DEF 14A 1 nav-2016xdef14a.htm DEF 14A DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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SCHEDULE 14A INFORMATION
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Notice of 2016 Annual Meeting
of Stockholders
and Proxy Statement
 
 
 
 
February 10, 2016
Lisle, Illinois
 
 



NAVISTAR INTERNATIONAL CORPORATION
2701 NAVISTAR DRIVE
LISLE, ILLINOIS 60532


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Date:    Wednesday, February 10, 2016, 11:00 A.M. — Central Time

Location:    Navistar Corporate Headquarters
2701 Navistar Drive, Lisle, Illinois 60532

December 22, 2015
To our stockholders:

On behalf of the Board of Directors of Navistar International Corporation you are cordially invited to attend our 2016 Annual Meeting of Stockholders, which will be held on Wednesday, February 10, 2016, at 11:00 A.M. Central Time at our corporate headquarters located at 2701 Navistar Drive, Lisle, Illinois 60532. At our annual meeting, our stockholders will be asked to:

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

Act on an advisory vote on executive compensation as disclosed in the accompanying proxy statement;

Ratify the appointment of our independent registered public accounting firm; and

Act upon any other matters properly brought before the annual meeting.

We plan to send a Notice of Internet Availability of Proxy Materials on or about December 22, 2015. The Notice of Internet Availability of Proxy Materials contains instructions on how to access our materials on the Internet, as well as instructions on obtaining a paper copy of the proxy materials. The Notice of Internet Availability of Proxy Material is not a form for voting and presents only an overview of the proxy materials. In order to attend our 2016 Annual Meeting of Stockholders, you must have an admission ticket. Procedures for requesting an admission ticket are detailed in the accompanying proxy statement. Attendance and voting is limited to stockholders of record at the close of business on December 14, 2015.

Your vote is important. Whether or not you plan to attend the 2016 Annual Meeting of Stockholders, please vote your proxy either by mail, telephone or over the Internet.

By Order of the Board of Directors,
 
Curt A. Kramer
Secretary
IMPORTANT NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDERS
MEETING TO BE HELD ON FEBRUARY 10, 2016, THE ANNUAL REPORT AND PROXY STATEMENT
ARE AVAILABLE AT HTTP://WWW.NAVISTAR.COM/NAVISTAR/INVESTORS


2016 Proxy Statement



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2016 Proxy Statement
1


PROXY SUMMARY
This summary highlights information collected elsewhere in this proxy statement or in our corporate governance documents published on our website: http://www.navistar.com/navistar/investors/corporategovernance/

We encourage you to read this proxy statement in its entirety before voting.
How to Vote
Your vote is important. Please exercise your right as a stockholder and submit your proxy as soon as possible. You may vote if you were a stockholder at the close of business on December 14, 2015. Stockholders may vote in person at the meeting, or submit a proxy by the Internet, telephone or mail as follows:
Via the Internet:
 
By Telephone (toll free):
http://www.proxyvote.com
 
1-800-690-6903
 
 
 
 
 
By Mail:
 
In Person:
Complete, sign and mail the enclosed proxy card.
 
Stockholders who obtain an admission ticket can attend and vote at the annual meeting.
 
 
 
By Scanning Your QR Code:
 
 
 
Vote with your mobile device.
 
 
Annual Meeting Location
February 10, 2016
11:00 A.M. Central Time
Navistar Corporate Headquarters
2701 Navistar Drive, Lisle, Illinois 60532


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Director Nominees

We ask you to vote "for" all of the director nominees listed below. Set forth below is summary information about each director nominee, with more detailed information about the qualifications and experience of each director nominee contained under "Proposal 1 - Election of Directors" beginning on page 14 of this proxy statement.
Nominee and Principal Occupation

Age

Director Since

Independent

Current Committee Membership

Troy A. Clarke
 
 
 
 
President and Chief
Executive Officer of Navistar
60
April 2013
 
 
Michael N. Hammes
 
 
 
 
Former Chairman and Chief
Executive Officer of Sunrise Medical Inc.
73
February 1996
X
Finance and Nominating & Governance (Chair)
Vincent J. Intrieri
 
 
 
 
Senior Managing
Director of Icahn Capital LP
59
October 2012
X
Finance (Co-Chair) and Nominating & Governance
James H. Keyes
 
 
 
 
Former Chairman of the
Board of Johnson Controls, Inc.
75
December 2002
X
Audit (Chair) and Compensation
General (Retired)
Stanley A. McChrystal
 
 
 
 
General McChrystal is a retired
34-year U.S. Army veteran of multiple wars
61
February 2011
X
Compensation and Nominating & Governance
Samuel J. Merksamer
 
 
 
 
Managing Director
of Icahn Capital LP
35
December 2012
X
Audit and
Compensation
Mark H. Rachesky, M.D.
 
 
 
 
Founder and President of MHR
Fund Management LLC
56
October 2012
X
Finance (Co-Chair) and Nominating & Governance
Michael F. Sirignano
 
 
 
 
Principal of MHR
Fund Management LLC
34
March 2014
 
Audit and
Compensation (Chair)


2016 Proxy Statement
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Business Strategy
Our 2015 Accomplishments
  Launch of products and product features desired by our customers
   Improve quality and uptime
   Deliver on our 2015 plan to reduce costs
   Build sales momentum
   Improvement in non-Core markets
   Improvement in Parts business
Our Expectations Going Forward
   Implement customer-centric strategy
   New product launches
   Financial performance
   Profitable improvements in market share

Corporate Governance Highlights

ü
8 of 9 director nominees are independent under our corporate governance guidelines and the New York Stock Exchange (‘‘NYSE’’) listing standards.

ü
We have 100% independent Board standing committees.

ü
We have a declassified Board.

ü
We have a separate Chairman of the Board and Chief Executive Officer.

ü
We have stockholder representation on all of our Board committees.

ü
We have a director resignation policy for directors who fail to obtain a majority vote.

ü
We have no super-majority voting provisions to approve transactions, including a merger.

ü
We have a claw-back policy.

ü
We entered into more restrictive Executive Severance Agreements ("ESAs") with our executive officers, effective upon expiration of such executive officers' existing ESAs.

ü
We do not provide tax gross-ups to any employees.

ü
We have ‘‘double trigger’’ change in control benefits.

ü
Our Named Executive Officers ("NEOs") and directors are subject to stock ownership guidelines and stock retention requirements.

ü
We impose restrictions on short selling, trading in derivatives, pledges, hedges and margin account use by our executives and directors.


2016 Proxy Statement
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EXECUTIVE SUMMARY

Navistar International Corporation (‘‘we,’’ ‘‘our’’, the ‘‘Company’’ or ‘‘Navistar’’), incorporated under the laws of the State of Delaware in 1993, is a holding company whose principal operating entities are Navistar, Inc. (‘‘Navistar, Inc.’’) and Navistar Financial Corporation (‘‘NFC’’). Navistar’s fiscal year ends October 31 and as such all references to a year refer to the applicable fiscal year unless stated otherwise.

Business Strategy

Our 2015 Accomplishments

We have made substantial progress on our top priorities:

Launch of products and product features desired by our customers We successfully launched products and product features that improve our customers' businesses.

We launched the purpose-built propane bus for school bus customers who want an alternative fuel engine designed for the needs of the school bus market.

OnCommand Connection ("OnCommand"), our unique all-makes remote diagnostics system, was tailored for the applications of our bus and truck customers, and is now standard on our vehicles, to achieve more efficient repairs and maintenance, better life-cycle value and an overall lower total cost of ownership. We now have more than 160,000 vehicles in the OnCommand system.

We introduced the ProStar ES for customers who want superior fuel efficiency.

We completed the Cummins ISB launch in our Class 6 and 7 medium and Class 8 severe service trucks.

Improve quality and uptime We continued our relentless focus on improving quality and uptime.

We have made great strides in rebuilding our quality operating system, achieving new levels of first time quality and uptime and a reduction in our warranty spend. In 2013, our warranty expense represented 7.7% of manufacturing revenue and in 2015, it was 3.0%.

We have achieved a significant reduction in dealer dwell time including improvements in dealer claim days and repair time. We expect that the significant growth in population of OnCommand vehicles in 2015 will also enable an increase in vehicle uptime by supporting quicker repairs.

To test our vehicles and innovative technologies, we acquired new proving grounds in New Carlisle, Indiana, which will be a strategic addition to our product development operations and our mission to deliver customer uptime.

Deliver on our 2015 plan to reduce costs Since 2012, we have aggressively managed our Selling, general and administrative and Engineering and product development costs ("structural costs") to right-size them and lower our variable costs. We made significant progress in 2015, which we expect will pave the way for Navistar to be profitable and free cash flow positive in the future:

We completed a competitive benchmarking study focused on material, manufacturing, and structural costs.

We focused on our procurement and engineering design processes to lower material costs.

We continued to implement cost saving initiatives, including reductions in discretionary spending and employee headcount reductions, resulting in lower structural costs of $114 million in 2015 compared to 2014.

We implemented a product allocation strategy across our plants whereby each facility is primarily focused on a specific platform, allowing for higher levels of manufacturing efficiency than the flexible-factory configuration we have employed for many years.

2016 Proxy Statement
5



We reduced non-productive overtime by 43% compared to 2014.

We sold our foundry operations in Waukesha, Wisconsin and closed our foundry in Indianapolis, Indiana.

Build sales momentum In our Core markets (which are the North American truck and parts markets, where we participate primarily in the Class 6 through 8 vehicle market), we achieved significant volume growth in Class 6 and 7 medium truck, bus, and dealer-led Class 8 heavy trucks. Growth has been fueled by the completion of the rollout of Selective Catalytic Reduction ("SCR") emissions technology, growing customer confidence, and integrating leading technology with our partners. In 2015, this growth in our Core markets was offset by lower sales from our Global Operations segment, and certain non-Core portions of our Truck segment.

Improvements in non-Core markets In addition to growth in our Core markets, we have experienced improvements in the profitability of our non-Core markets, although revenues in those markets were down overall in 2015 compared to 2014. Navistar entered into a long-term agreement with General Motors Company ("GM") to develop and assemble Class 4 through 5 commercial vehicles launching in 2018. This relationship is expected to expand Navistar’s medium truck product line and leverage our manufacturing capabilities.

Improvements in Parts business Our North American Parts profit increased 22% in 2015 compared to 2014, and overall Parts segment profits increased 12% in 2015 compared to 2014 despite a slight decrease in sales resulting from lower sales by our Blue Diamond Parts ("BDP") joint venture with Ford Motor Company, among other factors.

Our Expectations Going Forward

We believe we are well-positioned to build upon our 2015 accomplishments.

Implement customer-centric strategy We are taking steps to become the most customer-centric company in the industry with four key strategies:

Lead in Uptime — We will focus on creating value for our customers by delivering high quality vehicles designed to stay on the road and offering real-time vehicle monitoring and industry-leading fast service repair.

Build Customer Centric Culture — We will know the customer better than anyone else in order to offer products and services that work for their businesses.

Lead in Connected Vehicles — We will lead with first-to-market features to expand OnCommand and connected vehicle offerings.

Leverage Open Technology — We will leverage relationships with world-class technology partners to provide our customers with meaningful innovation and tailored solutions.

New Product Launches — The transition to SCR engines is complete and we are in the process of upgrading our entire product line over the next three years. We are developing new trucks and buses to meet the needs of our customers. We expect to launch the new HX Series, the PayStar replacement, in early 2016 for the construction and vocational markets. Over the next three years, we will continue to update our entire product line including the introduction of our Prostar replacement, the new LT Series.

Financial performance Due to our continual efforts to become more competitive in cost and in the marketplace, we have had strong financial improvement in recent years. To continue on that path, we have already launched customer-centric strategic initiatives and the next phase of our cost alignment actions. In North America, we completed a benchmarking study that demonstrates that even with the progress we have made to improve our cost structure, there are more opportunities for cost-cutting which we will relentlessly pursue. As a result of these actions, we expect to improve our liquidity and further improve our financial performance, be in a position to compete more aggressively, and increase investment in products and strategic initiatives.


2016 Proxy Statement
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Profitable improvements in market share We expect the sales momentum that occurred in 2015 will continue with new product offerings, improved quality, competitive pricing, and our customer-centric initiatives. We expect profitable market share improvements in our Core markets.

Changes in Management

In connection with our renewed focus on our Core markets and our lean initiatives, we continue to realign our leadership and management structure around functional expertise.

We made several management changes during 2015:

In January 2015, we appointed Scott R. Mackie as the Vice President of Business Development and Mergers and Acquisitions for Navistar, Inc.;

In June 2015, we appointed Jeffrey M. Sass as the Senior Vice President of North America Truck, Sales and Marketing for Navistar, Inc.;

In June 2015, we appointed Philip J. Christman as the Senior Vice President of newly created Joint Strategic Operations and Planning organization of Navistar, Inc.;

In July 2015, we appointed Jose Eduardo Castro Luzzi as the President, South American Operations for Navistar, Inc.; and

In August 2015, William V. McMenamin, President and General Manager of NFC, added the treasury functions to his responsibilities, such that his new title is President, Financial Services and Treasurer.

