,300   31.8100   3.5

10/1/2003

  325   37.9600   3.7

Total substantially in-the-money options outstanding in excess of six years

  1,860,275   29.9786   2.2

The Company continues to manage its burn rate of equity awards granted over time to levels it believes are reasonable and appropriate. The Company’s three-year average burn rate was 0.83%, significantly below the 2% limit used by many advisory groups. Burn rate was calculated as the three year average of the total number of stock options, restricted stock, restricted stock units and performance shares awarded during each year divided by the weighted average common shares outstanding for each fiscal year.

 

       Page 28        
    


Table of Contents

 

PART THREE – OTHER IMPORTANT INFORMATION

 

PERSONS OWNING MORE THAN FIVE PERCENT OF NAVISTAR COMMON STOCK

This table indicates, as of December 31, 2009, all persons we know to be beneficial owners of more than 5% of our common stock. This information is based on a review of Schedule 13D, Schedule 13G and Form 4 reports filed with the SEC by each of the firms listed in the table below.

 

     
Name and Address    Total Amount and Nature of
Beneficial Ownership
  Percent of Class

Oppenheimer Funds, Inc.

Two World Financial Center

225 Liberty Street

New York, NY 10281

   8,248,640(A)   11.65%

FMR LLC

Edward C. Johnson 3d

82 Devonshire Street

Boston, Massachusetts 02109

   7,903,755(B)   11.096%

International Truck and Engine Corporation

Non-contributory Retirement Plan Trust

International Truck and Engine Corporation

Retirement Plan for Salaried Employees Trust

International Truck and Engine Corporation

Retiree Health Benefit Trust

c/o International Truck and Engine Corporation

4201 Winfield Road

Warrenville, Illinois 60555

   7,755,030(C)   10.30%

Evercore Trust Company, N.A.

55 East 52nd Street, 36th Floor

New York, NY 10055

   6,255,030(D)   8.88%

 

(A)

As reported in Schedule 13G, as amended by Amendment No. 4, filed November 5, 2009 with the SEC by Oppenheimer Funds, Inc. It is reported in the Schedule 13G/A that 8,248,640 shares, or 11.65% of the common stock outstanding of Navistar are beneficially owned by Oppenheimer Funds, Inc., over which it has shared voting power and shared dispositive power.

 

(B)

As reported in a Schedule 13G, as amended by Amendment No. 1 filed February 17, 2009 with the SEC by FMR LLC (“FMR”), Edward C. Johnson, 3d, Chairman of FMR, and Fidelity Management and Research Company, a wholly-owned subsidiary of FMR and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940 (“Fidelity”). It is reported in the Schedule 13G/A that (1) Fidelity is the beneficial owner of 7,334,025 shares or 10.296% of the Common Stock outstanding of the Company as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940, (2) Edward C. Johnson 3d, and FMR, through its control of Fidelity, and the funds each has sole power to dispose of 7,334,025 shares owned by such funds and neither FMR nor Edward C. Johnson 3d, has sole power to vote or direct the voting of the shares owned directly by such funds, which power resides with such funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by such funds’ Boards of Trustees, (3) Pyramis Global Advisors, LLC (“PGALLC”), an indirect wholly-owned subsidiary of FMR and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 46,000 shares or 0.065% of the Common Stock outstanding of the Company as a result of its serving as investment advisor to the institutional account(s), non-U.S. mutual funds, or investment companies registered under Section 8 of the Investment Company Act of 1940 owning such shares, (4) Edward C. Johnson 3d and FMR, through its control of PGALLC, each has sole dispositive power over 46,000 shares and sole power to vote or to direct the voting of 46,000 shares owned by the institutional account(s) or funds advised by PGALLC as reported above, (5) Members of the family of Edward C. Johnson 3d are the predominant owners, directly or through trusts, of Series B voting common shares of FMR, representing 49% of the voting power of FMR. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and

 

       Page 29        
    


Table of Contents
 

the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR, (6) Pyramis Global Advisors Trust Company (“PGATC”), an indirect wholly-owned subsidiary of FMR and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the beneficial owner of 352,990 shares or 0.496% of the outstanding Common Stock of the Company as a result of its serving as investment manager of institutional accounts owning such shares, (7) Edward C. Johnson 3d and FMR, through its control of PGATC, each has sole dispositive power over 352,990 shares and sole power to vote or to direct the voting of 352,990 shares of Common Stock owned by the institutional accounts managed by PGATC as reported above, and (8) FIL Limited (“FIL”) and various foreign-based subsidiaries provide investment advisory and management services to a number of non-U.S. investment companies and certain institutional investors. FIL is the beneficial owner of 170,740 shares or 0.240% of the Common Stock outstanding of the Company.

 

(C)

As reported in Schedule 13G, as amended by Amendment No. 1, filed May 19, 2006 with the SEC by Navistar, Navistar, Inc. (formerly known as International Truck and Engine Corporation (“International”)), International Truck and Engine Corporation Non-Contributory Retirement Plan Trust (the “Hourly Trust”), International Truck and Engine Corporation Retirement Plan for Salaried Employees Trust (the “Salaried Trust”), and International Truck and Engine Corporation Retiree Health Benefit Trust (the “Health Benefit Trust” and together with Hourly Trust and Salaried Trust, the “Trusts”)). It is reported in the Schedule 13G/A that on November 8, 2002 Navistar sold an aggregate amount of 7,755,030 shares of its common stock, in three separate transactions as follows: 4,653,018 shares to the Hourly Trust, 1,551,006 shares to the Salaried Trust and 1,551,006 shares to the Health Benefit Trust. Each trust is a funding trust for an employee benefit plan sponsored by International. The trust agreements of the Hourly Trust and the Salaried Trust provide that the trustee of the trust is only a directed trustee with respect to Navistar stock held by the trusts and that the Pension Fund Investment Committee of International (whose members are for the most part executive officers of Navistar, the “PFIC”), or an investment manager designated by the PFIC, is to direct the trustee with respect to the voting or disposition of Navistar stock. The trust agreement for the Health Benefit Trust provides that International, or an investment manager appointed by International, is to direct the trustee with respect to voting and disposition of Navistar stock. International delegated authority for such matters related to the Health Benefit Trust to the PFIC. Jennison Associates LLC had subsequently been appointed the investment manager for each trust with respect to the Navistar stock, and Jennison had been given discretionary authority regarding voting and disposition of the Navistar stock. Subsequently, on May 8, 2006, the United States Trust Company, National Association (“US Trust”) was appointed as investment manager for each of the trusts to replace Jennison Associates, LLC who resigned its appointment effective the close of business May 7, 2006. Like Jennison, US Trust had been given discretionary authority regarding voting and disposition power over the Navistar stock. Bank of America Corporation (“BAC”) bought US Trust and served as successor in interest to US Trust’s business. Effective May 1, 2009, BAC completed the sale of its Special Fiduciary Services (“SFS”) business to Evercore Partners (“Evercore”), at which time Evercore became the successor trustee of certain trusts administered by SFS. A portion of the shares reported by BAC on Schedule 13G for Navistar were beneficially owned prior to May 1, 2009 by BAC as a result of SFS acting in its capacity as a trustee over certain shares of Navistar. In connection with the sale, from May 1 until May 29, 2009, BAC provided certain transitional services to Evercore as its agent with regard to the SFS accounts (the Accounts), as a result of which BAC may be deemed for Section 13 purposes to have had dispositive power over the shares of Navistar during that time. After May 29, 2009, BAC ceased to provide those services to Evercore with respect to the Accounts, including the shares of Navistar that Evercore held as trustee. See paragraph D below. Since the PFIC and Navistar have the power to revoke or change the appointment of Evercore (and therefore reacquire the voting and dispositive control over the Navistar stock), the committee, International or Navistar could be considered “beneficial owners” of the Navistar stock. Please note on May 6, 2009, the Trusts sold 1,500,000 shares of Navistar stock pursuant to Rule 144 under the Securities Act of 1933, but this sale is not reflected in the beneficial ownership amount above because under Rule 13d-2(b) of the Securities Exchange Act, the Trusts do not need to file an amended Schedule 13G until 45 days after the end of the calendar year.

 

(D)

As reported in Schedule 13G, as amended by Amendment No. 4, filed June 10, 2009 with the SEC by Evercore Trust Company, N.A (“Evercore Trust”). It is reported in the Schedule 13G/A that 6,255,030 shares or 8.88% of the common stock outstanding of Navistar are beneficially owned by Evercore Trust, over which it has sole voting power and sole dispositive power. This filing amends the statement on Schedule 13G filed by Bank of America Corporation (“BAC”) with the SEC on February 13, 2009. Effective May 1, 2009, BAC completed the sale of its Special Fiduciary Services (“SFS”) business to Evercore Partners (“Evercore”), at which time Evercore became the successor trustee of certain trusts administered by SFS. A portion of the shares reported by BAC on Schedule 13G for Navistar were beneficially owned prior to May 1, 2009 by BAC as a result of SFS acting in its capacity as a trustee over certain shares of Navistar. In connection with the sale, from May 1 until May 29, 2009, BAC provided certain transitional services to Evercore as its agent with regard to the SFS accounts (the Accounts), as a result of which BAC may be deemed for Section 13 purposes to have had dispositive power over the shares of Navistar during that time. After May 29, 2009, BAC ceased to provide those services to Evercore with respect to the Accounts, including the shares of Navistar Evercore held as trustee. Please note that the number of shares beneficially owned by Evercore differs from the amount reflected in (C) above because the Schedule 13G filed by Evercore reflects the 1,500,000 shares sold by the Trusts on May 6, 2009.

 

       Page 30        
    


Table of Contents

NAVISTAR COMMON STOCK OWNED BY EXECUTIVE OFFICERS AND DIRECTORS

This table shows how much common stock our executive officers and directors beneficially own as of December 31, 2009. In general, “beneficial ownership” includes those shares a director or executive officer has the power to vote or transfer, and stock options exercisable within 60 days. Except as noted, the persons named in the table below have the sole voting and investment power with respect to all shares beneficially owned by them.

 

     Number of Shares                 
Name/Group   Owned(1)        Obtainable
Through Stock
Option Exercise
       Total          Percent
of Class

William A. Caton(3)

  54,947             54,947          *

Andrew J. Cederoth

  22,737       40,077       62,814          *

Eugenio Clariond

  9,257       17,200       26,457          *

John D. Correnti

  20,253       22,200       42,453          *

Steven K. Covey

  31,754       78,401       110,155          *

Terry M. Endsley(4)

                       *

Diane H. Gulyas

                       *

Michael N. Hammes

  5,166       15,700       20,866          *

David D. Harrison

  2,787       1,200       3,987          *

Deepak T. Kapur

  77,401       165,986       243,387          *

James H. Keyes

  18,211       17,200       35,411          *

Steven J. Klinger

  1,787       1,200       2,987          *

William H. Osborne

                       *

Pamela J. Turbeville(5)

  38,993       227,541       266,534          *

Daniel C. Ustian

  148,035       717,422       865,457          1.2

Dennis D. Williams

                       *

All Directors and Executive Officers as a Group (18 persons)(6)

  407,114       1,243,564       1,650,678 (2)        2.3

 

*

Percentage of shares beneficially owned does not exceed one percent.

 

(1)

The number of shares shown for each executive officer (and all executive officers as a group) includes the number of shares of Company common stock owned indirectly, as of December 31, 2009, by such executive officers in our 401(k) Retirement Savings Plan and Retirement Accumulation Plan, as reported to us by the Plan trustee.

 

(2)

Includes shares over which there is shared voting and investment power as follows: Directors and Executive Officers as a Group – 6,722 shares.

 

(3)

Mr. Caton separated service with the Company on October 31, 2009. Amounts disclosed in this table are to the best of the Company’s knowledge and have not been independently verified with the former executive.

 

(4)

Mr. Endsley passed away on April 14, 2009 and as such no shares were beneficially owned by him as of December 31, 2009.

 

(5)

Ms. Turbeville separated service with the Company on January 31, 2009. Amounts disclosed in this table are to the best of the Company’s knowledge and have not been independently verified with the former executive.

 

(6)

Includes current directors and executive officers as a group.

The number of shares owned by each director and executive officer (and all directors and executive officers as a group) includes restricted stock units (“RSUs”) that were granted under the 2004 Performance Incentive Plan on September 18, 2008. It also includes RSUs granted to the executive officers on December 16, 2008 and December 15, 2009. The September 2008 RSUs vest ratably over a three year period with 25% vesting on each of the first and second anniversary of the date of grant, with the remaining 50% vesting on the third anniversary of the date of grant. The December 2008 and 2009

 

       Page 31        
    


Table of Contents

RSUs vest ratably over a three year period with 1/3rd vesting on each of the first three anniversaries of the date of grant, so that in 3 years the RSUs are 100% vested. At the request of the UAW, the UAW representative director, Dennis Williams, does not receive stock or stock option grant awards.

Under our Executive Stock Ownership Program, executives may defer their cash bonus into deferred share units (“DSUs”). If an executive officer has elected to defer a cash bonus, the number of shares shown for such executive officer includes these DSUs. These DSUs vest immediately. The number of shares shown as owned for each executive officer (and all executive officers as a group) also includes premium share units (“PSUs”) that were awarded pursuant to the Executive Stock Ownership Program. PSUs vest in equal installments on each of the first three anniversaries of the date on which they are awarded.

Under our Non-Employee Directors Deferred Fee Plan, directors may defer all or a portion of their annual retainer and meeting fees into phantom stock units. If a director has elected to defer a portion of their annual retainer and/or meeting fees into phantom stock units, these phantom stock units are shown as owned.

Under our 2004 Performance Incentive Plan and prior plans, executives may defer the receipt of shares of Company common stock due in connection with a restoration stock option exercise of non-qualified stock options that were vested prior to December 31, 2004. If an executive has elected to defer receipt of these shares into stock units, these stock units are also shown as owned. The deferral feature has been eliminated with respect to future stock option grants under the 2004 Performance Incentive Plan and for non-qualified stock options granted from prior plans that vest on or after January 1, 2005.

COMPENSATION

Compensation Discussion and Analysis for Fiscal 2009 (November 1, 2008 – October 31, 2009)

The Compensation Committee (the “Committee”) of our Board has the responsibility to approve and monitor all compensation and benefit programs for our executive officers (designated as Section 16 Officers) and makes recommendations for the compensation and benefits of our Chief Executive Officer (the “CEO”), which is then approved by the independent members of our Board. As part of its responsibility, the Committee reviews the performance of executive officers and approves compensation based on the overall successes of the individual executive, his or her specific business unit to the extent applicable, and the organization as a whole. The Committee is governed by a written charter, a copy of which is available on the Investor Relations section of our website at http://ir.navistar.com/documentdisplay.cfm?DocumentID=809.

Our executive compensation program for our named executive officers (“NEOs”), as well as other executives, is designed to closely align executive rewards with corporate, group and individual performance and the total return to stockholders. We developed an overall compensation philosophy that is built on a foundation of guiding principles:

 

   

Competitive Positioning: Total remuneration is designed to attract and retain the executive talent required to achieve our goals through a market competitive total remuneration package.

 

   

Performance Orientation: Executive compensation is performance-based with a direct link to Company, business unit, and individual performance. It is also designed to align the interests of executives and stockholders.

 

       Page 32        
    


Table of Contents
   

Fairness: Compensation programs are designed to be fair and equitable across all employee groups and should not unfairly discriminate in favor of any one individual or group on the basis of age, service, or other non-performance related criteria.

 

   

Ownership and Responsibility: Programs recognize individual contributions as well as link executive and stockholder interests through compensation programs that reward our executives, including our NEOs based on the financial success of the Company and increases to stockholder value.

Market Compensation Review

We continuously monitor the market competitiveness of our executive compensation program. Over the past couple of years, the Committee has reviewed various components of the program to ensure that (i) pay opportunities are competitive with the market, (ii) there is an appropriate link between performance and pay and (iii) the program supports our stated compensation philosophy. This process included consultation with Exequity, LLP (“Exequity”), which compared compensation of our executives, including our NEOs, on short-term incentive awards, long-term incentives, executive severance arrangements, other benefits and our overall compensation and benefits philosophy to that of our comparator group and broader market practice. Exequity was engaged by the Committee and is responsible solely to the Committee. The Committee considered both Exequity’s advice and management’s opinion in determining the compensation strategy. On an ad hoc basis, the Committee may engage Exequity to provide information regarding specific executive compensation topics of interest.

For fiscal 2009, our comparator group consisting of 24 companies was chosen from a cross section of manufacturing and transportation and equipment companies that have revenues from one half to two times our revenues. For fiscal 2009, Arvin Meritor, Incorporated and Emerson Electric were deleted and Oshkosh Corporation and Whirlpool Corporation were added to the list. Based upon our comparator group criteria stated above, Arvin Meritor was deleted because it was below the limit on lower revenues and Emerson Electric was deleted due to higher revenues in comparison to the range. We added Oshkosh Corporation based upon its revenue fit as well as its manufacture of specialty vehicles, specifically for the Department of Defense. Whirlpool Corporation was also added due to its revenue fit and manufacturing business. We review executive compensation against this peer group of companies with which we compete for talent. Information about this list of companies is used by Exequity and management when the Committee requests specific executive compensation analyses. The Committee approved the following peer group for fiscal 2009.

Fiscal 2009 Compensation Peer Group

 

AGCO Corporation

 

Goodrich Corporation

 

Oshkosh Corporation

Cummins Incorporated

 

Goodyear Tire and Rubber

 

PACCAR Incorporated

Danaher Corporation

 

Harley Davidson, Incorporated

 

Parker-Hannifin

Deere and Company

 

Illinois Tool Works

 

PPG Industries, Inc.

Dover Corporation

 

Ingersoll-Rand Co. Ltd.

 

Terex Corporation

Eaton Corporation

 

ITT Industries, Incorporated

 

Textron, Incorporated

General Dynamics

 

Lear Corporation

 

TRW Automotive Holdings Corporation

Genuine Parts Company

 

Masco Corporation

 

Whirlpool Corporation

A broader industry survey published by Hewitt Associates was also used to provide us with additional compensation market data. Please refer to Appendix B to this proxy statement for a list of participants in Hewitt’s 2009 TCM survey. For individual executive positions, if the market data from the peer group of companies was not statistically reliable because of the small sample size, we also used the manufacturing group (or if the sample size is large enough, the all-industry group) of this broader

 

       Page 33        
    


Table of Contents

survey data. When we use broader industry surveys, we use market data within our revenue scope, either overall consolidated revenue for corporate roles and/or business unit revenue for business unit specific roles. This is especially true for the base salary competitive market review.

For base salary, short-term incentives, and long-term incentives, we target the 50th percentile (market median). We established a policy of targeting base salaries at the 50th percentile (market median) of the competitive market, based on the peer group, where available, or the broader industry survey. We refer to this as the competitive market data, competitive marketplace, or the like. We consider an executive to be compensated competitively if his or her base salary is within 85 to 115 percent of the market median. Under special circumstances when we are recruiting for critical roles, we target an executive’s salary at the 75th percentile. Our incentive compensation plans provide executives with the opportunity to earn total compensation at the 50th percentile of the competitive market for target corporate performance and at the 75th percentile for distinguished corporate and individual performance.

Typically, the CEO makes recommendations to the Committee on annual base salary increases for the NEOs other than himself (see the section entitled “Summary of the Executive Salary Planning Approval Process”). For our Annual Incentives, the CEO may recommend that the Committee adjust awards to reflect individual performance. For long-term incentives, awards generally follow our fixed share guidelines with no adjustments recommended by the CEO.

Pay Mix

Our pay mix of base salary, short-term incentives, and long-term incentives generally tracks to the marketplace with the majority of total compensation opportunity, specifically annual and long-term incentives, being contingent on and variable with performance. This structure supports our pay-for-performance compensation philosophy.

Elements of Executive Compensation

The key elements of our executive compensation program include base salary, short-term incentives, long-term incentives, retirement benefits, perquisites, and other benefits. We also maintain stock ownership guidelines for our executives, including our NEOs. Although decisions relative to each of these compensation elements are made separately, the Committee considers the total compensation and benefits package when making any compensation decision.

Base Salary

We pay each executive officer, a competitive base salary, on a monthly basis, for services rendered during the year. Base salaries for executive officers, including our NEOs, are typically reviewed and adjusted based on evaluating (i) the responsibilities of their positions, (ii) the competitive marketplace data and (iii) the performance of each executive during the fiscal year.

Summary of the Executive Salary Planning Approval Process

 

   

The head of each business unit reviews competitive salary market data relevant to his or her direct and indirect reports.

 

   

The head of each business unit provides salary recommendations for his or her direct and indirect reports.

 

   

The CEO reviews and approves and/or adjusts all of these salary recommendations.

 

       Page 34        
    


Table of Contents
   

The Committee reviews the salary for the CEO, and the CEO’s salary recommendations for all Section 16 Officers. The CEO does not recommend nor is he involved in decisions regarding his own compensation.

 

   

The Committee then recommends and the independent members of the Board approve or adjust the salary recommendation for the CEO. As described in greater detail below, we have a detailed procedure in place for reviewing the performance of the CEO and determining the annual salary of the CEO.

Due to the economic environment in fiscal 2009, traditional base salary performance increases to executives, including NEOs, did not occur.

CEO Performance Evaluation

Each year, typically in December, the Committee and the independent members of the Board evaluate the CEO’s performance for the prior fiscal year. This review is based on the CEO’s achievement of goals set prior to the start of that year. The CEO presents this information to the full independent members of the Board, who then discuss it in executive session. The CEO is not present during this discussion. The independent members’ evaluation of the CEO’s performance then forms the basis for the decision on the CEO award under our Annual Incentive Plan award (“AI Plan”) which is described below, for the prior fiscal year and base salary for the new fiscal year. The chair of the Committee then informs the CEO of the compensation decisions and the performance evaluation on which those decisions were based.

At the December 2009 Board meeting, the independent members of the Board did not recommend a base salary increase for Mr. Ustian. Mr. Ustian’s base salary was last increased in December 2007. In this regard, we have not yet determined whether there will be performance increases in general to base salary for executives, including NEOs, in fiscal year 2010. Also, in December 2009, the independent members of the Board approved a fiscal 2009 AI Plan award (“AI award”) at the distinguished level (150% of Target) for Mr. Ustian based upon both the Company’s successful financial results in the worst truck market in recent history and his strong performance in fiscal 2009 as a result of his achievements within our three strategic pillars of great products, competitive costs and profitable growth. As discussed in the Annual Incentive section below, the Company’s fiscal year 2009 financial results of $2.86 earnings per share (“EPS”) met the distinguished level of performance.

Annual Incentive

The AI Plan is a short-term incentive program that exists to reward, motivate and retain employees as well as align rewards with performance for the fiscal year. The AI Plan is a key element in the executive compensation package as the Company intends for a significant portion of an executive’s, including the NEO’s, total compensation to be performance-related. The AI Plan for 2009 was based on attaining financial and non-financial performance goals established and approved by the Committee. The AI Plan is authorized under our stockholder approved 2004 Performance Incentive Plan (the “Plan”). The Plan is an omnibus plan that allows for various awards such as cash, stock options, stock appreciation rights, restricted stock, premium share units, and deferred share units. The AI Plan and the Plan do not have claw-back provisions, which, for example, would retract a prior incentive award when financial results are restated after the award was paid.