Continued Stockholder Representation on our Board of Directors

Pursuant to amendments to settlement agreements (the ‘‘Settlement Agreement Amendments’’) we entered into with two of our largest stockholders, Carl C. Icahn and several entities controlled by him (collectively, the ‘‘Icahn Group’’) and Mark H. Rachesky, MD and several entities controlled by him (collectively, the ‘‘MHR Group’’), we granted each of the Icahn Group and the MHR Group the right to nominate two directors to serve on our Board of Directors (the ‘‘Board’’) effective as of March 10, 2014, the date of our 2014 Annual Meeting of Stockholders (the ‘‘2014 Annual Meeting’’). The Icahn Group’s nominees were Mr. Vincent J. Intrieri and Mr. Samuel J. Merksamer. The MHR Group nominees were Dr. Mark H. Rachesky and Mr. Michael Sirignano. Mr. Intrieri, Mr. Merksamer, Mr. Rachesky and Mr. Sirignano continue to serve as members of our Board and are nominated for re-election.

Corporate Governance

During 2015, we strove to maintain effective governance practices and policies, and to solicit and consider input from our stockholders. Beginning with the 2014 Annual Meeting, the Board was declassified and all directors became subject to annual election to one-year terms. In April 2013, with the appointment of Mr. Clarke as our Chief Executive Officer (the ‘‘CEO’’), the Board determined it would be preferable for one of our independent directors to serve as Chairman and so elected James H. Keyes to this position. Mr. Keyes, who has served on our Board since 2002, was previously Chairman/CEO of a Fortune 500 company and has served on other public company boards.

On November 3, 2014, our previously adopted Tax Asset Protection Plan, as amended and extended, expired by its terms and as a result the Company no longer has a Rights Plan or a Tax Asset Protection Plan in place.

In addition to these actions, we believe that the following items, among others, contribute to a strong governance and compensation profile:

8 of 9 director nominees are independent under our Corporate Governance Guidelines and the NYSE listing standards.

We have 100% independent Board standing committees.


2016 Proxy Statement
7


We have stockholder representation on all of our Board committees.

We have a director resignation policy for directors who fail to obtain a majority vote.

We have no super-majority voting provisions to approve transactions, including a merger.

We have a claw-back policy.

We entered into more restrictive ESAs with our executive officers, effective upon expiration of such executive officers' existing ESAs.

We do not provide tax gross-ups for perquisites and other similar benefits to officers who are subject to Section 16 (the ‘‘Section 16 Officers’’) of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Additionally we do not provide tax gross-ups for any cash or equity awards for all employees.

We have ‘‘double trigger’’ change in control benefits.

Our NEOs and directors are subject to stock ownership guidelines and stock retention requirements.

We impose restrictions on short selling, trading in derivatives, pledges, hedges and margin account use by our executives and directors.

Compensation Policies

The Company has a robust stockholder outreach and engagement program in place. We engage in regular contact with our stockholders throughout the year. Approximately 80% of our stock is held by five of our stockholders. Two of these stockholders have representation on our Board as discussed in our Executive Summary and Proposal One-Election of Directors. These stockholders, through their representatives on our Board, also are members of our Compensation Committee and are integrally involved in our compensation decisions and policies, with Mr. Sirignano being the Chairman of our Compensation Committee. We also engage in regular dialogue with our three remaining largest stockholders without representatives on our Board. We maintain open lines of communication with corporate governance advisory institutions and with our top 25 stockholders on an annual basis in order to solicit their feedback. We continuously work to improve these efforts and place importance on the feedback provided to us during this process.

We also focus on, and are aware of, investor concerns regarding the link between pay and performance. In 2015 the Company did not reach its performance targets, and consistent with our pay for performance compensation philosophy, overall pay for current executives was down in 2015, as compared to 2014.

For a summary of our commitment to best practices in executive compensation and changes made in 2015, please see the Executive Summary section of the Compensation, Discussion and Analysis section of this proxy statement.

Highlights of the changes made in 2015 include the following:

We approved a revised Annual Incentive (‘‘AI’’) plan for 2015;

We approved Long-Term Incentive (‘‘LTI’’) awards that were sized based on an assessment of individual performance and potential; and

We approved a new peer group.








2016 Proxy Statement
8


Disclosure Regarding Forward-Looking Statements

Information provided and statements contained in this proxy statement that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this proxy statement and Navistar assumes no obligation to update the information included herein.

Such forward-looking statements often include words such as "may," "will," "believe," "expect," "anticipate," "intend," "plan," "estimate," "future," or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results or financial condiction to differ materially from those expressed or implied in the forward-looking statements. Factors that could cause or contribute to differences in our future financial results include, but are not limited to, those discussed in Item 1A, Risk Factors, set forth in Part 1 of our Annual Report on Form 10-K for 2015. You should not place undue reliance on forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

Available Information

We are subject to the reporting and information requirements of the Exchange Act and as a result, are obligated to file annual, quarterly, and current reports, proxy statements, and other information with the United States (‘‘U.S.’’) Securities and Exchange Commission (‘‘SEC’’). We make these filings available free of charge on our website (http://www.navistar.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Information on our website does not constitute part of this proxy statement or our Annual Report on Form 10-K. In addition, the SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC. Any materials we file with, or furnish to, the SEC may also be read and/or copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.



2016 Proxy Statement
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FREQUENTLY ASKED QUESTIONS REGARDING ATTENDANCE AND VOTING

Q:
Why did I receive a notice of internet availability of proxy materials?

A:
Pursuant to the rules of the SEC, we have elected to provide access to our proxy materials over the internet. Accordingly, we have sent you a Notice of Internet Availability of Proxy Materials (the ‘‘Notice’’) because the Board is soliciting your proxy to vote your shares at our 2016 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 SEC and is designed to assist you in voting your shares. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the internet or to request a printed copy can be found in the Notice.

Q:
What is the purpose of the Annual Meeting?

A:
The purpose of the Annual Meeting is to have stockholders consider and act upon the matters outlined in the notice of Annual Meeting and this proxy statement, which include (i) Proposal 1 — the election of the nominees named in this proxy statement as directors, (ii) Proposal 2 — an advisory vote on executive compensation, a so-called ‘‘Say-on-Pay’’ proposal, (iii) Proposal 3 — the ratification of the appointment of KPMG LLP (‘‘KPMG’’), the Company’s independent registered public accounting firm and (iv) any other matters properly brought before the Annual Meeting. In addition, management may report on the performance of the Company and respond to appropriate questions from stockholders.

Q:
How does the Board recommend that I vote?

A.
The Board recommends that you vote:

FOR the election of each of the director nominees (Proposal 1);

FOR the approval of the advisory vote on executive compensation (Proposal 2); and

FOR the ratification of the appointment of KPMG as our independent registered public accounting firm (Proposal 3).



 

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 December 14, 2015;

An authorized proxy holder of a stockholder of record on December 14, 2015; or

An authorized representative of a stockholder of record who has been designated to present a properly-submitted stockholder proposal.

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 and Ticket Request Procedure section of this proxy statement.

Q:
What is a stockholder of record?

A:
A stockholder of record or registered stockholder is a stockholder whose ownership of our common stock (‘‘Common Stock’’) is reflected directly on the books and records of our transfer agent, Computershare Investor Services (the ‘‘Transfer Agent’’). If you hold Common 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 street name, the stockholder of record of the shares is your bank, broker or other intermediary. The Company only has access to ownership records for stockholders of record. So, if you are not a stockholder of record, for the purpose of requesting an admission ticket to attend the Annual Meeting, you must present us with 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 has set December 14, 2015, as the record date for the Annual Meeting. Holders of shares of Common Stock on that date are entitled to one vote per share. As of December 14, 2015, there were approximately 81,544,909 shares of Common Stock outstanding. If you hold shares of our Common Stock as a participant in any of the Company’s 401(k) or retirement savings plans, your proxy card will represent the number of shares of Common Stock


2016 Proxy Statement
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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 stockholders will be available for examination by stockholders during normal business hours at the place of the Annual Meeting at least ten (10) 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 procedures) and attend the Annual Meeting in person may cast a ballot received at the Annual Meeting.
 
 
by Internet — stockholders may access the internet at www.proxyvote.com and follow the instructions on the proxy card or in the Notice.
 
 
by scanning your QR code — to vote with your mobile device.
 
 
by phone — stockholders may call toll-free 1-800-690-6903 and follow the instructions on the proxy card or in the Notice.
 
 
by mail — if you requested and received your proxy materials by mail, you may complete, sign, date and mail the enclosed proxy card.

For holders in street name: You will receive instructions from your bank or broker that you must follow in order for your shares to be voted.

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 2701 Navistar Drive, Lisle, Illinois 60532, (ii) signing and returning a new proxy card with a later date, (iii) validly submitting a later-dated vote by telephone or via the Internet on or before 11:59 pm EST on February 9, 2016 or (iv) attending the Annual Meeting and voting in person. For all methods of voting, the last vote properly 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.

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 appointed by the Company for the Annual Meeting, will count the votes and act as the inspector of elections for the Annual Meeting.

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

A:
For stockholders of record:  If you are the stockholder of record and you do not vote by proxy card, by telephone or via the internet or in person at the Annual Meeting, your shares will not be voted at the Annual Meeting.

For holders in street name:  If your shares are held in street name, under certain circumstances, your shares may be voted even if you do not provide the bank or brokerage firm with voting instructions. Under NYSE rules, your broker may vote shares held in street name on certain ‘‘routine’’ matters without your instruction. NYSE rules consider the ratification of the appointment of KPMG as our independent registered public accounting firm (Proposal 3) to be a routine matter. As a result, your broker is permitted to vote your shares on that matter at its discretion without instruction from you. When a proposal is not a routine matter, such as the election of directors (Proposal 1) and the Say-On-Pay proposal (Proposal 2), and you have not provided voting instructions to the bank or brokerage firm with respect to that proposal, the bank or brokerage firm cannot vote the shares on that proposal. The missing votes for these non-routine matters are called ‘‘broker non-votes.’’

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

A:
Under the Company’s Third Amended and Restated By-Laws (the ‘‘By-Laws’’), holders of at least one-third of the shares of Common Stock outstanding on the record date must be present in person or represented by proxy in order to constitute a quorum for voting at the Annual Meeting. Abstentions and broker non-votes are counted as present for purposes of establishing a quorum.



2016 Proxy Statement
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Q:
What vote is necessary for action to be taken on proposals?

A:
It will depend on each proposal.

Proposal 1 (election of directors) requires a plurality vote of the shares present or represented by proxy at the Annual Meeting and entitled to vote, meaning that the director nominees with the greatest number of 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 resignation to the Nominating and Governance Committee for consideration and recommendation to the Board.
Proposal 2 (Say-On-Pay proposal) represents an advisory vote and the results will not be binding on the Board or the Company. The affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter will constitute the stockholders’ non-binding approval with respect to our executive compensation programs. Our Board will review the voting results and take them into consideration when making future decisions regarding executive compensation.
Proposal 3 (ratification of the appointment of KPMG as our independent registered public accounting firm) requires the affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote.

With respect to Proposals 2 and 3 you may vote FOR, AGAINST or ABSTAIN. If you abstain from voting on any of these proposals, the abstention will have the same effect as an AGAINST vote. With respect to Proposal 1, you may vote FOR all nominees, WITHHOLD your vote as to all nominees, or FOR all nominees except those specific nominees from whom you WITHHOLD your vote. A properly executed proxy card marked WITHHOLD with respect to the election of one or more directors will not be voted with respect to the director or directors indicated. Proxies may not be voted for more than eight directors and stockholders may not cumulate votes in the election of directors. If you abstain from voting on Proposal 1, the abstention will not have an effect on the outcome of the vote. Broker non-votes will not affect the outcome on a proposal that requires a plurality vote (Proposal 1) or on a proposal that requires the approval of at least a majority of the shares present in person or represented by proxy and entitled to vote (Proposal 2).

 
Votes submitted by mail, telephone or Internet will be voted by the individuals named on the proxy and/or voting instruction 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 Common Stock in street name, your broker or bank may notify you that your household will receive only one annual report and proxy statement for the Company if you hold shares through that broker or bank. In this practice known as ‘‘house-holding,’’ you were deemed to have consented to receiving only one annual report and proxy statement for your household. House-holding benefits both you and the Company because it reduces the volume of duplicate information received at your household and helps the Company to reduce expenses. Accordingly, the Company and your broker or bank will send one copy of the Notice (or our annual report and proxy statement if you have requested a physical copy) to your address. Each stockholder will continue to be entitled to vote a separate proxy and/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, 2701 Navistar Drive, Lisle, Illinois 60532, (331) 332-2143.

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

A:
Whenever possible, shares of Common Stock, including shares held of record by a participant in any of the Company’s 401(k) or retirement savings plans, for multiple accounts for the same registered stockholder will be combined into the same Notice or proxy card. Shares with different, even though similar, registered stockholders cannot be combined, and as a result, the stockholder may receive more than one Notice or proxy card. For example, shares registered in the name of John Doe will not be combined on the same proxy card as shares registered jointly in the name of John Doe and his wife. Shares held in street name are not combined with shares registered in the name of an individual stockholder or for a participant in any of the Company’s 401(k) or retirement savings plan and may result in the stockholder receiving more than one proxy and/or voting instruction card.


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For example, shares held in street name by a broker for John Doe will not be combined with shares registered in the name of 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 proxy and/or voting instruction card for accounts that you believe could be combined because the stockholder is the same, contact our Transfer Agent (for shares held by registered stockholders) or your broker (for shares held in street name) to request that the accounts be combined for future mailings.

Q:
Who pays for the solicitation of proxies?

A:
This solicitation is being made by the Company. Accordingly, the Company 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 Alliance Advisors, LLC (‘‘Alliance Advisors’’) to assist in the solicitation of proxies. Alliance Advisors’ fees for their assistance in the solicitation of proxies are estimated to be $15,000, plus out-of-pocket expenses. Proxies may also be solicited by our directors, officers and employees who will not receive any additional compensation 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 2017 Annual Meeting of Stockholders?

A:
In order to be included in the Company’s proxy materials for our 2017 annual meeting of stockholders pursuant to SEC Rule 14a-8 under the Exchange Act, any such stockholder proposal must be received by the Company’s Corporate Secretary no later than August 24, 2016. Any proposal may be included in next year’s proxy statement only if such proposal complies with the Company’s By-Laws and the rules and regulations promulgated by the SEC, specifically Rule 14a-8.

In addition, the Company’s By-Laws require that the Company be given advance written notice of nominations for election to the Board and other matters that stockholders wish to present for action at an annual meeting of stockholders (other than matters included in the Company’s proxy materials in accordance with Rule 14a-8 under the Exchange Act). For matters to be presented at the 2017 annual meeting of stockholders, the Company’s Corporate
 
Secretary must receive such notice no earlier than September 13, 2016, and no later than October 13, 2016.

The notice must contain, and be accompanied by, certain information as specified in the Company’s By-Laws. The Company recommends that any stockholder wishing to nominate a director at, or bring any other item before, an annual meeting of stockholders review the Company’s By-Laws, which are available on the Company’s website at http://www.navistar.com/navistar/investors/corporategovernance/documents. All stockholder proposals and director nominations must be delivered to Navistar by mail c/o the Corporate Secretary at 2701 Navistar Drive, Lisle, Illinois 60532.

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 properly 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 of the meeting. 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.

Q:
How can I find the voting results of the Annual Meeting?

A:
Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a Current Report on Form 8-K to be filed with the SEC within four business days after the Annual Meeting. If the official voting results are not available at that time, we will provide preliminary voting results in the Form 8-K and will provide the final voting results in an amendment to the Form 8-K as soon as they become available.



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PROPOSAL 1 ELECTION OF DIRECTORS

Our Board currently consists of nine directors. At the Annual Meeting, our Board has chosen to nominate eight directors, all of who will be up for election at the Annual Meeting. The ninth director is appointed by the United Automobiles, Aerospace and Agricultural Implement Workers of America (the ‘‘UAW‘‘) pursuant to a settlement agreement we entered into in 1993 in connection with the restructuring of our postretirement health care and life insurance benefits and is not elected by the stockholders. All directors elected at the Annual Meeting will be elected for a one-year term.

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. We know of no reason why any nominee would be unable to accept nomination or election. All nominees have consented to be named in this proxy statement and to serve if elected.

As discussed in the Executive Summary, during 2014 and pursuant to the Settlement Agreement Amendments we entered into with two of our largest stockholders, (namely, the Icahn Group and the MHR Group) we granted each of the Icahn Group and the MHR Group the right to nominate two directors to serve on our Board effective as of March 10, 2014, the date of our 2014 Annual Meeting. The Icahn Group’s nominees were, and continue to be, Mr. Vincent J. Intrieri and Mr. Samuel J. Merksamer. The MHR Group nominees were, and continue to be, Dr. Mark H. Rachesky and Mr. Michael F. Sirignano.

The following summarizes additional information about each of the nominees and continuing directors as of the date of this proxy statement, including their business experience, public company director positions held currently or at any time during the last five years, involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that qualify our nominees and continuing directors to serve as directors of the Company. The nominees were evaluated and recommended by the Nominating and Governance Committee in accordance with the process for nominating directors as found in the Nominating Directors section of this proxy statement.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE ‘‘FOR’’ THE NOMINEES PRESENTED IN PROPOSAL 1.
 
 

Troy A. Clarke

Age: 60

Director since: April 2013
Biographical Information

Mr. Clarke has served as President and Chief Executive Officer of Navistar since April 2013. Prior to this position, Mr. Clarke served as President and Chief Operating Officer of Navistar since August 2012, as President of the Truck and Engine Group of Navistar, Inc. from June 2012 to August 2012, as President of Asia-Pacific Operations of Navistar, Inc. from 2011 to 2012, and as Senior Vice President of Strategic Initiatives of Navistar, Inc. from 2010 to 2011. Prior to joining Navistar, Inc., Mr. Clarke held various positions at General Motors, including President of General Motors North America from 2006 to 2009 and President of General Motors Asia Pacific from 2003 to 2006. Over the course of his career with GM, he held several additional leadership roles, including President and Managing Director of GM de Mexico and Director of Manufacturing for GM de Mexico. On June 1, 2009, General Motors filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. Mr. Clarke received a bachelor’s degree in engineering from the General Motors Institute in 1978 and a master’s degree in business administration from the University of Michigan in 1982. Mr. Clarke has served on the board of directors of Fuel Systems Solutions, Inc., a public alternative fuel components and systems company, since December 2011.

Skills and Qualifications

Mr. Clarke’s vast experience in the automotive industry over the past 40 years is invaluable to the Board in evaluating and directing the Company’s future. As a result of his professional and other experiences, Mr. Clarke possesses particular knowledge and experience in a variety of areas, including corporate governance, engineering, manufacturing (international and domestic), mergers and acquisitions, sales (international and domestic) and union/labor relations, which strengthens the Board’s collective knowledge, capabilities and experience and well qualifies him to serve on our Board.
 
 

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Michael N. Hammes*

Age: 73

Director since: February 1996

Committees: Finance and Nominating & Governance (Chair)
Biographical Information

Mr. Hammes served as Lead Director of the Company from December 2007 to April 2013. 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 Chief Executive Officer 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, and held a variety of executive positions with Ford and Chrysler including President of Chrysler’s International Operations and President of Ford’s European Truck Operations. He is a director of James Hardie, a public fibre cement technology company, since February 2007 and its Chairman since January 2008. He is also a director of Dynavox, Inc., a public speech-generating devices company, since April 2010 and a director of DeVilbiss Healthcare, a private manufacturer of respiratory medical products, since 2010.

Skills and Qualifications

As a result of these professional and other experiences, including his experience as a member of other public company boards of directors, Mr. Hammes possesses particular knowledge and experience in a variety of areas, including accounting, corporate governance, distribution, finance, manufacturing (domestic and international), marketing, international sales/distribution and product development, which strengthens the Board’s collective knowledge, capabilities and experience. Likewise, his experience and leadership in serving as Chairman and Chief Executive Officer for three different companies for fifteen years well qualifies him to serve on our Board.


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Vincent J. Intrieri*

Age: 59

Director since: October 2012

Committees: Finance (Co-Chair) and Nominating & Governance

Biographical Information

Mr. Intrieri has been employed by Icahn related entities since October 1998 in various investment related capacities. Since January 2008, Mr. Intrieri has served as Senior Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages private investment funds. In addition, since November 2004, Mr. Intrieri has been a Senior Managing Director of Icahn Onshore LP, the general partner of Icahn Partners LP, and Icahn Offshore LP, the general partner of Icahn Partners Master Fund LP, entities through which Mr. Icahn invests in securities. Mr. Intrieri has been a director of: Ferrous Resources Limited, an iron ore mining company with operations in Brazil, since June 2015; Hertz Global Holdings, Inc., a company engaged in the car rental business, since September 2014; Transocean Ltd., a provider of offshore contract drilling services for oil and gas wells, since May 2014; and Chesapeake Energy Corporation, an oil and gas exploration and production company, since June 2012. Mr. Intrieri was previously: a director of CVR Refining, LP, an independent downstream energy limited partnership, from September 2012 to September 2014; a director of Forest Laboratories, Inc., a supplier of pharmaceutical products, from June 2013 to June 2014; a director of CVR Energy, Inc., a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries, from May 2012 to May 2014; a director of Federal-Mogul Holdings Corporation, a supplier of automotive powertrain and safety components, from December 2007 to June 2013; a director of Icahn Enterprises L.P. (a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion) from July 2006 to September 2012, and was Senior Vice President of Icahn Enterprises L.P. from October 2011 to September 2012; a director of Dynegy Inc., a company primarily engaged in the production and sale of electric energy, capacity and ancillary services, from March 2011 to September 2012; chairman of the board and a director of PSC Metals Inc., a metal recycling company, from December 2007 to April 2012; a director of Motorola Solutions, Inc., a provider of communication products and services, from January 2011 to March 2012; a director of XO Holdings, a competitive provider of telecom services, from February 2006 to August 2011; a director of National Energy Group, Inc., a company that was engaged in the business of managing the exploration, production and operations of natural gas and oil properties, from December 2006 to June 2011; a director of American Railcar Industries, Inc., a railcar manufacturing company, from August 2005 until March 2011, and was a Senior Vice President, the Treasurer and the Secretary of American Railcar Industries from March 2005 to December 2005; a director of WestPoint Home LLC, a home textiles manufacturer, from November 2005 to March 2011; and chairman of the board and a director of Viskase Companies, Inc., a meat casing company, from April 2003 to March 2011. Ferrous Resources Limited, CVR Refining, CVR Energy, Federal−Mogul, Icahn Enterprises, PSC Metals, XO Holdings, National Energy Group, American Railcar Industries, WestPoint Home and Viskase Companies each are or previously were indirectly controlled by Carl C. Icahn. Mr. Icahn also has or previously had non−controlling interests in Hertz, Transocean, Forest Laboratories, Navistar, Chesapeake Energy, Dynegy and Motorola Solutions.

Skills and Qualifications

Mr. Intrieri graduated in 1984, with distinction, from The Pennsylvania State University (Erie Campus) with a B.S. in Accounting and was a certified public accountant. He possesses strong skills and experience in accounting, corporate governance, finance, mergers and acquisitions and treasury matters. Mr. Intrieri’s significant experience as a director of various companies enables him to understand complex business and financial issues, which contributes greatly to the capabilities and composition of our Board and well qualifies him to serve on our Board.


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James H. Keyes*

Age: 75

Director since: December 2002; Chairman since April 2013

Committees: Audit (Chair) and Compensation
Biographical Information

Mr. Keyes retired as Chairman of the Board of Johnson Controls, Inc., a public 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 retired as a director of Pitney Bowes, Inc. in May 2013 and is a member of the Board of Trustees of Fidelity Mutual Funds. He was also a director of LSI Logic Corporation, an electronics company that designs semiconductors and software that accelerate storage and networking in datacenters and mobile networks, from 1983 until 2008.

Skills and Qualifications

Mr. Keyes has broad experience as a former chief executive officer of a  
public company, experience as a certified public accountant, experience as a member of other public company boards of directors, and he has a Masters degree in Business Administration. He possesses strong skills and experience in accounting, corporate governance, finance, human resources/ compensation/employee benefits, manufacturing (domestic and international), mergers and acquisitions and treasury matters, which well qualifies him to serve on our Board.

 
 

General (Retired)  
Stanley A. McChrystal*

Age: 61

Director since: February 2011

Committees: Compensation and Nominating & Governance
Biographical Information

Gen. McChrystal is a retired 34-year U.S. Army veteran of multiple wars. He commanded the U.S. and NATO’s security mission in Afghanistan, served as the director of the Joint Staff and was the Commander of Joint Special Operations Command, where he was responsible for the nation’s deployed military counter terrorism efforts. Gen. McChrystal is a graduate of the United States Military Academy at West Point, the United States Naval Command and Staff College and was a military fellow at both the Council on Foreign Relations and the Kennedy School of Government at Harvard University. Gen. McChrystal has been serving as a member of the Board of Directors of JetBlue Airways Corporation, a public commercial airline, since 2010, Chairman of the Board of Siemens Government Technologies, Inc., a wholly-owned indirect subsidiary and a Federal Business Entity of Siemens AG, since December 2011, and a member of the Board of Advisors of General Atomics, a private high-technology systems company ranging from the nuclear fuel cycle to remotely operated surveillance aircraft, airborne sensors, and advanced electric, electronic, wireless and laser technologies, since August 2011. In 2011, Gen. McChrystal co-founded McChrystal Group, a leadership consulting firm. He also teaches a seminar on leadership at the Jackson Institute for Global Affairs at Yale University and serves alongside his wife on the Board of Directors for the Yellow Ribbon Fund, a non-profit organization committed to helping wounded veterans and their families.