The following were factors in the 2009 AI Plan:

 

   

Consolidated Financial Performance: For all of our executives, consolidated financial performance is heavily weighted in the calculation of incentive payments in order to

 

       Page 35        
    


Table of Contents
 

encourage integrated execution across organizational boundaries within the Company. We believe that it is important to encourage executives to work together for the best consolidated results rather than to focus on results at one business unit at the expense of other business units. Consolidated financial goals are based on our Return on Equity (“ROE”), as determined by the Committee. We use ROE because we believe that, in the long term, it is highly correlated with stock price and stockholder value. We are in a volatile industry, in which demand for our products is subject to cyclical fluctuation. The profitability of our business is heavily influenced by the cycle of truck sales in North America. Consequently, we use the following truck industry demand-adjusted (volume-adjusted) ROE target methodology to evaluate Company performance. We target a 16.5% ROE on average over the business cycle based on a forecasted average truck industry volume, which is re-evaluated every year based upon industry forecast. This prevents us from giving management an unduly large incentive payment in years when the truck market is strong. Rather, financial results must be even stronger than industry performance for management to receive a payment. Conversely, this methodology is intended to prevent us from unduly under-compensating management in years when the truck market is weak. The volume-adjusted ROE target for 2009 was 12.8% which included an adjustment for the sustainable piece of the military business of $1.5 billion. The amount of income required to earn incentive payments was calculated using this ROE target which is then converted to an EPS goal, excluding a settlement gain, impairment charges and refinancing costs. The original earnings target was $5.62 per share based upon an average truck industry volume of 328,000 units. This EPS goal was adjusted mid-year to $0.80 per share due to the dramatic decrease in the truck volume to an estimated 165,000 -185,000 units. The following table outlines the revised goals. In light of the economy and the decrease in the expected truck volume, these EPS goals were challenging.

 

Goal    EPS  
   

Threshold (25% of Target)

   $ (1.60
   

Target (100%)

   $ 0.80   
   

Distinguished (150% of Target)

   $ 2.42   
   

Super Distinguished (200% of Target)

   $ 3.20   

 

   

Individual Performance: This is measured by our annual Total Performance Management (the “TPM”) assessment. The TPM process is a performance management tool that focuses on employee career development, goal setting, performance appraisals, and evaluation. The TPM assessment reviews how well the executive performed with regard to both individual goals and defined skills and behaviors. However, generally only financial goals are applicable to awards to our NEOs except where individual performance is used for downward discretion. For 2009, individual performance was used for downward discretion. For Mr. Cederoth, achievements included cost reductions, including but not limited to SG&A, postretirement costs and professional fees and refinancing initiatives. For Mr. Kapur, achievements included the School Bus, Medium Truck, Severe Service Truck, Class 8 Truck and Heavy Truck market share while investing in our future with mergers, acquisitions and joint ventures such as Monaco and NC2 (Caterpillar and Navistar joint venture) and preparing for global growth. For Mr. Covey, achievements included significant legal matters including commercial and regulatory issues.

In October 2008, the Committee originally approved a fiscal year 2009 plan under which the monetary pool for AI awards for the CEO and Level 13 and Corporate employees, as for the previous year, would be based 100% upon consolidated results, but for all other plan participants’ AI awards would be based 80% upon consolidated results and 20% upon business unit results.

 

       Page 36        
    


Table of Contents

Due to the dramatic decrease in truck industry volume, the Committee, using its authority under the Plan, revised its original goals mid–year and adjusted the fiscal 2009 EPS goal to $0.80 per share. In addition, the Committee also revised the AI award pool composition from a mix of consolidated and business unit performance to 100% consolidated performance. Based upon the mid-year adjusted goals, the final fiscal year 2009 EPS results of $2.86 per share, allowed the Committee to award distinguished performance level payments under the Plan. However, in determining final individual AI awards, the Committee used its downward discretion based upon the NEOs overall individual achievements.

The AI Plan has threshold, target, distinguished, and super-distinguished performance payout levels for the NEOs which range from 25% to 200% of target. Based upon performance, in some years, the Company may not make AI payments, but the Company also has the ability under the plan to make maximum payments at 200% of target bonus opportunity for super-distinguished performance. Consolidated financial results between performance levels are interpolated on a straight-line basis to determine payment amounts.

Generally, AI awards are not paid when consolidated results are below threshold. However, in rare circumstances, the AI Plan may allow for payments to executives, including NEOs, who work for a business unit with above-threshold performance when consolidated performance is below threshold. In any event, under no circumstances will the AI Plan provide payments when net income is negative.

The Committee has the discretion to adjust a bonus payment. In doing so, the Committee historically has considered the requirements of Section 162(m) of the Internal Revenue Code. While the Committee generally intends for incentive compensation to be tax deductible, there may be instances when the Committee decides to award a non-deductible amount. The Committee did not award a non-deductible AI amount for fiscal 2009.

Fiscal 2009 AI Plan Weights

 

Named Executive Officer

  

Corporate /Business Unit Weight

  

Business Unit

Daniel C. Ustian

   100% / 0%                        Corporate / Consolidated

William A. Caton

   100% / 0%                        Corporate / Consolidated

Terry M. Endsley

   100% / 0%                        Corporate / Consolidated

Andrew J. Cederoth

   100% / 0%                        Corporate / Consolidated

Deepak T. Kapur

   100% / 0%                        Truck

Pamela J. Turbeville

   100% / 0%                        Navistar Financial Corporation

Steven K. Covey

   100% / 0%                        Corporate / Consolidated

Final NEO awards were based upon consolidated financial performance and then the Committee used downward discretion to make individual award decisions.

Fiscal 2009 AI Target Award Percentages and Amount Earned

 

Named Executive Officer

   Target as a
% of

Base Salary
  2009
Annual Incentive
Amount Earned

Daniel C. Ustian

   110%   $ 1,946,000

William A. Caton

     95%     N/A

Terry M. Endsley

     75%   $ 175,000

Andrew J. Cederoth

     75%   $ 350,000

Deepak T. Kapur

     75%   $ 500,000

Pamela J. Turbeville

     65%     N/A

Steven K. Covey

     65%   $ 400,000

 

       Page 37        
    


Table of Contents

As previously discussed in the CEO Performance Evaluation section, Mr. Ustian’s award was granted at the distinguished level. Mr. Caton and Ms. Turbeville were not eligible for any additional AI award payments other than what was calculated per the terms of the Executive Severance Agreement formula / calculation, which is described in the “Potential Payments Upon Termination or Change in Control” section below. Mr. Endsley’s amount is pro-rated for his time as an active NEO and is payable to his Estate. Mr. Cederoth’s award is based upon a distinguished achievement level and also recognizes his performance and leadership while serving as interim CFO and the many credit and refinancing successes. Mr. Kapur’s award is between target and distinguished achievement levels of performance and rewards him for our strong Truck market share. Mr. Covey’s award is between target and distinguished achievement levels of performance and rewards him for many strategic legal department initiatives.

Long-Term Incentive

Traditionally, our objectives for including long-term incentives as part of our executives’ total compensation package include:

 

   

Aligning executive and stockholder interests; tying compensation to share price appreciation;

   

Emphasizing returns to stockholders; and

   

Cultivating ownership.

Historically, we have focused our long-term incentive plan on the use of stock options to align executives’ interests with those of stockholders. To manage the allocation of stock options, the Committee used a fixed share grant approach. The fixed share guideline takes into account the long-term incentive target by position, Black-Scholes valuation methodology, and estimated stock price. This approach was used because it:

 

   

Managed dilution;

   

Provided the same number of options for similar job roles; and

   

Provided a way for us to allocate stock options.

We have never backdated stock options. In addition, as set forth in the Plan, we prohibit stock option repricing. However, within the Plan, there is a Restoration Stock Option Program. Specifically, the Restoration Stock Option Program allows an executive to exercise vested non-qualified stock options by presenting shares that have a total market value equal to the option exercise price times the number of options. New restoration options are then granted with an exercise price equal to the fair market value of our stock at that time in an amount equal to the number of mature shares that were used to exercise the original option, plus the number of shares that were withheld for the required tax liability. The restoration stock options have a term equal to the remaining term of the original option, generally become exercisable six months after the date of grant, and otherwise have the same general terms and conditions of other non-qualified stock options granted under the Company’s stock plans. In 2008, none of the NEOs utilized this program. In December 2008, the Committee approved the elimination of the Restoration Stock Option Program under the Plan in connection with future long-term incentive grants, beginning with the grants made in December 2008.

In December 2008, a fiscal year 2009 long-term incentive grant under the Plan was approved to eligible plan participants. The grant was based upon our fixed share grant approach, however, we modified our use of 100% stock options to an equity mix of 67% stock options and 33% restricted stock units (RSUs). We changed the mix to manage our share pool usage.

As mentioned in previous proxies, in fiscal year 2007, we implemented a cash-based long-term incentive program under the Plan. It was a three-year plan (2007, 2008, and 2009) based upon

 

       Page 38        
    


Table of Contents

earnings per share and free cash flow performance metrics. At the end of 2009, we reviewed actual results versus the plan targets and there were no payments earned for any of the three years.

In December 2009, a fiscal year 2010 long-term incentive grant under the Plan was approved to eligible plan participants. Similar to the December 2008 grant, and in an effort to maximize our share usage, the NEOs received a grant mix of 67% stock options and 33% RSUs. We also introduced cash-settled RSUs to certain eligible participants. Awards vest equally over a three year period.

Executive Stock Ownership Program

We feel that it is important to encourage senior executives to hold a material amount of Company stock and to link their long-term economic interest directly to that of the stockholders. To achieve this goal, we established stock ownership requirements. During fiscal 2009, our stock ownership guidelines applied to approximately 62 executives, including our NEOs, the majority of who hold the title of vice president and above. Executives are expected to meet the ownership level of their position within five years of attaining that position. The ownership requirements range from 75% to 300% of base salary and are fixed at the number of shares that are required to be held as of the date of an executive’s promotion or hire, based on the fair market value of the shares at that time.

Executive Stock Ownership as of October 31, 2009

 

Named Executive Officer   

Ownership Requirement

as a % of Base Salary

  Number of
Shares Required
  

Number of

Shares Owned

Daniel C. Ustian

   300%   60,806    132,559

William A. Caton(1)

   225%   56,575      78,861

Terry M. Endsley(2)

   225%   28,419      38,482

Andrew J. Cederoth(3)

   225%   29,133      12,823

Deepak T. Kapur

   225%   25,568      71,104

Pamela J. Turbeville(4)

   225%   22,083      42,825

Steven K. Covey

   225%   15,666      28,117

 

(1)

Upon his separation on October 31, 2009, Mr. Caton was no longer subject to the executive stock ownership program.

 

(2)

At the time of his death, Mr. Endsley was in good standing with his ownership requirements. All shares were transferred to his estate.

 

(3)

Mr. Cederoth was promoted to CFO on September 24, 2009. The due dates for his executive stock ownership requirements are as follows:

 

  a.

1,227 additional shares by March 24, 2010

  b.

5,550 additional shares by September 24, 2012

  c.

3,983 additional shares by April 15, 2014

  d.

5,550 additional shares by September 24, 2014

 

(4)

Upon her separation on January 31, 2009, Ms. Turbeville was no longer subject to the executive stock ownership program.

 

       Page 39        
    


Table of Contents

Executive Benefits and Perquisites

The following table summarizes the executive benefits and perquisites that we provide to our NEOs:

 

NEO   Life
Insurance(1)
  Executive
Physical
Program(2)
  Flexible
Perquisite
Program(3)
  Pension /Retirement/401(k) Plans(4)   Retiree
Medical
Benefits
                RPSE   MRO   RAP   SRAP   SERP    
Daniel C. Ustian   X   X   X   X   X       X   X
William A. Caton   X   X   X       X   X   X  
Terry M. Endsley   X   X   X   X   X       X   X
Andrew J. Cederoth   X   X   X   X       X   X   X
Deepak T. Kapur   X   X   X       X   X   X  
Pamela J. Turbeville   X   X   X       X   X   X  
Steven K. Covey   X   X   X   X   X       X   X

 

(1)

Life Insurance. We provide Company paid life insurance equal to five times base salary.

 

(2)

Physical Exams. This program provides a company-paid physical when an executive is first hired or promoted to an executive position. A physical is also required every two years prior to age 50 and every year after age 50. This program helps us ensure the health of our key executives.

 

(3)

Executive Perquisites for our NEOs. We maintain a perquisite program for our NEOs, which we believe is competitive and consistent with our overall compensation program, and which assists us in the attraction and retention of our executive officers. The Executive Flexible Perquisite Program provides a cash stipend to each of our NEOs, the amount of which varies by executive, based upon the executive’s organization level. The purpose of the cash stipend is to provide each of our NEOs with the ability to choose the perquisite that best fits his or her professional and personal situation. This program is in lieu of providing and administering such items as car leases, tax preparation, financial planning, and home security systems. We do not require the NEOs to substantiate the expenses for which they use this stipend. The annual perquisite amount is paid semi-annually in equal installments in May and November.