Skills and Qualifications

As a former senior military leader, Gen. McChrystal has experience in leadership training and development, logistics, talent management and experience with government and regulatory affairs and military contracting. Gen. McChrystal’s years of military leadership and service are of great value to the Board as the Company makes decisions in respect of its global and military businesses.


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Samuel J. Merksamer*

Age: 35

Director since: December 2012

Committees: Audit and Compensation
Biographical Information

Mr. Merksamer has served as a Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, since May 2008. Mr. Merksamer is responsible for identifying, analyzing and monitoring investment opportunities and portfolio companies for Icahn Capital. Mr. Merksamer has been a director of: Cheniere Energy, Inc., a developer of natural gas liquefaction and export facilities and related pipelines, since August 2015; Transocean Partners LLC, a holding company with subsidiaries that own and operate ultra-deepwater drilling rigs, since November 2014; Hertz Global Holdings, Inc., a company engaged in the car rental business, since September 2014; Hologic, Inc., a supplier of diagnostic, medical imaging and surgical products, since December 2013; Transocean Ltd., a provider of offshore contract drilling services for oil and gas wells, since May 2013; and Ferrous Resources Limited, an iron ore mining company with operations in Brazil, since November 2012. Mr. Merksamer was previously a director of: Talisman Energy Inc., an independent oil and gas exploration and production company, from December 2013 to May 2015; CVR Energy, Inc., a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries, from May 2012 to September 2014; CVR Refining, LP, an independent downstream energy limited partnership, from September 2012 to May 2014; Federal-Mogul Holdings Corporation, a supplier of automotive powertrain and safety components, from September 2010 to January 2014; American Railcar Industries, Inc., a railcar manufacturing company, from June 2011 to June 2013; Viskase Companies, Inc., a meat casing company, from January 2010 to April 2013; PSC Metals Inc., a metal recycling company, from March 2009 to October 2012; and Dynegy Inc., a company primarily engaged in the production and sale of electric energy, capacity and ancillary services, from March 2011 to September 2012. Ferrous Resources Limited, CVR Refining, CVR Energy, Federal−Mogul, American Railcar Industries, Viskase Companies and PSC Metals are each indirectly controlled by Carl C. Icahn. Mr. Icahn also has or previously had non-controlling interests in Hertz, Talisman, Transocean, Navistar, and Dynegy Inc. through the ownership of securities.

Skills and Qualifications

Mr. Merksamer received an A.B. in Economics from Cornell University in 2002. Mr. Merksamer’s significant experience as a director of various companies enables him to understand complex business and financial issues. He possesses strong skills and experience in accounting, corporate governance, finance, human resources/compensation/employee benefits, mergers and acquisitions and treasury matters, which contributes greatly to the capabilities and composition of our Board and qualifies him to serve on our Board.


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Mark H. Rachesky, M.D.*

Age: 56

Director since: October 2012

Committees: Finance (Co-Chair) and Nominating & Governance
Biographical Information

Dr. Rachesky is the founder and President of MHR Fund Management LLC, an investing firm that manages approximately $5 billion of assets and utilizes a private equity approach to investing in middle market companies with an emphasis on special situation and distressed investments. Dr. Rachesky serves as a member and chairman of the board of directors of Loral Space & Communications Inc., a public satellite communications company, since 2005, Lions Gate Entertainment Corp., a public entertainment company, since 2009 and Telesat Canada, a satellite company, since 2007. He is also a member of the board of directors of Titan International, Inc., a public wheel, tire and undercarriage systems and components company, since June 2014, Emisphere Technologies, Inc., a public biopharmaceutical company, since 2005 and Nationshealth, Inc., a medical supply company (which went from a public company to a private company in 2009), from 2005 to June 2014. He also served as a member and chairman of the board of Leap Wireless International, Inc., a public digital wireless company, from 2004 until its acquisition by AT&T in March 2014. Dr. Rachesky holds a B.S. in molecular aspects of cancer from the University of Pennsylvania, an M.D. from the Stanford University School of Medicine and an M.B.A. from the Stanford University School of Business.

Skills and Qualifications

Dr. Rachesky brings significant corporate finance and business expertise to our Board due to his background as an investor and fund manager. Dr. Rachesky also has significant expertise and perspective as a member of the boards of directors of private and public companies engaged in a wide range of businesses. Dr. Rachesky’s broad and insightful perspectives relating to economic, financial and business conditions affecting the Company and its strategic direction well qualifies him to serve on our Board.

 
 

Michael F. Sirignano*

Age: 34

Director since: March 2014

Committees: Audit and Compensation (Chair)
Biographical Information

Mr. Sirignano has served as a Principal at MHR Fund Management LLC since 2012 where he is responsible for sourcing and managing investments and portfolio companies. From 2006 to 2011, Mr. Sirignano was at Owl Creek Asset Management, L.P. which is a value-oriented investment firm. Mr. Sirignano held various titles, most recently Senior Analyst. Mr. Sirignano was focused primarily on equities and distressed debt in the industrial, housing, metals and mining, telecommunication and technology sectors. Prior to that, Mr. Sirignano was a member of Rothschild’s restructuring group where he worked on restructurings, refinancing transactions and sale processes for distressed companies. Mr. Sirignano holds a B.A. in Economics, with honors, from Williams College.

Skills and Qualifications

Mr. Sirignano brings significant corporate finance and business expertise to our Board due to his experience as an analyst across a number of industries and his focus on equity and debt securities.


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Dennis D. Williams* **

Age: 62

Director since: June 2006

Committees: Audit and Finance
Additional Director Who Is Not Elected by the Stockholders

Biographical Information

Mr. Williams has served as President of the UAW since June, 2014. Prior to that, Mr. Williams was the UAW’s Secretary, Treasurer and Director, Agricultural Implement and Transnational Departments from June 2010 to June, 2014, UAW Region 4 Director from 2001 to 2010 and Assistant Director of Region 4 from 1995 to 2001. 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.
________________

*
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 elected by stockholders at the Annual Meeting.


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CORPORATE GOVERNANCE

Corporate Governance Guidelines

Our Board has adopted Corporate Governance Guidelines, which are available on the Investor Relations section of our website at http://www.navistar.com/navistar/investors/corporategovernance/documents. 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.

Related Party Transactions and Approval Policy

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 for such purposes, 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 a person involved with, or connected to, the proposed transaction 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 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 will then make a recommendation to the Board. The Board 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 Board in good faith. In the event that the Company becomes aware of a related-person transaction that has not been previously approved or ratified by the Board or the Audit Committee, a similar process will be undertaken by the Board and the Audit Committee 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://www.navistar.com/navistar/investors/corporategovernance/documents.

Since the beginning of 2015, the following two related-person transactions occurred:

The first originally occurred in August 2008 and relates to our former Senior Vice President and Treasurer, James M. Moran, whose wife, Kristin Moran, was employed as a Senior Counsel of Navistar, Inc. Mrs. Moran had received annual compensation and benefits for calendar 2015 of approximately $227,000, which included base salary, Company 401(k) matching contributions and other standard benefits available to all employees generally. Mrs. Moran’s compensation and benefits were comparable to other employees with equivalent qualifications, experience, and responsibilities at the Company. Moreover, Mrs. Moran’s annual compensation was market bench-marked periodically by our Corporate Compensation Department and determined outside of the related person’s reporting structure. This transaction is subject to our Policy and Procedures with Respect to Related Person Transactions because Mr. Moran was an executive officer of the Company during a portion of 2015. This transaction did not require approval, however, and is permissible under our Policy and Procedures with Respect to Related Person

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Transactions because Mrs. Moran’s employment pre-dated Mr. Moran’s appointment as our Senior Vice President and Treasurer.

The second occurred throughout 2015 and was ratified by the Board, upon the recommendation of the Audit Committee, in December 2015 and relates to Carl Icahn, a 19.9% stockholder of the Company, and Federal-Mogul Corporation (‘‘Federal-Mogul’’). Navistar purchased goods and services from Federal-Mogul throughout 2015 that amounted to approximately $18,500,000. Mr. Icahn owns over 80% of Federal-Mogul. Navistar received standard terms and conditions and received no unique payment terms or special concessions. Because Mr. Icahn is an 80% owner of Federal-Mogul, Mr. Icahn has an indirect material interest in this transaction. The Audit Committee and the Board considered the factors described above and the Board, upon the recommendation of the Audit Committee, ratified the transactions on the basis that the Navistar/Icahn/Federal-Mogul relationship is in the best interests of the Company.

Director Independence Determinations

We believe that a substantial majority of the members of our Board should be independent non-employee directors. Our Board has affirmatively determined that eight of our nine current directors, namely Messrs. Hammes, Intrieri, Keyes, McChrystal, Merksamer, Rachesky, Sirignano and Williams, qualify as ‘‘independent directors’’ in accordance with the NYSE’s independence requirements and our own internal guidelines for determining director independence. Each of these directors and nominees has also been determined to be 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 or his family members 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://www.navistar.com/navistar/investors/corporategovernance/documents. 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.

Board Leadership Structure

The Company’s Corporate Governance Guidelines require the Board to select the Chairman of the Board and the CEO and to determine from time to time whether the positions are combined and filled by one person or separated and filled by two persons. Previously, our CEO served as Chairman and we had an independent Lead Director. Beginning in April 2013, with the appointment of Mr. Clarke as our CEO, the Board determined it would be preferable for one of our independent directors to serve as Chairman, and as such elected Mr. Keyes to this position. Mr. Keyes, who has over 13 years serving on our Board, was previously Chairman/CEO of a Fortune 500 company and has served on other public company boards. The Board believes this board leadership structure currently is best for our Company and our stockholders.

We believe it is the CEO’s responsibility to run the Company and the Chairman’s responsibility to run the Board. As directors continue to have more oversight responsibilities, we believe it is beneficial to have an independent Chairman whose sole job within the Company is leading the Board. In making its decision to change the leadership structure and appoint an independent chairman, the Board considered the time that Mr. Clarke is required to devote to the CEO position. By having another director serve as Chairman, Mr. Clarke will be able to focus his entire energy on leading the Company as CEO.

Our Corporate Governance Guidelines require that if, in the future, the CEO is serving as Chairman, then the Board would also name an independent Lead Director.

Risk Oversight

Our Board has overall responsibility for the oversight of risk management at our Company. Day-to-day risk management is the responsibility of management, which has implemented an Enterprise Risk Management process to identify, assess, manage and monitor risks that our Company faces. Enterprise Risk Management operates within our Internal Audit and

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Corporate Compliance department and coordinates its efforts with that department. Our Board, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our Company, and the steps we take to monitor and control such exposures.

While our Board has general oversight responsibility for risk at our Company, the Board has delegated some of its risk oversight duties to the various Board committees. In particular, the Audit Committee is responsible for generally reviewing and discussing the Company’s policies and guidelines with respect to risk assessment and risk management. It also focuses on the management of financial risk exposure and oversees financial statement compliance and controls environment risk exposure. The Nominating and Governance Committee oversees risks related to corporate governance, including risk related to the political environment. The Compensation Committee assists our Board in overseeing the management of risks arising from our compensation policies and programs and programs related to assessment, selection, succession planning, training and development of executives of the Company. Finally, the Finance Committee is responsible for overseeing policies with respect to financial risk assessment and financial risk management including, without limitation, risks relating to liquidity/access to capital and macroeconomic trends/environment risks. Each of the Board committees periodically reviews these risks and then discusses the process and results with the full Board.

The Board believes maintaining an independent Board with a separate Chairman and CEO permits open discussion and assessment of the Company’s ability to manage risks associated with the Company’s strategic plans and objectives.

Nominating Directors

You may recommend any person as a candidate for director for election at our annual meeting of stockholders by writing to our Corporate Secretary at 2701 Navistar Drive, Lisle, Illinois 60532 and complying with the procedures set forth in the Company’s By-Laws. Your letter must be received by Navistar’s Corporate Secretary no earlier than September 13, 2016, and no later than October 13, 2016, and must include all of the information required by the Company’s By-Laws including, but not limited to, the proposed nominee’s biographical information and principal occupation; the number of shares of capital stock of the Company which are owned by the proposed nominee, appropriate information about the proposed nominee that would be required to be included in a proxy statement under the rules of the SEC, the number of shares held by you, information about the relationship between the proposed nominee and you, any pending or threatened litigation in which the proposed nominee is a party and a representation that you intend to appear in person or by proxy at the meeting to nominate the proposed nominee. Your letter must be accompanied by the written consent of the proposed nominee to being named as a nominee and to serve as a director if elected. You may only recommend a candidate for director if you hold shares of Common Stock on the date you give the notice described above, on the record date for the annual meeting of stockholders at which you propose such nominee be elected and on the date of the annual meeting of stockholders at which you propose such nominee be elected.

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:

knowledge and contacts in the Company’s industry and other relevant industries;

positive reputation in the business community;

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

experiences and achievements that provide the nominee with the ability to exercise good business judgment;

ability to make significant contributions to the Company’s success;

ability to work successfully with other directors;

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

ability to assist and evaluate the Company’s management;

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involvement only in other activities or interests that do not create a conflict with his or her responsibilities to the Company and its stockholders;

understanding of and ability to meet his or her 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

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, in selecting directors, the Nominating and Governance Committee will consider the need to strengthen the Board by providing a diversity of persons in terms of their expertise, age, gender, race, ethnicity, education, and other attributes which contribute to the Board’s diversity. Our Board diversity policy is contained within our Corporate Governance Guidelines.

The satisfaction of the above criteria is implemented and assessed through ongoing consideration of directors and nominees by the Nominating and Governance Committee and the Board, as well as through the Board’s self-evaluation process. Based upon these activities and its review of the current composition of the Board, the Nominating and Governance Committee and the Board believe that these criteria have been satisfied.

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 resignation to the Nominating and Governance Committee for consideration and recommendation to the Board. The Board will publicly disclose its decision.

Board Committees and Meetings

The Board documented its governance practices, policies and procedures 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 October 2015, the Board conducted an evaluation of the committees and the Board.

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

In 2015, the full Board met 9 times. In addition, the Board’s independent directors meet regularly in executive session without management present to, among other things, evaluate the performance of the Chief Executive Officer and discuss corporate strategies. The Chairmen of our Audit, Compensation, Nominating and Governance and Finance Committees of the Board each preside as the chair at meetings or executive sessions of independent directors at which the principal items to be considered are within the scope of the authority of his committee.

During 2015, with the exception of Dennis D. Williams, each of the directors attended 75% or more of all the meetings of the Board and the committees on which he serves. The average attendance of all directors at meetings of the Board and the committees on which they served in 2015 was 94%. We encourage all Board members to attend all meetings, including the Annual Meeting. All of our directors who were directors at the time of our 2015 Annual Meeting attended that meeting.

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Below is a table indicating committee membership and a description of each committee of the Board.
Committee Membership
(as of December 22, 2015)
 
Audit
Compensation
Finance
Nominating & Governance
Troy A. Clarke
 
 
 
 
Michael N. Hammes
 
 
ü
ü*
Vincent J. Intrieri
 
 
ü*
James H. Keyes
ü*
 
 
Stanley A. McChrystal
 
 
Samuel J. Merksamer
 
 
Mark H. Rachesky
 
 
ü*
Michael F. Sirignano
ü*
 
 
Dennis D. Williams
 
 

*
Indicates the chair of the committee. Mr. Intrieri and Mr. Rachesky serve as co-chairs of the Finance Committee.

Audit Committee — The Audit Committee assists the Board in fulfilling its responsibility for oversight of the Company’s financial reporting process, the Company’s legal and regulatory compliance, the independence, qualifications and performance of the Company’s independent registered public accounting firm and the performance of the Company’s internal audit function and corporate compliance function. The Audit Committee reviews the audit plans of the Company’s independent registered public accounting firm and internal audit staff, reviews the audit of the Company’s accounts with the independent registered public accounting firm and the internal auditors, considers the adequacy of audit scope and reviews and discusses with the auditors and management the auditors’ reports. The Audit Committee also reviews environmental reports and compliance activities for the Company’s facilities and the expense accounts of executive officers and directors. The Audit Committee reviews and decides on conflicts of interest and waivers of compliance with the Company’s Code of Conduct that may affect executive officers and directors, discusses policies and guidelines with respect to risk assessment and risk management. The Audit Committee reviews and recommends to the Board for approval to either approve, ratify, reject or take other action with respect to related person transactions and it prepares and approves the Audit Committee Report for inclusion in the Company’s proxy statement. Additional information on the roles and responsibilities of the Audit Committee is provided in the Audit Committee Report section of this proxy statement. All members of the Audit Committee are independent and the Board designated each Audit Committee member, namely, Mr. James H. Keyes, Mr. Samuel J. Merksamer, Mr. Michael F. Sirignano and Mr. Dennis D. Williams, as an ‘‘audit committee financial expert,’’ as defined by applicable law, rules and regulations. In 2015, the Audit Committee held 9 meetings. The Audit Committee conducted an evaluation of its performance in October 2015.

Compensation Committee — The Compensation Committee makes recommendations to the Board with respect to the appointment and responsibilities of all executive officers, reviews and approves the compensation of executive officers who are not also directors of the Company, reviews and approves the Company’s compensation strategy and any associated risks, 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 and incentive compensation plans, engages the compensation consultants that advise the Compensation Committee and approves the consultants’ fees and terms of engagement, 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 reviews basic changes to non-represented employees’ base compensation and incentive and benefit plans. The Compensation Committee also oversees the development and implementation of succession plans for senior executives (with the exception of our CEO). Additional information on the roles and responsibilities of the Compensation Committee is provided in the CD&A section of this proxy statement. The Compensation Committee held 6 meetings in 2015. The Compensation Committee conducted an evaluation of its performance in October 2015.





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Finance Committee — The Finance Committee reviews the Company’s financing requirements, procedures by which projections and estimates of cash flow are developed, dividend policy and investment spending and capital expenditure budgets. The Finance Committee also oversees the Company’s policies with respect to financial risk assessment and financial risk management, including liquidity and access to capital and macroeconomic trends. The Finance Committee held 8 meetings in 2015. The Finance Committee conducted an evaluation of its performance in October 2015.

Nominating and Governance Committee — The Nominating and Governance Committee is responsible for the organizational structure of the Board and its committees, recommending to the Board the directors to serve on the standing Board committees, reviewing and making recommendations to the Board concerning nominees for election as directors, CEO succession planning, reviewing and making recommendations to the Board concerning corporate governance practices and policies and changes to our Restated Certificate of Incorporation and our By-Laws and overseeing risks related to corporate governance and the political environment. In addition, the Nominating and Governance Committee leads the Board in its self-evaluation process and monitors compliance with the Corporate Governance Guidelines. The Nominating and Governance Committee held 5 meetings in 2015. The Nominating and Governance Committee conducted an evaluation of its performance in October 2015.

Communication with the Board

Interested parties may communicate with any of our directors, our Board as a group, our non-employee directors as a group or any committees of the Board by sending an e-mail to presiding.director@navistar.com or by writing to the Presiding Director, c/o the Corporate Secretary, at 2701 Navistar Drive, Lisle, Illinois 60532. The Board has given the Corporate Secretary the discretion to distribute communications to the director or directors, after ascertaining whether the communications are appropriate to the duties and responsibilities of the Board. Communications that relate to ordinary business matters that are not within the scope of the Board’s duties and 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 acknowledgment from the Corporate Secretary’s Office upon receipt of your communication.

Code of Conduct

Our Code of Conduct embodies a code of ethics (the ‘‘Code’’) applicable to all of our directors, officers and employees. The Code establishes the principles, policies, standards and conduct for professional behavior in the workplace. Every director, officer and employee is required to read and follow the Code. A copy of the Code is available on the Investor Relations section of our website at http://www.navistar.com/navistar/investors/corporategovernance/documents. 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://www.navistar.com/navistar/investors/corporategovernance/documents) 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 other 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
2701 Navistar Drive
Lisle, Illinois 60532
Audit.committee@navistar.com


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PERSONS OWNING MORE THAN FIVE PERCENT OF COMPANY COMMON STOCK

This table indicates, as of December 14, 2015, all persons we know to be beneficial owners of more than 5% of our Common Stock. This information is based, in part, on a review of Schedule 13D, Schedule 13G and Section 16 reports filed with the SEC by persons and entities listed in the table below, as well as on other available information.
Name and Address
Total Amount and
Nature of Beneficial
Ownership
Percent of  
Class(A)
Carl C. Icahn  
c/o Icahn Associates Corp., 
 767 Fifth Avenue, Suite 4700  
New York, NY 10153
16,272,524(B)
19.9%
Mark H. Rachesky, M.D.
40 West 57
th Street, 24th floor  
New York, NY 10019
16,247,942(C)
19.9%
Franklin Resources, Inc.  
One Franklin Parkway  
San Mateo, CA 94403-1906
14,617,236(D)
17.9%
GAMCO Investors, Inc. et. al.  
One Corporate Center  
Rye, NY 10580-1435
10,033,832(E)
12.3%
Hotchkis & Wiley Capital Management LLC  
725 South Figueroa Street
, 39th Floor  
Los Angeles, CA 90017
8,527,172(F)
10.4%

(A)
Applicable percentage ownership is based upon 81,544,909 shares of Common Stock outstanding as of December 14, 2015.

(B)
As reported in Schedule 13D/A filed with the SEC on December 17, 2014 by High River Limited Partnership (‘‘High River’’), Hopper Investments LLC (‘‘Hopper’’), Barberry Corp. (‘‘Barberry’’), Icahn Partners Master Fund LP (‘‘Icahn Master’’), Icahn Partners Master Fund II LP (‘‘Icahn Master II’’), Icahn Offshore LP (‘‘Icahn Offshore’’), Icahn Partners LP (‘‘Icahn Partners’’), Icahn Onshore LP (‘‘Icahn Onshore’’), Icahn Capital LP (‘‘Icahn Capital’’), IPH GP LLC (‘‘IPH’’), Icahn Enterprises Holdings L.P. (‘‘Icahn Enterprises Holdings’’), Icahn Enterprises G.P. Inc. (‘‘Icahn Enterprises GP’’), Beckton Corp. (‘‘Beckton’’), and Carl C. Icahn (collectively, the ‘‘Icahn Reporting Persons’’). The Icahn Reporting Persons reported the following: High River has sole voting power and sole dispositive power with regard to 3,254,504 shares of Common Stock and each of Hopper, Barberry and Mr. Icahn has shared voting power and shared dispositive power with regard to such shares of Common Stock; Icahn Master has sole voting power and sole dispositive power with regard to 5,287,439 shares of Common Stock and each of Icahn Offshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn has shared voting power and shared dispositive power with regard to such shares of Common Stock; and Icahn Partners has sole voting power and sole dispositive power with regard to 7,730,581 shares of Common Stock and each of Icahn Onshore, Icahn Capital, IPH, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Mr. Icahn has shared voting power and shared dispositive power with regard to such shares of Common Stock. Barberry is the sole member of Hopper, which is the general partner of High River. Icahn Offshore is the general partner of Icahn Master. Icahn Onshore is the general partner of Icahn Partners. Icahn Capital is the general partner of each of Icahn Offshore and Icahn Onshore. Icahn Enterprises Holdings is the sole member of IPH, which is the general partner of Icahn Capital. Beckton is the sole stockholder of Icahn Enterprises GP, which is the general partner of Icahn Enterprises Holdings. Mr. Icahn is the sole stockholder of each of Barberry and Beckton. As such, Mr. Icahn is in a position indirectly to determine the investment and voting decisions made by each of the Icahn Reporting Persons. In addition, Mr. Icahn is the indirect holder of approximately 92.6% of the outstanding depositary units representing limited partnership interests in Icahn Enterprises L.P. (‘‘Icahn Enterprises’’). Icahn Enterprises GP is the general partner of Icahn Enterprises, which is the sole limited partner of Icahn Enterprises Holdings. See the Schedule 13D/A filed by the Icahn Reporting Persons for certain disclaimers of beneficial ownership.

(C)
As reported in a Schedule 13D/A filed with the SEC on September 4, 2015 by MHR Institutional Partners III LP, MHR Institutional Advisors III LLC, MHR Fund Management LLC, MHR Holdings LLC and Dr. Rachesky (collectively, the ‘‘MHR Reporting Persons’’). The MHR Reporting Persons reported the following: MHR Institutional Partners III LP and MHR Institutional Advisors III LLC each has sole voting and dispositive power over 14,980,528 shares of Common Stock. MHR Fund Management LLC and MHR Holdings LLC each has sole voting and dispositive power over 16,225,000 shares of Common Stock. Dr. Rachesky has sole voting and dispositive power over 16,247,942 shares of Common Stock, which includes (i) 16,225,000 shares of Common Stock beneficially owned by Dr. Rachesky as the managing member of MHR Advisors LLC, MHR Institutional Advisors III LLC and MHR Holdings LLC; (ii) 6,180 shares of Common Stock held directly by Dr. Rachesky; (iii) options to purchase 15,000 shares of Common Stock granted to Dr. Rachesky in his capacity as a director; and (iv) 1,762 shares of Common Stock that may be obtained upon settlement of phantom stock units granted to Dr. Rachesky in his capacity as a director.

(D)
As reported in Schedule 13G/A filed with the SEC on February 5, 2015 by Franklin Resources, Inc. (‘‘FRI’’), Charles B. Johnson, Rupert H. Johnson, Jr. and Templeton Global Advisors Limited. These securities are beneficially owned by one or more open- or closed-end investment companies or other managed accounts that are investment management clients of investment managers that are direct and indirect subsidiaries of FRI. Charles B. Johnson and Rupert H. Johnson, Jr. each own in excess of 10% of the outstanding common stock of FRI and are the principal stockholders of FRI. See the Schedule 13G/A for certain disclaimers of beneficial ownership.