Annual Flexible Perquisite Payments During Fiscal 2009

 

Named Executive Officer

   Annual Flexible
Perquisite Payment - Actual
 

Daniel C. Ustian

   $ 46,000   

William A. Caton

     37,000   

Terry M. Endsley

     21,500 (A) 

Andrew J. Cederoth

     17,917 (B) 

Deepak T. Kapur

     37,000   

Pamela J. Turbeville

     14,000 (C) 

Steven K. Covey

     28,000   

 

  (A)

Mr. Endsley’s amount is pro-rated based upon his date of death effective April 14, 2009.

 

  (B)

Mr. Cederoth’s amount is pro-rated based upon his previous and current annual perquisite payment. As CFO, the annual amount is $37,000.

 

  (C)

Ms. Turbeville’s amount is pro-rated based upon her separation from the Company effective January 31, 2009.

In certain circumstances, where a commercial flight is not available to meet a NEOs travel schedule, our NEOs and directors use chartered aircraft for business purposes only. In these situations, we believe chartered aircraft allows us to make effective use of the executive’s time. After a review of the chartered flight usage in 2009, we confirmed the use was for business purposes only. A spouse may accompany an NEO while he or she is traveling on Company business. Although this occurs on a limited basis, the reimbursement of the spouse travel expense is included in taxable compensation.

Effective November 1, 2009, the Committee approved a policy statement that eliminates all tax gross-ups for perquisites and other similar benefits to Section 16 Officers, including NEOs.

 

       Page 40        
    


Table of Contents
(4)

Pension/Retirement/401(k) Plans

We began transitioning to defined contribution/401(k) plans as the primary retirement income program for all non-represented employees hired on or after January 1, 1996. Thus participation in our defined benefit pension plans has been limited to those hired prior to that date.

 

   

RPSE (“Retirement Plan for Salaried Employees”). This is our tax-qualified defined benefit pension plan for salaried employees hired prior to January 1, 1996.

   

MRO (“Managerial Retirement Objective Plan”). The MRO is our unfunded non-qualified defined benefit pension plan designed primarily to restore the benefits that executives, including our NEOs, would otherwise have received if the Internal Revenue Code restrictions had not applied to the RPSE.

   

RAP (“Retirement Accumulation Plan”). This is our tax-qualified defined contribution/401(k) plan for salaried employees hired on or after January 1, 1996. Effective December 31, 2008, the RSP (“Retirement Savings Plan”) was merged into the RAP. For additional information about the merger and how certain NEO’s 401(k) plan benefits are affected are provided in the Pension Benefits section.

   

SRAP (“Supplemental Retirement Accumulation Plan”). This is our non-qualified deferred compensation plan designed primarily to restore the contributions that participants would otherwise have received under the RAP, if the Internal Revenue Code restrictions had not been in place.

   

SERP (“Supplemental Executive Retirement Plan”). This is designed as a pension supplement to attract and retain key executives. The SERP is unfunded and is not qualified for tax purposes.

Additional information on the pension/401(k) plans are provided in the Pension Benefits, Non-Qualified Defined Contribution and Other Non-Qualified Deferred Compensation sections.

 

   

Retiree Medical Benefits. Non-represented employees, including our NEOs, hired on or after January 1, 1996, are not eligible for the retiree medical benefits program.

Employment Contracts and Executive Severance Arrangements

We do not have employment contracts with our NEOs as employment with each of them is “at will.” However, like many companies, to ensure stability and continuity of management, we provide those individuals with an Executive Severance Agreement (“ESA”), which provides for severance benefits in the event of a specified termination such as an involuntary termination and a termination in connection with a change in control. Our ESAs have been modified effective January 1, 2010.The Internal Revenue Code 280G excise tax gross up has been eliminated for all ESA’s, including the NEOs. The NEOs general severance, excluding the CEO, and all of the NEOs severance formula based upon a Termination Related to a Change in Control (CIC) did not change. The general severance formula for the CEO increased from 200% to 300% of the sum of his annual base salary plus annual target bonus, this percentage is now the same as the CIC formula of 300%. Please refer to the Potential Payments Upon Termination or Change in Control below for more information on the subject and a brief description of the changes.

Role of Executive Officers in Compensation Decisions

The Committee makes all compensation decisions for the NEOs, excluding the CEO which decisions are approved by the independent members of the Board. The CEO makes recommendations to the Committee regarding the compensation for his direct reports (which includes the other NEOs) based on a review of their performance, job responsibilities, and importance to our business strategy. The CEO does not make recommendations to the Committee regarding his own compensation.

Tax and Accounting Implications

Policy on Deductibility of Compensation

Section 162(m) of the Internal Revenue Code provides that a public company generally may not deduct the amount of non-performance based compensation paid to certain executive officers that exceeds $1 million in any one calendar year. However, this provision does not apply to performance-

 

       Page 41        
    


Table of Contents

based compensation that satisfies certain legal requirements including income from certain stock options and certain formula driven compensation. In general, the Committee has considered the effect of the Internal Revenue Code limitation and under certain circumstances may decide to grant compensation that is outside of the limits.

Non-Qualified Deferred Compensation

The American Jobs Creation Act of 2004 changed the tax rules applicable to non-qualified deferred compensation arrangements. We are complying in good faith with the statutory provisions, which generally became effective as of January 1, 2005, and the applicable regulations. Please refer to the Non-Qualified Deferred Compensation table below for more information on the subject.

Accounting for Stock-Based Compensation

In November 2005, we began accounting for our equity based long-term incentive vehicles under the Plan in accordance with the guidance on share-based payments.

Compensation Committee Report

The Committee reviewed and discussed the Compensation Discussion and Analysis required by item 402(b) of Regulation S-K with management, and based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement. The independent members of the Board reviewed and discussed the compensation of the CEO.

 

The Compensation Committee

   The Independent Members of the
Board of Directors (non Compensation Committee members)

John D. Correnti, Chairperson

   Eugenio Clariond

David D. Harrison

   Diane Gulyas

Michael N. Hammes

   William H. Osborne

James H. Keyes

   Dennis D. Williams

Steven J. Klinger

  

 

       Page 42        
    


Table of Contents

EXECUTIVE COMPENSATION TABLES

The table below summarizes the total compensation paid to or earned by each of our NEOs for the years ended October 31, 2009, 2008, and 2007:

Summary Compensation Table(16)

 

Name and Principal
Position
  Year   Salary ($)   Bonus
($)
    Stock
Awards
($)(1)
  Option
Awards
($)(2)
  Non-Equity
Incentive Plan
Compensation
($)
  Change in
Pension Value &
Non-Qualified
Deferred
Compensation
Earnings ($)(3)
    All Other
Compensation
($)(4)
    Total ($)  

Daniel C. Ustian

  2009   $ 1,180,000          $ 409,081   $ 948,640   $ 1,946,000   $ 3,622,886      $ 74,519      $ 8,181,126   
Chairman, President & Chief Executive Officer   2008   $ 1,170,833          $ 2,775,216       $ 2,589,500          $ 107,198      $ 6,642,747   
    2007   $ 1,125,000                      $ 1,041,054      $ 67,801      $ 2,233,855   
                   
                                                             
William A. Caton   2009   $ 655,000          $ 482,823   $ 126,464         (13)    $ 3,644,912 (5)    $ 4,909,199   
Former Executive Vice President & Chief Risk
Officer(8)
  2008   $ 650,533          $ 622,243   $ 180,784   $ 800,000          $ 159,059 (6)    $ 2,412,619   
    2007   $ 628,200   $ 250,000 (7)    $ 564,217   $ 180,786       $ 299,332      $ 106,371 (9)    $ 2,028,906   
                   
                                                             
Andrew J. Cederoth   2009   $ 321,534          $ 68,637   $ 13,333   $ 350,000   $ 455,558      $ 43,298      $ 1,252,360   
Executive Vice President & Chief Financial Officer                                                            
                   
                                                             
Terry M. Endsley   2009   $ 280,000          $ 1,061,581   $ 297,839   $ 175,000     (14)    $ 25,408 (11)    $ 1,839,828   
Former Executive Vice President & Chief Financial Officer(10)   2008   $ 459,683          $ 88,615   $ 43,859   $ 625,000          $ 99,640      $ 1,316,797   
                   
                                                             
Deepak T. Kapur   2009   $ 640,000          $ 364,111   $ 96,363   $ 500,000   $ 1,041,363      $ 137,070      $ 2,778,907   
President, Truck Group   2008   $ 640,000          $ 44,186   $ 201,159   $ 900,000          $ 103,649      $ 1,888,994   
    2007   $ 613,200              $ 499,405       $ 407,922      $ 92,345      $ 1,612,872   
                   
                                                             
Pamela J. Turbeville   2009   $ 106,750          $ 92,387   $ 214,276       $ 987,592 (15)    $ 1,629,141      $ 3,030,146   
Former Senior Vice President & Chief Executive Officer,   2008   $ 427,000          $ 626,858   $ 119,919   $ 444,000   $ 94,630      $ 362,561      $ 2,074,968 (12) 
Navistar Financial Corporation   2007   $ 407,100              $ 328,621       $ 274,768      $ 69,045      $ 1,079,534   
                   
                                                             
Steven K. Covey   2009   $ 495,000          $ 92,387   $ 214,276   $ 400,000   $ 1,393,687      $ 37,257      $ 2,632,607   
Senior Vice President, Chief Ethics Officer & General Counsel   2008   $ 495,000          $ 626,858       $ 640,000   $ 131,795      $ 36,916      $ 1,930,569   

 

(1)

Reflects the amortized dollar amount recognized as expense for financial statement reporting purposes in accordance with the guidance on share-based payments and not the compensation realized by the named executive officers (“NEOs”). Where applicable, amounts expensed during fiscal year 2009 for grants made in prior years are also included in this column. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the assumptions made in the valuation for the fiscal year 2009 awards reflected in this column, please see Note 20 to the Consolidated Financial Statements contained in the Company’s 2009 Annual Report. For information on the valuation assumptions with respect to grants made in prior fiscal years, please see the corresponding note to the Consolidated Financial Statements contained in the Company’s Annual Report in the respective fiscal year. Includes amounts expensed for the following restricted stock units (“RSUs”) that were granted to our NEOs on December 16, 2008: Mr. Ustian – 18,057; Mr. Caton – 8,263; Mr. Cederoth – 871; Mr. Kapur – 6,296; Mr. Covey 4,078; Mr. Endsley – 6,296; and Ms. Turbeville – 4,078. The compensation expense recognized by us for the RSUs is spread out over the service period (3 years) and we do not adjust the expense based on actual gains or losses. The closing price of our stock on December 16, 2008 was $23.04. We recognize the entire expense of an RSU award made to retirement eligible employees on the date of grant because once an executive attains retirement eligibility there is no longer a substantial risk of forfeiture of their RSUs. Of the named executive officers, Mr. Ustian, Ms. Turbeville and Mr. Covey are retirement eligible.

 

       Page 43        
    


Table of Contents
 

Mr. Ustian became retirement eligible in 2005, Ms. Turbeville became retirement eligible in August 2008 and Mr. Covey became retirement eligible in 2006. Upon Mr. Endsley’s death on April 14, 2009, all of his outstanding awards vested as to 100% and the related expense was accounted for immediately.

Also includes the amortized expense recognized for premium share units (“PSUs”) during 2009. The PSUs represent shares of common stock granted pursuant to our Executive Stock Ownership Program and is based on the attainment of certain stock ownership thresholds. The PSUs vest over a 3 year period with 1/3rd of the shares vesting on each of the first three anniversaries of the date of grant. The PSUs convert into Common Stock upon termination of employment. We use the closing price of our stock on the date of grant to value the PSUs and then spread the expense out over the vesting period (generally 3 years). The following PSU awards had amounts expensed by us in 2009. Mr. Caton received 8,449 PSUs on November 23, 2005; the closing price of our stock on the date of grant was $27.98. Mr. Endsley received 3,622 PSUs on April 14, 2009, which were expensed immediately; the closing price of our stock on the date of grant was $35.31.

 

(2)

Reflects the amortized dollar amount recognized as expense for financial statement reporting purposes in accordance with the guidance on share-based payments and not the compensation realized by the NEOs. Where applicable, amounts expensed during fiscal year 2009 for grants made in prior years are also included in this column. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the assumptions made in the valuation for the current year awards reflected in this column, please see Note 20 to the Consolidated Financial Statements contained in the Company’s 2009 Annual Report. For information on the valuation assumptions with respect to grants made in prior fiscal years, please see the corresponding note to the Consolidated Financial Statements contained in the Company’s Annual Report in the respective fiscal year. Includes amounts expensed for the following stock options that were granted to our NEOs on December 16, 2008: Mr. Ustian – 91,656; Mr. Caton – 41,942; Mr. Cederoth – 4,422; Mr. Kapur – 31,959; Mr. Covey 20,703; Mr. Endsley – 31,959; and Ms. Turbeville – 20,703. The compensation expense recognized by us for stock options is calculated using the fair value of our common stock on the date of grant (we use the Black-Scholes option pricing model for this calculation) and then we amortize the expense over the vesting period of the options (generally 3 years) and we do not adjust the expense based on actual gains or losses. We recognize the entire expense of a stock option grant made to retirement eligible employees on the date of grant because once an executive attains retirement eligibility there is no longer a substantial risk of forfeiture of their options. As mentioned in footnote 1 above, Mr. Ustian became retirement eligible in 2005, Ms. Turbeville became retirement eligible in August 2008 and Mr. Covey became retirement eligible in 2006.

 

(3)

This amount represents the change in the actuarial present value of the RPSE and MRO for Messrs. Ustian, Endsley and Covey and the change in actuarial present value of the SERP and certain interest on the SRAP for Messrs. Caton, Kapur and Cederoth and Ms. Turbeville. For Mr. Cederoth the amount represents the change in actuarial present value of the RPSE and SERP as well as certain interest on the SRAP.

 

(4)

This includes such items as Flexible Perquisites cash allowances, company-paid life insurance premiums, company contributions to the Retirement Accumulation Plan and the SRAP. The annual flexible perquisite payments are as follows: $46,000 for Mr. Ustian, $37,000 for each of Messrs. Caton and Kapur, and $28,000 for Mr. Covey and $21,500 for Mr. Endsley, and $14,000 for Ms. Turbeville. Mr. Cederoth received flexible perquisite payments of $17,917 which is reflective of his promotion in April and October 2009. The company-paid life insurance premiums are as follows: $24,520 for Mr. Ustian, $12,131 for Mr. Caton, $3,780 for Mr. Endsley, $1,216 for Mr. Cederoth, $16,038 for Mr. Kapur, $8,873 for Ms. Turbeville and $9,167 for Mr. Covey. Our contribution to the Retirement Accumulation Plan was $ 24,175 for Mr. Caton, $ 24,175 for Mr. Kapur, and $0 for Ms. Turbeville. Our contribution for the Supplemental Retirement Accumulation Plan was $33,862 for Mr. Caton, $24,165 for Mr. Cederoth, $59,081 for Mr. Kapur, and $31,705 for Ms. Turbeville.

 

(5)

Includes severance payment of $3,176,750 and lump sum payment in lieu of outplacement in the amount of $25,000. This also includes the gross-up of $212,632 which represents the difference between the directed value of Caton’s home in the amount of $742,632 and the fair market value of $530,000 established by an external appraiser approved by our third party relocation vendor.

 

(6)

Includes $42,851.81 for country club dues reimbursement and $17,887.82 for the tax gross-up on this reimbursement in connection with Mr. Caton’s promotion to CFO.

 

(7)

Represents a guaranteed payment in connection with Mr. Caton’s recruitment to the Company in 2005. Mr. Caton’s date of hire was October 31, 2005.

 

(8)

Mr. Caton was formerly the Chief Financial Officer of the Company until June 2008.

 

(9)

Includes $10,000 for country club dues reimbursement and $4,174 for the tax gross-up on this reimbursement in connection with Mr. Caton’s promotion to CFO.

 

(10)

Mr. Endsley was Executive Vice President and Chief Financial Officer until his death on April 14, 2009.

 

(11)

Includes gross-up of $38 on a $90 non-cash recognition award.

 

(12)

Ms. Turbeville’s 2008 Total column was incorrect in last year’s proxy. All other columns in part were accurate, the Total column’s calculation inadvertently excluded her base salary.

 

(13)

Mr. Caton was not vested in his SERP benefits. He has not yet exercised his Deferred Premium Shares.

 

(14)

Mr. Endsley was not vested in his MRO or SERP benefits.

 

(15)

Represents the change in SERP benefits. Does not reflect the Deferred Premium Shares Ms. Turbeville exercised.

 

(16)

Effective November 1, 2009, the Committee approved a policy statement that eliminates all tax gross-ups for perquisites and other similar benefits to Section 16 Officers, including NEOs.

 

       Page 44        
    


Table of Contents

Grants of Plan-Based Awards Table – Fiscal 2009

The following table complements the disclosure set forth in columns captioned Stock Awards and Option Awards of the Summary Compensation Table on page 43 of this proxy statement. All Stock Awards and Option Awards were granted under the 2004 Performance Incentive Plan.

 

Name

  Award Type   Grant
Date
  Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(1)
  All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
  All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
  Exercise
or Base
Price Of
Option
Awards
($/Sh)(2)
  Market
Price
on
Grant
Date
($/Sh)(2)
  Grant Date
Fair Value
of Stock and
Option
Awards ($)(3)
      Threshold ($)   Target ($)   Maximum ($)          

Daniel C. Ustian

  RSU   12/16/2008   $ 324,500   $ 1,298,000   $ 2,596,000   18,057           $ 409,081
  Stock Option   12/16/2008           91,656   $ 22.655   $ 23.04     948,640

William A. Caton

  RSU   12/16/2008   $ 155,563   $ 622,250   $ 1,244,500   8,263             187,198
  Stock Option   12/16/2008           41,942     22.655     23.04     434,100

Terry M. Endsley(4)

  RSU   12/16/2008   $ 105,000   $ 420,000   $ 840,000   6,296             142,635
  Stock Option   12/16/2008           31,959     22.655     23.04     330,776
  Premium
Shares Units
  4/14/2009         3,622             127,965

Deepak T. Kapur

  RSU   12/16/2008   $ 120,000   $ 480,000   $ 960,000   6,296             142,636
  Stock Option   12/16/2008           31,959     22.655     23.04     330,776

Pamela J. Turbeville

  RSU   12/16/2008   $ 69,388   $ 277,550   $ 555,100   4,078             92,387
  Stock Option   12/16/2008           20,703     22.655     23.04     214,276

Steven K. Covey

  RSU   12/16/2008   $ 80,438   $ 321,750   $ 643,500   4,078             92,387
  Stock Option   12/16/2008           20,703     22.655     23.04     214,276

Andrew J. Cederoth

  RSU   12/16/2008   $ 88,125   $ 352,500   $ 705,000   871             19,733
  Stock Option   12/16/2008           4,422     22.655     23.04     45,768

 

(1)

These amounts represent compensation opportunity for fiscal 2009 under the Annual Incentive Plan. For additional information regarding such awards, see “Compensation Discussion and Analysis – Annual Incentives” on page 35 of this proxy statement.

 

(2)

The exercise price was determined based on the average of the high and low price of our common stock on the grant date, while the market price on the grant date is the closing price of our common stock on that date.

 

(3)

The grant date fair value is generally the amount that we will expense in our financial statements over the award’s service period, but does not include a reduction for forfeitures.

 

(4)

The Premium Share Units represent shares of common stock granted pursuant to our Executive Stock Ownership Program and is based on the attainment of certain stock ownership thresholds. All granted awards were transferred to Mr. Endsley’s estate after his death.

 

       Page 45        
    


Table of Contents

Outstanding Equity Awards at 2009 Fiscal Year-End

The following table provides information on the holdings of stock options and stock awards by our named executive officers as of the end of fiscal 2009. The table includes unexercised and unvested stock option awards; unvested premium share units (“PSUs”) and unvested restricted stock units (“RSUs”). The vesting information for each grant is provided in the footnotes to this table, based on the option or stock award grant date. The market value of the stock awards is based on the closing price of our common stock as of October 31, 2009, which was $33.14. For additional information about the stock option awards and stock awards, see the description of long-term incentive compensation in the “Compensation Discussion and Analysis” on page 38 of this proxy statement.

 

    Option Awards   Stock Awards
    Number of Securities
Underlying Unexercised
Options (#)(1)
  Grant
Date
 

Option
Exercise

Price ($)

  Option
Expiration
Date
 

Market

Value of
Unexercisable
Options ($)

  Grant
Date
  Number of
Shares or
Units of
Stock
Held that
Have Not
Vested
(#)(2)(5)
  Market
Value of
Shares
or Units
of Stock
Held that
Have Not
Vested
($)
Name   Exercisable   Unexercisable              

Daniel C. Ustian

  2,474     12/14/1999   $ 40.4063   12/14/2009     9/18/2008   34,200   1,133,388
    41,626     12/14/1999     40.4063   12/15/2009     12/16/2008   17,691   586,280
    4,713     12/12/2000     21.2200   12/12/2010        
    32,953     12/12/2000     21.2200   12/13/2010        
    61,983     12/11/2001     38.2000   12/12/2011        
    2,617     12/11/2001     38.2000   12/11/2011        
    7,204     4/16/2002     44.1500   04/17/2012        
    2,873     12/10/2002     26.3850   12/10/2012        
    106,027     12/10/2002     26.3850   12/11/2012        
    58,100     02/19/2003     23.9650   02/20/2013        
    133,905     12/09/2003     42.8850   12/10/2013        
    2,895     12/09/2003     42.8850   12/09/2013        
    136,800     12/14/2004     40.9150   12/14/2014        
    136,800     10/18/2005     26.1500   10/18/2015        
      91,656   12/16/2008     22.6550   12/16/2018   961,013      

Total:

  730,970   91,656                 961,013       51,891   1,719,668

William A. Caton(3)

  47,700     10/31/2005     27.4000   10/31/2015     9/18/2008   15,651   518,674
      41,942   12/16/2008     22.6550   12/16/2018   439,762   12/16/2008   8,263   273,836

Total:

  47,700   41,942                 439,762       23,914   792,510

Terry M. Endsley(4)

                     

Total:

                           

Deepak T. Kapur

  12,233     09/02/2003     44.6600   09/03/2013     9/18/2008   11,925   395,195
    6,993     12/09/2003     42.8850   12/09/2013     12/16/2008   6,296   208,649
    40,707     12/09/2003     42.8850   12/10/2013        
    47,700     12/14/2004     40.9150   12/14/2014        
    47,700     10/18/2005     26.1500   10/18/2015        
      31,959   12/16/2008     22.655   12/16/2018   335,090      

Total:

  155,333   31,959                 335,090       18,221   603,844

 

       Page 46        
    


Table of Contents
    Option Awards   Stock Awards
    Number of Securities
Underlying Unexercised
Options (#)(1)
  Grant
Date
 

Option
Exercise

Price ($)

  Option
Expiration
Date
 

Market

Value of
Unexercisable
Options ($)

  Grant
Date
  Number of
Shares or
Units of
Stock
Held that
Have Not
Vested
(#)(2) (5)
  Market
Value of
Shares
or Units
of Stock
Held that
Have Not
Vested
($)
Name   Exercisable   Unexercisable              