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(E)
As reported in a Schedule 13D/A filed with the SEC on March 24, 2015, by Gabelli Funds, LLC, GAMCO Asset Management, Inc., Teton Advisors, Inc., Gabelli Securities, Inc., Gabelli Foundation, Inc., MJG Associates, Inc., MJG-IV Limited Partnership, GGCP, Inc., GAMCO Investors, Inc., and Mario J. Gabelli (collectively, the ‘‘Gabelli Reporting Persons’’). The Gabelli Reporting Persons reported the following: Gabelli Funds LLC has sole voting and dispositive power with regard to 3,370,553 shares of Common Stock, GAMCO Asset Management Inc. has sole voting power with regard to 5,966,979 shares of Common Stock and sole dispositive power with regard to 6,503,979 shares of Common Stock, Teton Advisers, Inc. has sole voting and dispositive power with regard to 5,000 shares of Common Stock, Gabelli Securities, Inc. has sole voting and dispositive power with regard to 9,500 shares of Common Stock, Gabelli Foundation, Inc. has sole voting and dispositive power with regard to 10,000 shares of Common Stock, MJG Associates, Inc. has sole voting and dispositive power with regard to 6,500 shares of Common Stock, MJG-IV Limited Partnership has sole voting and dispositive power with regard to 2,000 shares of Common Stock, GGCP, Inc. has sole voting and dispositive power with regard to 16,000 shares of Common Stock, GAMCO Investors, Inc. has sole voting and dispositive power with regard to 8,800 shares of Common Stock, and Mario J. Gabelli has sole voting and dispositive power with regard to 101,500 shares of Common Stock. Mr. Gabelli is deemed to have beneficial ownership of the shares of Common Stock owned beneficially by each of the foregoing entities due to the fact that he directly or indirectly controls or acts as chief investment officer for such entities. Gabelli Securities, Inc. is deemed to have beneficial ownership of the Common Stock owned beneficially by G. research, Inc. GAMCO Investors, Inc. and GGCP, Inc. are deemed to have beneficial ownership of the shares of Common Stock owned beneficially by each of the Gabelli Reporting Persons other than Mr. Gabelli and Gabelli Foundation, Inc. See the Schedule 13D/A filed by the Gabelli Reporting Persons for certain disclaimers of beneficial ownership.

(F)
As reported in a Schedule 13G filed with the SEC on August 7, 2015, by Hotchkis & Wiley Capital Management, LLC and Hotchkis and Wiley Mid-Cap Value Fund (collectively, the ‘‘Hotchkis & Wiley Reporting Persons’’). The Hotchkis & Wiley Reporting Persons reported the following: Hotchkis & Wiley Capital Management, LLC has sole voting power over 8,139,672 shares of Common Stock and has sole dispositive power over 8,527,172 shares of Common Stock and Hotchkis and Wiley Mid-Cap Value Fund has sole voting and dispositive power over 4,251,300 shares of Common Stock.

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COMPANY COMMON STOCK OWNED BY EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding beneficial ownership of our Common Stock as of November 30, 2015 by: (i) each of our directors or nominees for director; (ii) each of our NEOs; and (iii) all of our directors, nominees for director and executive officers as a group. In general, ‘‘beneficial ownership’’ includes those shares of Common Stock a director, nominee for director or NEO has the power to vote or transfer, stock units convertible into Common Stock within 60 days 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 of Common Stock beneficially owned by them.
Name/Group
Owned(A)
Number of 
DSUs, PSUs 
or RSUs 
Convertible
into Common
 
Stock(B)
Obtainable
Through
Stock
Option
Exercise
Total
 
Percent of
Class
John J. Allen
3,896


88,105

92,001

 
*
Walter G. Borst
17,989

6,911

39,193

64,093

 
*
Troy A. Clarke
54,100

5,692

836,331

896,123

 
1.1
Steven K. Covey
28,883

3,601

81,406

113,890

 
*
Michael N. Hammes
7,664


25,400

33,064

 
*
Vincent J. Intrieri
592

1,909

10,000

12,501

 
*
James H. Keyes
4,685

16,424

26,600

47,709

 
*
William R. Kozek
2,625


18,030

20,655

 
*
Persio V. Lisboa
3,289

2,790

11,755

17,834

 
*
Stanley A. McChrystal
1,508

16,385

15,000

32,893

 
*
Samuel J. Merksamer
592

1,263

10,000

11,855

 
*
Mark H. Rachesky(C)
16,231,180

4,219

10,000

16,245,399

 
19.9
Michael Sirignano
2,809

4,701

1,667

9,177

 
*
Dennis D. Williams(D)




 
     *
All Directors and Executive Officers as a Group (17 persons)(E)
16,374,182

65,576

1,185,525

17,625,283

 
21.6

*
Percentage of shares beneficially owned does not exceed one percent.

(A)
The number of shares shown for each NEO (and all directors and executive officers as a group) includes the number of shares of Common Stock owned indirectly, as of November 30, 2015, by such executive officers in our Retirement Accumulation Plan, as reported to us by the Plan trustee.

(B)
For additional information on deferred share units (‘‘DSUs’’), premium share units (‘‘PSUs’’) and restricted stock units (‘‘RSUs’’) see below.

(C)
As reported in various Form 4’s filed with the SEC during 2015 by MHR Institutional Partners III LP, MHR Institutional Advisors III LLC, MHR Fund Management LLC, MHR Holdings LLC and Dr. Rachesky. See also Footnote C to the section Persons Owning More Than Five Percent of Navistar Common Stock in this proxy statement.

(D)
At the request of the UAW, the UAW representative director, Dennis Williams, does not receive stock or stock option grant awards.

(E)
Includes all current directors, NEOs and officers for purposes of Section 16 of the Exchange Act as a group.



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DSUs PSUs and RSUs

Under our Executive Stock Ownership Program in effect for 2013 and prior years, executives may defer their cash bonus into DSUs. If an executive officer elects to defer a cash bonus, the number of shares shown for such NEO includes these DSUs. These DSUs vest immediately. The number of shares shown as owned for each NEO (and all Executive Officers as a group) also includes 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. Effective November 1, 2013, our Executive Stock Ownership Program was amended and restated to, among other things, eliminate an executive’s ability to earn PSUs or defer their cash bonus into DSUs.

Under our Non-Employee Directors Deferred Fee Plan, directors may defer all or a portion of their annual retainer into DSUs, and prior to calendar year 2012 when meeting fees were paid for attendance at Board and committee meetings, all or a portion of their meeting fees into DSUs. If a director elected to defer a portion of his annual retainer and/or meeting fees into DSUs, these DSUs are shown as owned.

Certain of our executives have been awarded share settled restricted stock units under the 2013 Performance Incentive Plan. The RSUs vest in equal installments on each of the first three anniversaries of the date of grant or cliff vest as to 100% of the shares granted on the third anniversary of the date of grant, and are converted into our Common Stock on a one to one basis at time of vesting.


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PROPOSAL 2 — ADVISORY VOTE ON EXECUTIVE COMPENSATION

At our 2011 annual meeting of stockholders, a majority of our stockholders voted in favor of holding a non-binding advisory vote on executive compensation on an annual basis. In light of those results, our Board determined that the Company will hold a non-binding advisory vote on executive compensation on an annual basis. The next required non-binding advisory vote regarding the frequency interval will be in 2017, although an earlier vote regarding such frequency interval may be held at the Board’s discretion.

The Company places importance on the feedback of our stockholders regarding our compensation practices. We are focused on continuously reviewing and improving such practices in order to best align executive pay with Company performance. At our 2014 and 2015 annual meeting of stockholders, our stockholders expressed their support of our executive compensation programs by approving our non-binding advisory vote on our executive compensation by approximately 73% and 99% (as calculated by Institutional Shareholder Services (‘‘ISS’’)), respectively. Since that time we have continued our stockholder outreach initiatives and our continuous efforts to best align executive pay with Company performance.

As described more fully in our CD&A, our executive compensation programs for our NEOs, as well as other executives, are designed to closely align executive rewards with the total return to stockholders and both corporate and individual performance. As evidence of our commitment to align executive pay with Company performance:

The 2013 and 2014 LTI performance targets for awards granted to the CEO have not been met.
The 2013 LTI performance targets for awards granted to NEOs (other than the CEO) were met for 50% of the grants and were not met for the other 50%.
The 2014 LTI performance targets for awards granted to NEOs (other than the CEO) are out of reach for 50% of the grant and are not likely to be met for the other 50%.
The 2015 LTI performance targets for awards granted to NEOs (other than the CEO) are projected to be met or exceeded for 50% of the grant and are not likely to be met for the other 50%.
The 2015 AI awards will be paid out at 85% of Target percentage due to our achievements.

The Board urges our stockholders to read the CD&A, which describes in more detail the changes made to the executive compensation programs and how the executive compensation programs are designed to support our Company and our business strategies in concert with our culture, compensation philosophies and guiding principles.

We believe that the Company’s executive compensation programs appropriately align pay and performance and enable the Company to attract and retain talented executives within our industry.

We are asking our stockholders to indicate their support for our executive compensation as described in this proxy statement, as required pursuant to Section 14A of the Exchange Act. This proposal, commonly known as a ‘‘say-on-pay’’ proposal, gives you as a stockholder the opportunity to express your views on our 2015 executive compensation policies and procedures described in this proxy statement.

This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs as described in this proxy statement. Accordingly, we ask our stockholders to vote ‘‘FOR’’ the following resolution at the Annual Meeting:

RESOLVED, that the stockholders of Navistar International Corporation (the ‘‘Company’’) approve, on an advisory basis, the compensation of the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K in the Company’s proxy statement for the 2016 Annual Meeting of Stockholders.

Although this is an advisory vote that will not be binding on the Compensation Committee or the Board, we will carefully review the results of the vote, as we did last year. The Compensation Committee will consider our stockholders’ concerns and take into account the outcome of ‘‘say-on-pay’’ votes when designing future executive compensation programs. The Board recommends that you indicate your support for the Company’s executive compensation in 2015, as outlined in the above resolution.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE ‘‘FOR’’ PROPOSAL 2.


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COMPENSATION

Compensation Committee Report

The Compensation Committee reviewed and discussed the CD&A required by Item 402(b) of Regulation S-K with management, and based upon this review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this proxy statement. The independent members of the Board reviewed and discussed the compensation of the CEO.
The Compensation Committee
Independent Board members  
(non-Compensation Committee members)
Michael F. Sirignano, Chairman
Michael N. Hammes
James H. Keyes
Vincent Intrieri
Stanley A. McChrystal
Mark H. Rachesky
Samuel J. Merksamer
Dennis D. Williams

(Approved by the members of the Compensation Committee and the other independent members of the Board on December 8, 2015.)

Compensation Discussion and Analysis (the "CD&A")

The Compensation Committee has the responsibility to approve and monitor all compensation and benefit programs for our executive officers (for purposes of this proxy statement, the term "executive officer" means the senior leadership of the Company, including Section 16 Officers and NEOs) and makes recommendations for the compensation and benefits of our CEO, which is then reviewed and approved by the independent members of our Board. As part of its responsibilities, the Compensation Committee reviews the performance of our executive officers and approves compensation based on the overall successes of the individual executive and the organization as a whole. The Compensation Committee is governed by a written charter, a copy of which is available on the Investor Relations section of our website at http://www.navistar.com/navistar/investors/ corporategovernance/documents.

The following table lists our 2016 NEOs that will be discussed throughout the CD&A.
NEO
Title
Troy A. Clarke
President and Chief Executive Officer
Walter G. Borst
Executive Vice President and Chief Financial Officer
William R. Kozek
President, Truck and Parts
Persio V. Lisboa
President, Operations
Steven K. Covey
Senior Vice President and General Counsel
John J. Allen
Former Executive Vice President and Chief Operating Officer

This Compensation section is organized into the following main categories:



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Executive Summary

For the third straight year, we have made strong progress in virtually every area of our business. In 2015, we demonstrated we are a performance-driven organization that is agile, forward focused, and committed to taking the actions we need in order to be successful.

The Company has a robust stockholder outreach and engagement program in place. We engage in regular contact with our stockholders throughout the year. Approximately 80% of our stock is held by five of our stockholders. Two of these stockholders have representation on our Board as discussed in our Executive Summary and Proposal One-Election of Directors. These stockholders, through their representatives on our Board, also are members of our Compensation Committee and are integrally involved in our compensation decisions and policies, with Mr. Sirignano being the Chairman of our Compensation Committee. We also engage in regular dialogue with our three remaining largest stockholders without representatives on our Board. We maintain open lines of communication with corporate governance advisory institutions and with our top 25 stockholders on an annual basis in order to solicit their feedback. We continuously work to improve these efforts and place importance on the feedback provided to us during this process.

An overall objective of our executive compensation program is to maintain a linkage between pay and performance, both long-term and short-term. Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") is a key pay component linked to pay for performance and our short and long-term incentives. In 2015, the Company saw an incremental improvement of ~$200M annual adjusted EBITDA for the third year in a row. As a result of our performance:
Two of our NEOs received performance base salary increases which averaged 3.5%. Due to changes in our leadership team, two of our NEOs received promotional base salary increases which averaged 22%.

We approved a revised Annual Incentive ("AI") plan under which AI awards will be paid out at percentages based on our achievement of performance goals based on costs, revenues, cash and quality. For 2016, AI performance goals will also include Earnings Before Interest and Taxes ("EBIT") and market share goals.