Pamela J. Turbeville

  2,474     12/14/1999   40.4063   12/14/2009     9/18/2008   7,725   256,007
    2,760     12/14/1999   40.4063   12/15/2009     12/16/2008   3,995   132,394
    4,714     12/12/2000   21.2200   12/12/2010        
    20,195     12/12/2000   21.2200   12/13/2010        
    2,617     12/11/2001   38.2000   12/11/2011        
    38,583     12/11/2001   38.2000   12/12/2011        
    2,873     12/10/2002   26.3850   12/10/2012        
    48,627     12/10/2002   26.3850   12/11/2012        
    2,895     12/09/2003   42.8850   12/09/2013        
    28,005     12/09/2003   42.8850   12/10/2013        
    30,900     12/14/2004   40.9150   12/14/2014        
    19,274     03/15/2005   42.4900   12/15/2009        
    10,331     09/16/2005   34.1300   12/13/2010        
    30,900     10/18/2005   26.1500   10/18/2015        
      20,703   12/16/2008   22.6550   12/16/2018   217,071      

Total:

  245,148   20,703               217,071       11,720   388,401

Steven K. Covey

  3,202     12/11/2001   38.2000   12/11/2011     9/18/2008   7,725   256,007
    98     12/11/2001   38.2000   12/12/2011     12/16/2008   3,995   132,394
    2,982     12/10/2002   26.3850   12/10/2012        
    918     12/10/2002   26.3850   12/11/2012        
    282     12/09/2003   42.8850   12/10/2013        
    2,218     12/09/2003   42.8850   12/09/2013        
    30,900     12/14/2004   40.9150   12/14/2014        
    30,900     10/18/2005   26.1500   10/18/2015        
      20,703   12/16/2008   22.6550   12/16/2018   217,071      

Total:

  71,500   20,703               217,071       11,720   388,401

Andrew J. Cederoth

  2,900     12/14/1999   40.4063   12/14/2009     9/18/2008   2,325   77,051
    900     12/14/1999   40.4063   12/15/2009     12/16/2008   871   28,865
    36     12/12/2000   21.2200   12/13/2010        
    1,067     12/12/2000   21.2200   12/12/2010        
    1,300     7/1/2001   27.9500   7/2/2011        
    5,427     12/11/2001   38.2000   12/11/2011        
    1,773     12/11/2001   38.2000   12/12/2011        
    2,464     12/10/2002   26.3850   12/10/2012        
    6,736     12/10/2002   26.3850   12/11/2012        
    3,391     12/9/2003   42.8850   12/10/2013        
    3,209     12/9/2003   42.8850   12/9/2013        
    6,600     12/14/2004   40.9150   12/14/2014        
    6,600     10/18/2005   26.1500   10/18/2015        
        4,422   12/16/2008   22.6550   12/16/2018   46,365      
    42,403   4,422               46,365       3,196   105,916

 

(1)

All options, other than restoration options, became or will become exercisable under the following schedule: one-third on each of the first three anniversaries of the date of grant. In the event an optionee exercises a non-qualified option with already-owned shares, he or she may be eligible to receive restoration options, if at the time of exercise an election was made to restore the exercised options. Restoration options contain the same expiration dates and other terms as the options they replace except that they have an exercise

 

       Page 47        
    


Table of Contents
 

price per share equal to the fair market value of the common stock on the date the restoration option is granted and become exercisable in full six months after they are granted or, if sooner, one month before the end of the remaining term of the options they replace.

 

(2)

All of the RSUs granted on September 18, 2008, become exercisable under the following schedule: 25% on each of the first two anniversaries of the date of grant and 50% on the third anniversary of the date of grant. All the RSUs granted on December 16, 2008 become exercisable under the following schedule: 1/3rd on each of the first three anniversaries of the date of grant. The PSUs become exercisable under the following schedule: 1/3rd on each of the first three anniversaries of the date of grant.

 

(3)

After Mr. Caton’s separation on October 31, 2009, all of his unvested stock options and RSUs were forfeited.

 

(4)

After Mr. Endsley’s death on April 14, 2009, all of his outstanding stock options, RSUs and PSUs were transferred to his estate. All unvested stock options immediately became exercisable. All unvested RSUs or PSUs were immediately vested and the units converted into common stock. A total of 27,765 shares of common stock were distributed to Mr. Endsley’s estate after shares were withheld to cover any applicable tax withholdings. Listed below is a summary of the options that were transferred to Mr. Endsley’s estate and that were outstanding at the end of the fiscal year.

 

Name    Number of Securities
Underlying Unexercised
Options (#)
   Grant
Date
  

Option
Exercise

Price ($)

   Option
Expiration
Date
  

Market

Value of
Unexercisable
Options ($)

   Exercisable    Unexercisable            

The Estate of Terry Endsley

   506       12/14/1999    $ 40.4063    12/14/2009   
     3,094       12/14/1999      40.4063    12/15/2009   
     7,200       12/11/2001      38.2000    4/14/2011   
     10,400       12/9/2003      42.8850    4/14/2011   
     10,400       12/14/2004      40.9150    4/14/2011   

Total:

   31,600                       

 

(5)

The vesting dates of outstanding unexercisable stock options, RSUs and unvested PSUs at October 31, 2009 are listed below:

 

Name   Type of
Award
  Grant
Date
  Number of
Unexercised
or Unvested
Shares
Remaining
from
Original
Grant
  Number of
Shares
Vesting
and
Vesting
Date in
2009
  Number of
Shares
Vesting
and
Vesting
Date in
2010
  Number of
Shares
Vesting
and
Vesting
Date in
2011
  Number of
Shares
Vesting
and
Vesting
Date in
2012

Daniel C. Ustian

  RSUs   9/18/2008   34,200       11,400 on
09/18/2010
  22,800 on
09/18/2011
 
    RSUs   12/16/2008   17,691   5,653 on
12/16/2009
  6,019 on
12/16/2010
  6,019 on
12/16/2011
 
    Options   12/16/2008   91,656   30,552 on
12/19/2009
  30,552 on
12/19/2010
  30,552 on
12/19/2011
 

William A. Caton(1)

             

The Estate of Terry Endsley(2)

             

Deepak T. Kapur

  RSUs   9/18/2008   11,925       3,975 on
09/18/2010
  7,950 on
09/18/2011
 
    RSUs   12/16/2008   6,296   2,099 on
12/16/2009
  2,098 on
12/16/2010
  2,099 on
12/16/2011
 
    Options   12/16/2008   31,959   10,653 on
12/16/2009
  10,653 on
12/16/2010
  10,653 on
12/16/2011
 

Pamela J. Turbeville

  RSUs   9/18/2008   7,725       2,575 on
09/18/2010
  5,150 on
09/18/2011
 
    RSUs   12/16/2008   3,995   1,277 on
12/16/2009
  1,359 on
12/16/2010
  1,359 on
12/16/2010
 
    Options   12/16/2008   20,703   6,901 on
12/16/2009
  6,901 on
12/16/2010
  6,901 on
12/16/2011
 

 

       Page 48        
    


Table of Contents
Name   Type of
Award
  Grant
Date
  Number of
Unexercised
or Unvested
Shares
Remaining
from
Original
Grant
  Number of
Shares
Vesting
and
Vesting
Date in
2009
  Number of
Shares
Vesting
and
Vesting
Date in
2010
  Number of
Shares
Vesting
and
Vesting
Date in
2011
  Number of
Shares
Vesting
and
Vesting
Date in
2012

Steven K. Covey

  RSUs   9/18/2008   7,725       2,575 on
09/18/2010
  5,150 on
09/18/2011
 
    RSUs   12/16/2008   3,995   1,277 on
12/16/2009
  1,359 on
12/16/2010
  1,359 on
12/16/2010
 
    Options   12/16/2008   20,703   6,901 on
12/16/2009
  6,901 on
12/16/2010
  6,901 on
12/16/2011
 

Andrew J. Cederoth

  RSUs   9/18/2008   2,325       775 on
9/18/2010
  1,550 on
9/18/2011
 
    RSUs   12/16/2008   871   291 on
12/16/2009
  290 on
12/16/2010
  290 on
12/16/2011
 
    Options   12/16/2008   4,422   1,474 on
12/16/2009
  1,474 on
12/16/2010
  1,474 on
12/16/2011
 

 

(1)

After his separation on October 31, 2009, Mr. Caton forfeited any unvested awards.

 

(2)

After Mr. Endsley’s death on April 14, 2009, all of his outstanding stock options, RSUs and PSUs were transferred to his estate. At the time of transfer 31,959 stock options granted on December 16, 2008 with an exercise price of $22.655 per share immediately became exercisable. In addition 22,916 RSUs granted on September 18, 2008, and 3,622 PSUs issued on April 14, 2009 became immediately vested.

Option Exercises and Stock Vested Table – Fiscal 2009

The following table provides information for our named executive officers on stock option exercises during 2009, including the number of shares acquired upon exercise and the value realized and the number of shares acquired upon the vesting of restricted stock and premium share units and the value realized by the executive before payment of any applicable withholding tax and broker commissions based on the fair market value (or market price) of our stock on the date of exercise or vesting, as applicable.

 

     Option Awards    Stock Awards

Name

   Number of
Shares
Acquired

on
Exercise (#)
   Value
Realized

Upon
Exercise ($)
   Number of
Shares
Acquired on
Vesting
(#)(1)
   Value
Realized

Upon
Vesting ($)

Daniel C. Ustian

      $    11,104    $ 442,463

William A. Caton(2)

           8,033      259,875

Terry M. Endsley(3)

           25,818      911,634

Deepak T. Kapur

           3,975      160,670

Pamela J. Turbeville

           2,508      99,931

Steven K. Covey

   3,900      16,375    2,508      99,931

Andrew J. Cederoth

           775      31,326

 

(1)

Amounts in this column include RSUs that vested and/or were surrendered to the Company in satisfaction of employment tax withholdings due upon receipt of RSUs that vested on September 18, 2009. The market price of our stock on September 18, 2009 was $40.42. It also includes RSUs that were surrendered to the Company by Mr. Ustian, Ms. Turbeville, Ms. Cochran and Mr. Covey in satisfaction of employment tax withholdings due upon receipt of RSUs that were awarded to each of them on December 16, 2008. The employment tax withholdings were a result of Mr. Ustian, Ms. Turbeville, Ms. Cochran and Mr. Covey having attained retirement eligibility status under the stock plan from which the RSUs were granted. The market price of our stock on the date the shares were surrendered was $23.04. Upon Mr. Endsley’s death on April 14, 2009, 22,196 RSUs he owned immediately vested and were delivered to his estate. The market price of our stock on the date the shares vested was $35.31.

 

       Page 49        
    


Table of Contents
(2)

Upon the vesting of premium share units on November 23, 2008, Mr. Caton acquired 2,817 shares with a market price of $17.41. The premium share units will be delivered to Mr. Caton in the form of common stock after he terminates employment with the Company.

 

(3)

Upon the vesting of premium shares units on April 14, 2009, Mr. Endsley acquired 3,622 shares with a market price of $35.31. The premium share units were delivered to Mr. Endsley’s estate upon his death in the form of common stock. Mr. Endsley’s estate acquired 65,992 shares on exercise. The value realized on the exercised shares was $991,697.

Pension Benefits – Fiscal 2009

The amounts reported in the table below equal the present value of the accumulated benefit at October 31, 2009, for the NEOs under each plan based on the assumptions described below the table:

Pension Benefits Table(1)

 

 

 

Named Executive Officers

  Plan   Number of
Years of
Credited
Service (#)
  Present Value
of Accumulated
Benefits ($)(1)
  Payments
During Last
Fiscal Year

Daniel C. Ustian

  RPSE   36.7   $ 808,414   $ 0
  MRO   36.7   $ 7,668,070   $ 0
  SERP   36.7     $ 0

William C. Caton(2)

  SERP   4.0   $ 0   $ 0

Deepak T. Kapur

  SERP   6.4   $ 2,044,615   $ 0

Terry M. Endsley(3)

  RPSE   32.0   $ 297,695   $ 4,114
  MRO   32.0   $ 0   $ 0
  SERP   32.0   $ 0   $ 0

Andrew J. Cederoth

  RPSE   14.6   $ 215,462   $ 0
  SERP   19.6   $ 358,836   $ 0

Pamela J. Turbeville(4)

  SERP   10.7   $ 2,024,647   $ 117,124

Steven K. Covey

  RPSE   28.5   $ 1,045,430   $ 0
  MRO   28.5   $ 1,676,811   $ 0
 

 

SERP

  28.5   $ 0   $ 0

 

(1)

Unless otherwise noted, all present values reflect benefits payable at the earliest retirement date when the pension benefits are unreduced. Also unless otherwise noted, form of payment, discount rate (8.40%) and mortality (RP-2000 Combined Mortality Table projected at 50% of scale AA) is based on assumptions from the guidance on accounting for pensions. Additionally, SERP benefits have only been offset by benefits under Navistar sponsored retirement programs. At actual retirement these benefits will also be offset by benefits accumulated under programs for employment prior to Navistar, Inc.