Based on 2015 results of our AI performance measures, AI awards will be paid at 85% of Target.

Based on 2015 results, LTI awards for 2015 based on adjusted EBITDA Margin and Revenue Growth are projected to pay out for at least 50% of the grant.
 
The Company approved Long-Term Incentive ("LTI") awards based on an assessment of each executive with respect to both performance and potential;

In 2015, the Compensation Committee took the following actions with respect to the Company’s executive compensation program:

Maintained our clawback policy, which enables the Company to recover incentive-based compensation in the event of an accounting restatement due to material non-compliance with financial reporting requirements, as well as intentional misconduct;

Implemented certain revisions to our Executive Severance Agreement template for 2014 and going forward, including, but not limited to: (i) reducing the duration of the agreement post-Change in Control (‘‘CIC’’); (ii) modifying the definition of CIC; (iii) reducing the duration of the post-CIC period and (iv) including the Company’s ability to recoup incentive pay under the Company’s clawback policy; and

Continued to exclude pro-rata bonus from the calculation of any pension/retirement benefit under our Executive Severance Agreements.








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Compensation Governance Measures
 
 
What We Do
What We Don't Do
We use multiple performance measures in our short-term and long-term incentive plans. These performance measures link pay to performance and stockholder interests.

The Company maintains policies that eliminate all tax gross-ups for perquisites and other similar benefits to Section 16 Officers, and prohibit tax gross-ups for any cash or equity awards for all employees.
The Compensation Committee reviews external market data when making compensation decisions.
We do not reprice stock options.

The Compensation Committee selects and engages its own independent advisor, Frederic W. Cook & Co., Inc.
We have an anti-hedging policy, whereby employees and directors are prohibited from trading in puts, calls, options or other similar securities related to our common stock. We also restrict short selling, pledges and margin accounts used by executive officers and directors.
We maintain a clawback policy to recoup incentive-based compensation in the event of an accounting restatement.
We do not accelerate the vesting of long-term incentive awards, except in certain situations upon death.
Change in Control severance benefits are payable only upon a Change in Control (also referred to throughout as "CIC") with termination of employment ("double trigger").
We do not grant extra pension service with the exception of Change in Control as outlined in our Executive Severance Agreements (ESAs).
All officers are subject to stock ownership requirements, ranging from 6x base pay for the CEO to 3x base pay for other senior executives - including a retention requirement.
 
Directors are expected to own shares having a value equivalent to 3x their annual cash retainer.
 

Compensation Philosophy and Objectives

We believe the compensation of our executives should be closely tied to the performance and growth of the Company, so that their interests are aligned with the long-term interests of our stockholders. Consistent with this philosophy, the following guiding principles provide a framework for the Company’s executive compensation program:

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

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

Ownership and Responsibility:  Compensation programs are designed to recognize individual contributions as well as link executive and stockholder interests through programs that reward our executive officers, based on the financial success of the Company and increases to stockholder value.

The Company actively engages stockholders in say-on-pay discussions. Two of the largest stockholders are represented on the Board as well as the Compensation Committee. Other stockholder opinions are solicited in discussions throughout the year and the Company continues to align pay with performance throughout the organization based on best practices.









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Pay for Performance

The Company experienced net losses in 2013 through 2015. These operating results were a result of a number of factors, including but not limited to, expenses related to new engine launches, a continuing decrease in our military business, lower than anticipated market share in our North American truck markets, and warranty expenses. As such, a small award was paid under the 2013 AI plan primarily for meeting certain product targets and cost reduction goals. AI awards were not paid in 2014. Based on our 2015 AI plan results, AI awards will be paid at 85% of Target.

With respect to LTI (excluding the CEO grant that Mr. Clark received upon his promotion to CEO), the 2013, 2014 and 2015 LTI plans were overhauled to be 100% performance-based. Based on Company performance and the strategic plan:

The 2013 LTI performance targets were met for 50% of the grants, but were not met for the remaining 50%.

The 2014 LTI performance targets are out of reach for 50% of the grant (which would require distinguished performance) and not likely for the remaining 50%.

The 2015 LTI performance targets are projected to be met for 50% of the grant and are not likely to be met for the remaining 50%.

The following table outlines the performance based LTI awards granted to our NEOs (other than the CEO), along with the actual performance of those awards as of October 31, 2015. As the table illustrates, the value of the rewards is considerably smaller than what was granted, aligning executive pay with company performance.
 
 
Performance Options
Performance Share
Units
FY2013
Exercise Price/Closing Price on Grant
$27.24
 
Stock Price as of 10/31/15
$12.30
 
% of Equity Award
50%
50%
 
Stock Price Hurdle Met?
Yes
 
 
EBITDAPO Met?(1)
 
Not Met
 
Value Based on 10/31/15 Price(2)
$0
 
 
Change in Value as of 10/31/15(3)
 
(55)%
 
 
 
 
FY2014
Exercise Price/Closing Price on Grant
$35.09
 
Stock Price as of 10/31/15
$12.30
 
% Equity Award
50%
50%
 
Operating Cash Flow Met?
Out of Reach
 
 
Adjusted EBITDA Margin Met?
 
Not Likely
 
Value Based on 10/31/15 Price(2)
$0
 
 
Change in Value as of 10/31/15(3)
 
(65)%
 
 
 
 
FY2015
Exercise Price/Closing Price on Grant
$27.67
 
Stock Price as of 10/31/15
$12.30
 
% of Equity Award
50%
50%
 
Adjusted EBITDA Margin Met?
Near Target
Near Target
 
Revenue Growth Met?
Not Likely
Not Likely
 
Value Based on 10/31/15 Price(2)
$0
 
 
Change in Value as of 10/31/15(3)
 
(56)%

(1) Earnings Before Interest, Taxes, Depreciation, Amortization, Pensions, and Other Post-Employment Benefits.
(2) Assumes performance hurdle was met and option was exercised on 10/31/15.
(3) Assumes performance hurdle was met and Performance Share Unit was paid out on 10/31/15.

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35



The following table outlines the types of LTI awards granted to our CEO along with the actual performance for those awards as of October 31, 2015.
 
 
Performance Options
(Premium Priced)
Performance Options (At-the-Money)
Time-Based Options
(Premium Priced)
Time-Based Options
(At-the-Money)
FY2013
Exercise Price
$38.30
$30.64
$38.30
$30.64
Stock Price as of 10/31/15
$12.30
% Equity Award
17%
16%
25%
42%
EBITDAPO Met?
Not Met
 
 
Market Share Met?
Not Met
 
 
Value Based on 10/31/15 Price
$0
$0
$0
$0
FY2014
Exercise Price
$43.86
$35.09
$43.86
$35.09
Stock Price as of 10/31/15
$12.30
% of Equity Award
17%
16%
25%
42%
EBITDAPO Met?
Not Met
 
 
Market Share Met?
Not Met
 
 
Value Based on 10/31/15 Price
$0
$0
$0
$0

In 2015 we continue to align pay with performance throughout the organization through:

100% performance-based LTI awards for the NEOs (excluding the CEO), with grant sizes adjusted on the basis of not only past performance of the individual, but their long-term potential in the organization.

An AI program designed to align with key company performance targets which has a payout at 85% of Target.

Pay Mix

A key goal of our compensation philosophy and objectives, is the alignment of the pay mix for our CEO and top executives compared to the market. By pursuing that alignment, we can be assured that not only are the elements appropriate, but the overall package is properly designed. Although recommendations relative to each of these compensation elements are made separately, the Compensation Committee considers the total compensation and benefits package when making any compensation decision.

Working with an independent compensation advisor, we have developed the charts below which illustrate the alignment of Navistar’s executive pay and the external marketplace. The only small deviation is Navistar’s emphasis on the long term success of the Company versus the annual performance in the CEO compensation package.














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36


The below charts present Navistar’s total direct compensation ("TDC") mix (excluding special grants) for the CEO and NEOs relative to the peer group mix, with the Navistar mix on the left and the peer group mix on the right.

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37


Detailed Review of Executive Compensation

Compensation Consultant

The Compensation Committee engages the services of an independent compensation advisor to assist with decisions regarding executive compensation plans and programs. The independent compensation advisor reports solely to the Compensation Committee. During 2015, the Compensation Committee used Frederic W. Cook & Co., Inc. (‘‘Cook & Co.’’) to render the following services:

Attend committee meetings at the request of the Compensation Committee;

Advise the Compensation Committee on market trends, regulatory issues and developments and how they may impact our executive compensation programs;

Review the compensation strategy and executive compensation programs for alignment with our strategic business objectives;

Advise on the design of executive compensation programs to ensure the linkage between pay and performance;

Provide market data analyses to the Company;

Advise the Compensation Committee and the Board on setting the Chairman and CEO pay;

Review the annual compensation of the other NEOs as recommended by the CEO; and

Perform such other activities as requested by the Compensation Committee.

The Compensation Committee has the sole authority to approve the terms of Cook & Co.’s engagement. Cook & Co. did not provide any services to the Company other than executive compensation consulting services during 2015.

In compliance with SEC and NYSE requirements regarding the independence of compensation consultants, Cook & Co. provided the Compensation Committee information regarding any personal, financial, or business relationships between Cook & Co. and the Company, its management or the members of the Compensation Committee that could impair its independence or present a conflict of interest. Based on its review of this information, the Compensation Committee determined that there were no relationships that impair the independence or create a material conflict of interest between the Company and Cook & Co. and the partners, consultants, and employees who service the Compensation Committee on executive compensation matters and governance issues.

Compensation Peer Group

For 2015, management recommended and the Compensation Committee approved a new peer group. We selected companies similar in overall size to Navistar with consideration being given to companies that meet one or more of the following criteria:

Included in Navistar’s primary Global Industry Classification Standard (GICS®) sub-industry (Construction & Farm Machinery & Heavy Trucks — 20106010);
Midwest location;
Names Navistar as a peer group company;
Similar gross margins; and
Consideration of the prior year’s peer group.

One company was removed (TRW Automotive Holdings) due to its acquisition. One company was added (Trinity Industries) because the company meets several criteria as outlined above. We ended up with a total of 20 companies in the new peer group compared to the peer group last year.

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Navistar’s 2015 peer group consists of the following 20 companies:
Company Name
Trailing 4Q Net Revenue
($ mil.)
Latest Quarter Total Assets
($ mil.)
9/30/14 Enterprise Value ($ mil.)
Composite Percentile Rank
PACCAR
$
17,848

$
20,907

$
25,782

95
%
Cummins
$
18,118

$
15,500

$
23,586

89
%
Illinois Tool Works
$
14,410

$
19,936

$
35,387

89
%
Goodyear
$
18,918

$
16,942

$
11,343

82
%
Delphi
$
16,926

$
11,452

$
19,660

77
%
Parker-Hannifin
$
13,216

$
13,274

$
17,070

74
%
Textron
$
12,762

$
15,135

$
13,490

70
%
Lear
$
17,119

$
8,962

$
7,136

63
%
Dover
$
8,394

$
8,795

$
15,479

61
%
BorgWarner
$
7,973

$
7,457

$
12,491

47
%
Navistar
$
10,549

$
7,702

$
6,722

47
%
AGCO
$
10,419

$
8,469

$
5,166

47
%
Masco
$
8,373

$
7,227

$
10,531

46
%
Trinity Industries
$
5,312

$
8,014

$
9,351

35
%
Terex
$
7,279

$
6,705

$
5,059

30
%
Tenneco
$
8,329

$
4,317

$
4,226

19
%
Joy Global
$
3,826

$
5,591

$
6,316

18
%
SPX
$
4,714

$
6,441

$
4,797

18
%
Visteon
$
7,191

$
5,649

$
3,908

18
%
Oshkosh
$
6,867

$
4,811

$
4,128

12
%
Dana Holding
$
6,691

$
5,212

$
3,445

9
%
75th Percentile
$
15,039

$
13,740

$
15,877



Mean
$
10,734

$
10,040

$
11,918



Median
$
8,383

$
8,242

$
9,941



25th Percentile
$
7,110

$
6,243

$
4,994



Navistar Rank
58
%
44
%
39
%



With respect to the above table, please note as follows:

All financial and market data are taken from Standard & Poor’s Compustat Service.

Revenue excludes non-operating income, gain on sale of securities or fixed assets, discontinued operations, excise taxes and royalty income.

All data shown as reviewed by the Compensation Committee at the time of the Peer Group approval.

External Market Compensation Review

The Compensation Committee reviews various components of our executive compensation program to ensure that (i) pay opportunities are competitive with the external market, (ii) there is an appropriate link between performance and pay and (iii) the program supports our stated compensation philosophy.

In 2015 our Compensation Committee reviewed total compensation levels and mix relative to a 20-company peer group and broader industry surveys published by Aon Hewitt and Towers Watson. Survey data is statistically regressed to recognize the different sizes of the participating organizations (based on annual revenues) as compared to the size of Navistar. Please refer to Appendices A and B of this proxy statement for a list of participants in Aon Hewitt’s 2015 U.S. Total Compensation

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39


Measurement (‘‘TCM’’) Executive Regression and Towers Watson’s 2015 CDB General Industry Executive Compensation Survey Report — U.S. Surveys.