 

(2)

Mr. Caton was not vested in his SERP benefit when he terminated.

 

(3)

Mr. Endsley was not vested in either the MRO or SERP benefits when he passed away. The present value of accumulated benefits and the payments made are the value and payments of his surviving spouse benefits.

 

(4)

Ms. Turbeville retired during the year and the effective date of her first SERP payment was February 1, 2009. However, under the Internal Revenue Code her payments had to be deferred 6 months. Interest of $899 was credited on the 6 month deferral of payments and is included in the total listed above.

Historically, we have provided our employees with retirement income programs since 1908. Over the years the programs have changed for various reasons. Effective January 1, 1996, we began transitioning from defined benefit retirement income programs to defined contribution retirement

 

       Page 50        
    


Table of Contents

income programs as the primary vehicle to deliver those benefits. Employees hired before that date participate in defined benefit pension plans and those hired on or after that date participate in defined contribution plans. We also provide non-tax qualified benefit restoration programs that provide benefits or contributions that are in addition to those provided under our tax-qualified programs. The following briefly describes the various programs.

 

 

Navistar, Inc. Retirement Plan for Salaried Employees (“RPSE”). The RPSE is a funded and tax qualified defined benefit retirement program. The plan provides benefits primarily based on a formula that takes into account the employee’s years of service, final average earnings and a percentage of final average earnings per year of service (accrual rates). The table below summarizes the benefit accrual rates under the RPSE.

RPSE Benefit as Percent of Final Average Pay

 

     Prior to 1989           After 1988           Maximum        

Rate of Benefit Accrual
per Year of Service

  2.4%           1.7%           60%        

The eligible earnings are averaged over the highest 60 consecutive months within the final 120 consecutive months prior to retirement. Eligible earnings include base compensation and specifically exclude AI Plan compensation. Thus any increase in AI payments will not increase benefits under the RPSE. Such compensation may not exceed an IRS-prescribed statutory limit applicable to tax-qualified plans ($245,000 for 2009).

The resulting benefit which may commence at age 62, is offset by a percentage of estimated or actual Social Security benefits. The percentage offset is equal to 1.7% for each year of service with a maximum offset equal to 60% of Social Security benefits.

The RPSE is available only to employees who were hired prior to January 1, 1996 and thus is closed to new participants. Additionally, effective January 1, 2005, service has been limited to the service accrued as of December 31, 2004, for the employees who were hired prior to January 1, 2005 and were under age 45 as of January 1, 2005.

Benefits under the RPSE are subject to the limitations imposed under Section 415 of the Internal Revenue Code. The Section 415 limit for 2009 is $195,000 per year for a single life annuity payable at an Internal Revenue Service prescribed retirement age. This ceiling may be actuarially adjusted in accordance with IRS rules for items such as employee contributions, other forms of distributions and different starting dates.

Of the NEOs, Messrs. Ustian, Endsley and Covey participate in the RPSE. Mr. Cederoth also participates in the RPSE but his service is limited to the service accrued as of December 31, 2004.

 

 

Navistar, Inc. Managerial Retirement Objective Plan (“MRO”). We offer the MRO to approximately 300 eligible managers and executives. The MRO provides for retirement benefits that are either not covered by or that are above those provided under our tax-qualified pension plan (“RPSE”). The MRO is unfunded and is not qualified for tax purposes.

Benefits payable under the MRO are equal to the excess of (i) the amount that would be payable in accordance with the terms of the RPSE, disregarding the limitations imposed under the Internal Revenue Code over (ii) the retirement benefit actually payable under the RPSE, taking such Internal Revenue Code limitations into account. Benefits under the MRO are generally payable at the same time and in the same manner as the RPSE, other than if a delay is required under Internal Revenue Code Section 409A.

 

       Page 51        
    


Table of Contents

A pro-rated portion of AI Plan payments are included in the definition of eligible compensation and the amount included is also subject to a cap determined as a percentage of the executive’s annualized base salary. The pro-rated portion and the cap depend on the executive’s organizational level in the Company.

An executive must have been hired by us prior to January 1, 1996 to be eligible to participate in the MRO. Executives who were under age 45 as of December 31, 2004 no longer participate in the MRO. Instead, they now participate in the SRAP, which is described below. Normal retirement under the MRO is age 65 with at least 5 years of service while an executive may retire early with reduced benefits after having worked 10 years and is at least age 55 at retirement.

Of the NEOs, Messrs. Ustian, Endsley and Covey participate in the MRO. Mr. Cederoth no longer is eligible for the MRO. He now participates in the SRAP.

 

 

Navistar, Inc. Supplemental Executive Retirement Plan (“SERP”). The SERP is designed as a pension supplement to attract and retain key executives. Executives in organizational Levels 9 and above are eligible to participate in the SERP upon attainment of age 55 or upon their date of hire if later.

The SERP is unfunded and is not qualified for tax purposes. An eligible executive’s benefit under the SERP is equal to a percentage of his or her final average compensation. The final average compensation is computed similarly to that in the MRO plan. The following table summarizes the determination of the total percentage of final average compensation, which is the sum of the accrual rates described below.

 

             Up to        
        Age 55        
              On or After        
        Age 55        

Each Year of Age

   1/2%     1%

Each Year of Service

   1/2%     1%

In no event shall the total percentage be greater than 50%.

That resulting benefit is offset by 50% of the executive’s Social Security benefit, and any defined benefit pension plan (qualified or non-qualified) of the Company or any prior employer. The benefit is also offset by the actuarial equivalent of any of our defined contribution pension plans (qualified or non-qualified) or that of any prior employer that is funded by the employer’s contributions and is an integral part of the employer’s retirement program. Normal retirement age is 65 and the program allows for an earlier commencement of payments.

All of the NEOs are eligible to participate in the SERP. However, because the 50% of final average earnings limit is lower than the target benefit provided under the MRO, generally no MRO participant will receive a benefit from the SERP.

 

 

Other Retirement Income Programs. We also sponsor the Navistar, Inc. 401(k) Plan for Represented Employees and the Navistar, Inc. Retirement Accumulation Plan (RAP). All employees are allowed to defer a portion of their compensation in to the RAP up to the Internal Revenue Code limitations. Employees that do not receive any additional service accruals receive non-elective employer retirement contributions. Additionally, employees that do not participate in our retiree medical plan receive matching contributions. For those executives whose employer contributions would be limited by the Internal Revenue Code, the Navistar, Inc. Supplemental Retirement Accumulation Plan (“SRAP”) provides for contributions in excess of the Internal Revenue Code limitations. This plan is described in more detail within Non-Qualified Deferred Compensation section of this proxy statement.

 

       Page 52        
    


Table of Contents

Of the NEOs, Messrs. Caton, Cederoth and Kapur, and Ms. Turbeville received non-elective age-weighted contributions in the RAP and also participate in the SRAP.

We do not have a policy for granting extra pension service.

Ms. Turbeville received pension benefits from the SERP as noted above. Additionally, she will be receiving a distribution of her account balance from the SRAP during 2010. Mr. Endsley’s wife is receiving surviving spouse benefits under the RPSE. No other pension benefits were paid to any of the NEOs in fiscal 2009.

The tax-qualified plans were amended to reflect the Company name change to Navistar, Inc. at the end of the 2008 calendar year.

Non-Qualified Deferred Compensation Plans

The table below provides information on the non-qualified deferred compensation that our NEOs participated in during the fiscal year ending October 31, 2009.

Non-Qualified Deferred Compensation Table

 

Named Executive Officers(1)

   Executive
Contributions in Last
Fiscal Year
   Company
Contributions in Last
Fiscal Year(1)
   Aggregate
Earnings
In Last Fiscal
Year(2)
   Aggregate
Balance
As of Last
Fiscal Year
End(3)

Daniel C. Ustian

   N/A         $ 87,621    $ 994,565

William A. Caton(4)

   N/A    $ 33,862    $ 59,378    $ 526,380

Terry M. Endsley(5)

   N/A         $    $

Deepak T. Kapur

   N/A    $ 59,081    $ 35,385    $ 441,210

Pamela J. Turbeville(6)

   N/A    $ 31,705    $    $ 221,688

Steven K. Covey

   N/A         $ 7,251    $ 79,569

A.J. Cederoth

   N/A    $ 24,165    $ 19,907    $ 237,966

 

(1)

Our contributions represent the sum of any notional contribution credits to the SRAP during the year and the value, based on our common stock share price at year end, of the PSUs granted during that fiscal year.

 

(2)

“Aggregate Earnings” represent the notional interest credited during the year for participants in the SRAP, if applicable, plus the change in value from the beginning of the year to the end of the year in the PSUs and/or DSUs held by each NEO. For the SRAP, “Aggregate Earnings in Last Fiscal Year” is the interest credited to each NEO from the beginning of the fiscal year until the end of the fiscal year at a 7.5% interest crediting rate. “Aggregate Earnings in Last Fiscal Year” for purposes of the PSU is the aggregate change in value of the PSUs held during the year. For fiscal year 2008, aggregate earnings were negative because of the change in the share price during the year. The respective decreases in value are: Mr. Ustian ($990,050), Mr. Caton ($274,399), Mr. Endsley ($76,380), Mr. Kapur ($181,767), Ms. Turbeville ($113,967) and Mr. Covey ($78,945).

 

(3)

The “Aggregate Balance as of Last Fiscal Year End” consists of the sum of each NEO’s notional account balance in the SRAP at the end of the year and the value at year end of the outstanding PSUs and/or DSUs.

 

(4)

Mr. Caton received a contribution to the SRAP but his account balance will be forfeited at the end of the year as he was not vested when he serparated service. He had not yet exercised his Deferred Premium Share yet though.

 

(5)

Mr. Endsley’s Deferred Premium Shares were distributed during the year.

 

(6)

Ms. Turbeville’s SRAP account balance will be distributed during 2010. The accrued interest in her SRAP account was offset by the value of her Deferred Premium Shares being distributed during 2009.

We sponsor the following non-qualified deferred compensation programs.

 

 

Navistar, Inc. Supplemental Retirement Accumulation Plan (“SRAP”). The SRAP provides executives, including our NEOs, with contributions equal to the amount by which their annualized

 

       Page 53        
    


Table of Contents
 

non-elective age-weighted contributions to the RAP are limited by the Internal Revenue Code. The SRAP is unfunded and is not qualified for tax purposes.

A bookkeeping account balance is established for each participant. The account balance is credited with notional contributions and notional interest. The SRAP does not permit any executives to electively defer any of their base compensation or bonuses. Any increase in AI payments will increase contributions to the SRAP.

The interest crediting rate is 7.5% per annum compounded on a daily basis. This is the rate used to design the SRAP as a comparable replacement for the MRO. The interest crediting rate constitutes an “above-market interest rate” under the Internal Revenue Code.

An executive is eligible for the SRAP if the executive is employed in Organization Level 7 or above unless the executive was hired prior to January 1, 1996 and is eligible for the MRO plan.

Executives who were hired prior to January 1, 1996 and who subsequently ceased participation in the MRO now participate in the SRAP. These individuals receive an adjustment to their notional contributions. The adjustment is a “Points Multiplier” designed to provide them with value from the SRAP comparable to what they would have received had they continued to participate in the MRO until they reached age 62.

At retirement, each participant may elect to receive the bookkeeping account balance by either or some combination of (1) a lump-sum payment or (2) annual installments over a period of 2 to 20 years. The NEOs cannot withdraw any amounts from their bookkeeping account balances until they either retire or otherwise terminate employment with us. No withdrawals or distributions were made in fiscal 2009.

Of the NEOs, Messrs. Caton, Cederoth and Kapur and Ms. Turbeville participate in the SRAP.

 

 

Premium Share Units (“PSU”). In general, our Executive Stock Ownership Program requires all of our executives, including our NEOs to acquire, by direct purchase or through salary or annual bonus reduction, an ownership interest in Navistar by acquiring a designated amount of our common stock at specified timelines. Participants are required to hold such stock for the entire period in which they are employed by us. PSUs may be awarded under the Plan to participants who complete their ownership requirement on an accelerated basis. PSUs vest in equal installments on each of the first three anniversaries of the date on which they are awarded. Each vested PSU will be settled by delivery of one share of common stock. Such settlement will occur within 10 days after a participant’s termination of employment or at such later date as required by Internal Revenue Code Section Rule 409A.

All of the NEOs participate in the Executive Stock Ownership Program and are eligible to acquire PSUs.

 

 

Deferred Share Units (“DSU”). Under the Restoration Stock Option Program, participants generally may exercise vested options by presenting shares that have a total market value equal to the applicable option exercise price times the number of options. Restoration options are then granted with an exercise price equal to the then current fair market price in an amount equal to the number of shares held by the option holder for at least six months that were presented to exercise the original option, plus the number of shares that are withheld for the required tax liability. Participants who hold non-qualified stock options that were vested prior to December 31, 2004 may also defer the receipt

 

       Page 54        
    


Table of Contents
 

of shares of our common stock that would have been acquired upon exercise of a restoration stock option exercise of these options. Participants who elect to defer receipt of these shares receive DSUs. DSUs are awarded under the Plan. DSUs are credited into the participant’s account at the then current market price. The DSUs are generally distributed to the participant in the form of our common stock at the date specified by the participant at the time of his or her election to defer. During the deferral period, the participants will have no right to vote the stock, to receive any dividend declared on the stock, and no other right as a shareholder. In December 2008, we eliminated the Restoration Stock Option Program for future restorations under the Plan.

Potential Payments Upon Termination or Change-in-Control

The amount of compensation payable to each of the NEOs upon voluntary termination, involuntary terminations for or not for cause, involuntary termination in the event of a change in control, death, disability or retirement are shown in the tables below. The amounts shown assume that such termination was effective October 31, 2009, are based on the terms of the applicable plans and agreements that were in effect on October 31, 2009, and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts of payments and benefits can only be determined at the time the relevant termination event occurs.

To assure stability and continuity of management, we entered into Executive Severance Agreements (“ESA”) with each of our NEOs. The ESAs were amended effective January 1, 2010, as described under the “ESA Amendments” below. The ESAs in effect prior to this amendment, provide that if the executive officer’s employment is terminated by us for any reason other than for cause, as defined in the ESA, the officer will receive a lump sum payment (the “Severance Payment”) varying in amounts from 150% of the sum of his or her annual base salary plus annual target bonus plus a pro rata portion of the annual target bonus (for Ms. Turbeville and Mr. Covey) to 200% of the sum of his annual base salary plus annual target bonus plus a pro rata portion of the annual target bonus (for Messrs. Ustian, Caton, Endsley, Cederoth and Kapur) in addition to other benefits described below.

Summary of the Circumstances, Rights and Obligations Attendant to Each Type of Termination

 

 

Voluntary and Involuntary (For Cause) Termination: A NEO may terminate his or her employment at any time and we may terminate a NEO at any time pursuant to the “at will” employment arrangement. We are not obligated to provide the executive with any additional or special compensation or benefits upon a voluntary termination by the executive or involuntary (for cause) termination by us. All compensation, bonuses, benefits, and perquisites cease upon a voluntary termination by the executive or involuntary (for cause) termination by us. In general, in the event of either such termination, a NEO would:

 

   

Be paid the value of unused vacation;

 

   

Not be eligible for an annual incentive payment if the termination occurred prior to year end or if the termination occurred after year end and prior to the payment date;

 

   

Be able to exercise vested stock options for three months following a voluntary termination;

 

   

Forfeit any unvested stock options; and

 

   

Forfeit any unvested restricted stock and RSUs.

As defined in the ESA, “cause” means the reason for the executive’s termination was for (i) willful misconduct involving an offense of a serious nature that is demonstrably and materially injurious to

 

       Page 55        
    


Table of Contents

the company, (ii) conviction of, or entry of a plea of guilty or nolo contendere to, a felony as defined by the United States of America or by the laws of the State or other jurisdiction in which the executive is so convicted, or (iii) continued intentional failure to substantially perform required duties after written demand to so perform.

The NEOs would not receive any cash severance in the event of either a voluntary or involuntary (for cause) termination of employment.

 

 

Retirement and Early Retirement: If a NEO terminates employment due to retirement, then the officer would generally be eligible to receive:

 

   

The value of unused vacation;

 

   

Monthly income from any defined benefit pension plans, both tax-qualified and non-tax qualified, that the executive participated in solely to the extent provided under the terms of such plans; and

 

   

Lump sum distributions from any defined contribution plans, both tax-qualified and non-tax qualified, that the executive participated in solely to the extent provided under the terms of such plans.

Retirement and early retirement are defined in the respective plans in which the executive participate. In addition, if an executive meets the “qualified retirement” definition under the Plan and holds outstanding stock options, he or she may exercise those stock options to the extent that those stock options are exercisable or become exercisable in accordance with their terms, at any time during the term of the option grant. If he or she holds restricted stock or RSUs, they will continue to vest according to the terms of the restricted stock grant. If he or she holds PSUs, vesting accelerates and the shares are issued after retirement.

 

 

Involuntary Not-For-Cause Termination or Good Reason Termination: If the employment of a NEO is terminated due to either an involuntary, not-for-cause termination by us or a good reason (as defined below) termination by the executive, then the officer would generally be eligible to receive:

 

   

The Severance Payment;

 

   

Twelve months of continued health insurance and life insurance;

 

   

Outplacement counseling;

 

   

The value of unused vacation;

 

   

The right to exercise vested stock options for three months; and

 

   

Upon meeting certain conditions, an executive participating in a defined benefit pension plan, both tax-qualified or non-tax-qualified, will continue to grow into eligibility to retire early under each plan’s early retirement provisions for active employees but solely to the extent provided under the terms of such plans.

In addition, the officer would forfeit any unvested stock options and any unvested restricted stock, RSUs or PSUs.

As defined by the ESA, “good reason” means the executive’s termination of his or her employment if we: (i) reduce the executive’s base salary by 10% or more or (ii) take action which is a material diminution in the executive’s authority.

 

       Page 56        
    


Table of Contents
 

Termination Related to a Change in Control: If the employment of a NEO is involuntarily terminated for any reason other than for cause or if a Constructive Termination (as described below) occurs in connection with a change in control, the executive officer would generally be eligible to receive:

 

   

The Change in Control Payment;

 

   

Thirty-six months of continued health insurance and life insurance coverage;

 

   

Outplacement counseling;

 

   

Reimbursement of any excise tax imposed by Section 4999 of the Internal Revenue Code and any taxes on the reimbursement, generally referred to as an Internal Revenue Code Section 280G gross-up;

 

   

The value of unused vacation;

 

   

Acceleration of the exercisability of options that would otherwise have vested over a period of three years from the date of the change in control had the executive continued employment for that period; and

 

   

The value of any non-tax-qualified pension plan that the executive participates in payable in a single lump sum payment. The value is determined by assuming the executive has three additional years of service and is three years older at the time of the change in control. This single sum payment is in addition to the right to accrued benefits under the non-tax-qualified plan. (See below for more detail).

As defined in the ESA, “Constructive Termination” means the occurrence of any of the following events or conditions: (i) a material diminution in the executive’s authority, duties or responsibilities, (ii) the executive’s base salary is reduced by 10% or more, (iii) a material breach of this agreement, and (iv) the executive is required to be based more than 45 miles from the location of either the executive’s office or Company headquarter office.

 

 

Disability and Death: If a NEO is disabled and is prevented from working for pay or profit in any job or occupation, he or she may be eligible for our “Non-Represented Employee Disability Benefit Program” which provides for short-term and long-term disability (“LTD”) benefits. Our NEOs are not covered under a separate program. While covered under an LTD, a NEO is eligible for 60 percent of his or her base salary reduced (or offset) by other sources of income, such as social security disability. In the event of a total and permanent disability as defined by this program, a NEO may exercise outstanding stock options any time within three years after such termination. In the event a NEO has restricted stock, or RSUs, the restricted stock or RSUs will continue to vest according to the terms of the grant. In the event an NEO has PSUs, vesting accelerates and the shares are issued immediately. In addition, while classified as disabled, the NEO continues to accrue benefits under the defined benefit plans.

In the event of an NEOs death, a beneficiary of the NEO may exercise an outstanding stock option at any time within a period of two years after death. Restricted stock, RSUs or PSUs will vest as of the date of death and all restrictions lapse and the restricted stock, RSUs or PSUs will be immediately transferable to the NEO’s beneficiary or estate. The NEO’s beneficiary will also be eligible for a pro-rata annual incentive payment based upon the number of months the NEO was an active employee during the year. The executive’s beneficiary will also receive surviving spouse benefits under the defined benefit and defined contribution plans solely to the extent provided in those plans.

 

       Page 57        
    


Table of Contents

The table below shows the estimated cash payments that our NEOs would receive if their employment were terminated under various circumstances based on the terms of the plans and agreements that were in effect as of October 31, 2009. In accordance with applicable SEC regulations, we have not provided an estimate of the value of any payments or benefits that do not discriminate in scope, terms or operation in favor of a NEO and that are generally available to all salaried employees.

 

NEO  

Severance

Amount/

Cash
Payment

    Vested
Options(4)
    Unvested
Options(4)
   

Restricted
Stock/

Units(5)

   

Benefit

Continuation(6)

   

Outplacement

Counseling(7)

   

Estimated

Tax Gross

Up(9)

    Total  

Daniel C. Ustian

                                                               

Involuntary Not

for Cause or

Good Reason

Termination(1)

  $ 6,254,000       $ 2,673,898       $ 961,013       $ 3,070,090       $ 33,295       $ 25,000              $ 13,017,296    

Change in

Control(2)

  $ 19,790,509      $ 2,673,898             $ 3,070,090      $ 99,886      $ 25,000      $ 7,697,165       $ 33,356,548   

Disability(3)

  $ 708,000                    $ 3,070,090                           $ 3,778,090   

Death(8)

                       $ 3,070,090                           $ 3,070,090   

Voluntary and

Involuntary for

Cause

Termination

                                                       

William A. Caton(10)(11)

                                                               

Involuntary Not

for Cause or

Good Reason

Termination(1)

  $ 3,176,750      $ 273,798             $ 452,858      $ 38,456      $ 25,000             $ 3,966,862   

Terry M. Endsley(12)

                                                               

Death(8)

                                                   $ 0   

Deepak T. Kapur

                                                               

Involuntary Not

for Cause or

Good Reason

Termination(1)

  $ 2,720,000      $ 333,423      $ 335,090      $ 326,562      $ 29,271      $ 25,000             $ 3,769,346   

Change in

Control(2)

  $ 8,388,256      $ 333,423      $ 335,090      $ 326,562      $ 87,812      $ 25,000      $ 3,014,243      $ 12,510,386   

Disability(3)

  $ 384,000                    $ 326,562                           $ 710,562   

Death(8)

                       $ 326,562                           $ 326,562   

Voluntary and

Involuntary for

Cause Termination

                                                       

 

       Page 58        
    


Table of Contents
NEO  

Severance
Amount/

Cash

Payment

    Vested
Options(4)
    Unvested
Options(4)
   

Restricted
Stock/

Units(5)

    Benefit
Continuation(6)
    Outplacement
Counseling(7)
   

Estimated

Tax Gross

Up(9)

    Total  

Pamela J. Turbeville(13)

                                                               

Involuntary Not

for Cause or

Good Reason

Termination(1)

  $ 1,126,213       $ 860,789       $ 217,071       $ 468,766       $ 12,514       $ 25,000              $ 2,710,353    

Steven K. Covey

                                                               

Involuntary Not

for Cause or

Good Reason

Termination(1)

  $ 1,546,875      $ 242,336      $ 217,071      $ 548,335