We maintain our compensation philosophy of targeting the 50th percentile (market median), for base salary, short-term incentives, and long-term incentives. We consider an NEO to be within the competitive range if his base salary is within 80 to 120 percent of the market median. Under special circumstances, when we are recruiting for critical roles, we may target an NEO’s salary to a higher level.

Elements of Total Direct Executive Compensation
Pay Element
What it Does
Performance Measures
Base Salary
Provides competitive base salary, typically reviewed annually, balances risk-taking concerns with stockholder interests
Job scope, experience, performance and market data
Short-term Annual Incentive or AI
Provides a competitive incentive opportunity, aligns individual, business unit and company performance
The goals established for 2015 include cost, revenue, cash and quality.
Long-Term Equity Incentives or LTI (including stock option grants)
Aligns executive and stockholder interests by tying compensation to share price appreciation, builds long-term stockholder value, cultivates stock ownership
2015 LTI awards were adjusted for each executive based upon an evaluation of both individual performance in addition to the individual's potential contribution to the organization

Chief Executive Officer Total Direct Compensation or "TDC"

Mr. Troy A. Clarke was named as the President and CEO in April 2013. The Board, with the assistance of the independent compensation advisor, reviewed CEO pay levels of our peer group, as well as those of other manufacturing organizations with similar revenues. Consistent with our compensation philosophy and the market review for other company chief executive officers, the Compensation Committee targeted total compensation at the market median but believed the pay for the President and CEO should be weighted with the greatest emphasis on performance.

Mr. Clarke’s compensation is specifically structured to focus on performance over the longer term as part of our turnaround strategy. Mr. Clarke’s compensation package was negotiated with significant input from our stockholder-nominated directors.

In general, our practice excludes the use of employment contracts. However, in connection with Mr. Clarke's appointment to President and CEO, we entered into a three-year employment and services agreement with him (the "Employment Agreement"). The following table summarizes the material terms of the Employment Agreement.


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Contractual Terms
Annualized
Pay Element
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2013
Fiscal 2014
Fiscal 2015
Annual Base Salary
$900,000
$900,000
$900,000
$900,000
$900,000
$900,000
Short-term Annual Incentive or AI(1)
$324,000
$688,500
$324,000
$688,500
Long-Term Incentive / COO(2)
$2,563,033
$2,563,033
Long-Term Incentive / CEO(2)
$10,602,643
$3,659,358
$4,754,000

$4,754,000
$4,754,000
Total Direct Compensation
$14,389,676
$4,559,358
$1,588,500
$8,541,033
$5,654,000
$6,342,500
Other Benefits
Life insurance equal to five times base salary, vacation equal to four weeks, Annual flexible perquisite payment of $46,000
Severance Provisions
Severance provisions that provide for a severance payment equal to the sum of: (i) two times Mr. Clarke's base salary, (ii) the amount of his target AI award, and (iii) a pro-rated portion of his AI award at the time such payments are made to the employees generally, in the event that Mr. Clarke is terminated without Cause or due to constructive termination (other than in connection with a Change in Control). Severance provisions that provide for a severance payment equal to the sum of: (i) two times Mr. Clarke’s base salary, (ii) the amount of his target AI award, and (iii) a pro-rated portion of his AI award paid at the time of his termination, in the event that Mr. Clarke is terminated without Cause or due to constructive termination within 24 months after a Change-in-Control of the Company (or during the 90 days preceding the date of a Change-in-Control).

(1)
AI paid at 40% of target (target is 90% of base salary) for 2013; No AI paid for 2014; and 85% of target for 2015.

(2)
At the time of Mr. Clarke’s promotion from Chief Operating Officer (‘‘COO’’) to CEO, he was awarded a significant equity grant of stock options in lieu of future grants under the Company’s 2014, 2015, and 2016 LTI plan; however, half of the options granted are subject to a 125% premium exercise price and/or EBITDAPO and market share goals. The time vesting stock options are scheduled to vest at the rate of 33 1⁄3% on each of the first three anniversaries, and performance vesting stock options vest as the performance goals pre-established by the Compensation Committee are satisfied. The value excludes Premium Share Units in the amount of $46,017 awarded in conjunction with the Executive Stock Ownership Program. Premium shares have been discontinued effective November 1, 2013.


CEO Performance Evaluation

Traditionally, each year in December, the Compensation Committee and the independent members of the Board evaluate the CEO’s performance for the prior year. This review is based on the CEO’s achievement of goals set for the start of that year. The CEO presents this information solely to the independent members of the Board, who then discuss it in executive session without the CEO being present. The independent members’ evaluation of the CEO’s performance then forms the basis for the decision on the CEO’s short-term incentive award under our AI plan for the prior year and base salary for the new year. The Chairman of the Compensation Committee then informs the CEO of the performance evaluation and any compensation decisions resulting from that evaluation.












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In December 2015, the independent members of the Board discussed and evaluated Mr. Clarke's accomplishments as CEO. These accomplishments included:
Continued to build leadership and develop leadership team;
Continued pursuit of strategic options;
Competed execution of engine strategy migration;
Increased dealer performance and engagement;
Achieving product differentiation through uptime;
Restructured global entities;
Completed successful UAW collective bargaining agreement;
Finalized Class 4/5 agreement with GM;
Exceeded operational cost reductions; and
Met key dates related to product launches.

At the recommendation of the Compensation Committee, an AI award in the amount of 85% of target will be paid to Mr. Clarke. His AI award will be paid 50% in cash and 50% in cash-settled RSUs that vest over a three year period at 60% (year 1), 30% (year 2) and 10% (year 3).
   
Mr. Clarke's primary goal for 2016 is to continue improving the Company's financial performance. In December 2015, the Compensation Committee approved Mr. Clarke's CEO goals for 2016 which are to deliver the Company's operating plan through, maintaining revenue, reducing cost, meeting cash-level targets, and improving quality. The initiatives supporting these goals include improving market share, pursuing strategic opportunities, strengthening the Company's balance sheet, successful product launches, and focusing on the development of Navistar leadership.

Summary of the Executive Salary Planning Approval Process for 2015

The CEO reviews and approves and/or adjusts all base salary recommendations for executive officers other than his own and recommends to the Compensation Committee the base salary for most Section 16 officers.

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

The Compensation Committee then recommends, and the independent members of the Board approve or adjust, the salary recommendation for the CEO.

Consistent with pay-for-performance principles, in 2015, base salary performance increases were based upon NEO and Company performance. The table below summarizes the base salaries for our NEOs in 2015 as well as their previous base salaries.

NEO 2015 Base Salary
NEO
Current Base Salary
Effective Date
Previous
Base Salary
Effective Date
Troy A. Clarke(1)
$
900,000

April 15, 2013
$
775,000

August 27, 2012
Walter G. Borst(2)
$
721,000

February 11, 2015
$
700,000

August 13, 2013
William R. Kozek(3)
$
575,000

November 6, 2014
$
520,000

July 1, 2014
Persio V. Lisboa(3)
$
525,000

November 6, 2014
$
393,120

July 1, 2014
Steven K. Covey(2)
$
598,000

February 11, 2015
$
575,000

January 1, 2012
John J. Allen(4)
$
740,000

April 16, 2013
$
660,000

November 1, 2012
(1)
Appointed as President and Chief Executive Officer effective April 15, 2013.

(2)
Base salary increase due to an evaluation of performance effective February 11, 2015.

(3)
Base salary increase due to promotion to new role effective November 6, 2014.

(4)
Mr. Allen had a termination date of January 1, 2015 as a result of a position elimination.



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Goal Setting For Incentive Plans

On an annual basis, the Board reviews a multi-year strategic plan developed and presented by the management team. Based on that plan, an operating plan is developed for the subsequent year and reviewed by the Board. The Compensation Committee approves the AI plan targets on the basis of the annual operating plan, and the LTI plan targets on the basis of the strategic plan.

The operating plan is based upon returning the Company to profitability and competitiveness with the market and the strategic plan incorporates long-term growth targets.

Annual Incentive or "AI"

Navistar provides its executives with an annual incentive compensation opportunity through the AI plan, a short-term incentive plan designed to align a significant portion of their total cash compensation with the overall financial performance of the Company. Each executive’s target award is determined based on a percentage of their base pay and organization level. For 2015, Mr. Clarke’s target annual incentive opportunity is 90% of base salary. For other NEOs, target awards range from 65 to 75 percent of base salary.

2015 Annual Incentive

The AI plan for 2015 was based on the attainment of 100% corporate goals established and approved by the Compensation Committee. The AI plan is authorized under our stockholder approved 2013 Performance Incentive Plan (the ‘‘2013 PIP’’). The AI plan has threshold, target, and distinguished performance payout levels for executive officers, which range from 40% to 150% of target. Consolidated financial results between performance levels are interpolated on a straight-line basis to determine payment amounts.

Each AI financial performance metric is independent. Eligibility for payout is based on the attainment of each individual metric.

We have been through a tremendous business transformation over the past three years, and we have made great strides in positioning Navistar to be successful in the future.

Employees have enabled this change, and the challenge in building on our success is keeping the employee population engaged. Our 2015 AI plan focused on our employees achieving key strategic performance metrics, a quick start with an emphasis on attaining higher than normal achievement levels in a traditionally low profitability Q1 and helping the organization meet earnings targets in Q4. These were referred to as the Q1 and Q4 "kickers."

The AI Q1 and Q4 "kickers" focused the organization on a quick start and a strong finish, which provided for an opportunity to earn an additional 25% of the target AI (12.5% in Q1 and 12.5% in Q4) for each employee. Eligibility for the Q1 and Q4 ‘‘kickers’’ was based upon the attainment of predetermined quarterly financial earnings goals as approved by the Compensation Committee and was not contingent upon the Company achieving a minimum EBITDA for 2015. Payment amounts for each quarter are prorated between the threshold and target levels of goal achievement.

In addition, we implemented an annual AI scorecard using multiple performance metrics with independent performance. This allowed the transparency and flexibility for employees to see how their individual achievements contribute to the overall effort and success of the Company.


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Below is a summary of the 2015 AI performance goals, associated performance metrics, and level of goal achievement
Performance Goal %
Target Allocation
% Allocation
Level Achieved
Cost — 25%
Materials Year-Over-Year Cost Reductions
10%
Distinguished
Manufacturing Year-Over-Year Cost Reductions
5%
Target
SG&A Cost Reductions
5%
Distinguished
Reductions in Product Development Spending
5%
Distinguished
Revenue — 30%
Market Share Improvements
10%
Below Threshold
Pricing Improvements
10%
Below Threshold
Parts EBIT Improvement
5%
Threshold
Global EBIT Improvement
5%
Below Threshold
Cash — 25%
Manufacturing Working Capital Reductions
10%
Target
Used Truck Inventory Reductions
10%
Below Threshold
Capital Expenditures Reductions
5%
Distinguished
Quality — 20%
Reductions in Warranty Expenditures
10%
Distinguished
Uptime Increase
5%
Target
First Time Quality
5%
Distinguished

In addition, we achieved the additional Q1 "kicker" but did not achieve the Q4 "kicker".

2015 Annual Incentive Target Award Percentages and Amount Earned

Navistar met the 2015 AI plan targets for many of the performance goals as shown in the table above, with an overall payout percentage of 85% of target which includes the Q1 kicker and a downward adjustment approved by the Compensation Committee upon the recommendation of management. Below are the NEO payment amounts based upon 85% of target payouts.
Named Executive Officer
Target as %  of Base Salary
2015 AI Amount
Earned
Troy A. Clarke
90%
$
688,500

Walter G. Borst
75%
$
459,638

William R. Kozek
75%
$
366,563

Persio V. Lisboa
75%
$
334,688

Steven K. Covey
65%
$
330,395

John J. Allen(1)
75%
$
78,625


(1)
Mr. Allen received a pro-rated AI award based on his 2 months of service prior to his termination on January 1, 2015.

Our current executives will receive 50% of their AI award in cash and 50% of their AI award to be paid in cash-settled Restricted Stock Units (RSUs) that vest over a three year period at 60% (year 1), 30% (year 2), and 10% (year 3). This payment mix reinforces our pay for performance philosophy and aligns our executive compensation to focus on our long-term strategy and align with stockholder interest.

2016 Annual Incentive

In 2016, we will build on our progress and expect to achieve profitability by investing in great high-quality products, improving brand consideration, and delivering unique connected services. Our strategic direction focuses on implementing a customer-centric strategy, new product launches, financial performance and profitable improvements in market share.

Due to our success in driving business results in 2015, we leveraged this scorecard concept that focused our attention on multiple performance metrics and developed a similar scorecard for 2016 that enables our strategy and drives results for our employees, customers and stockholders. The table below illustrates the 2016 AI performance goals and metrics.

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2016 Annual Incentive Targets
2016 Performance Goal
% Target Allocation
EBIT
20%
Truck EBIT
10%
Parts EBIT
10%
Market Share
30%
Heavy
10%
Medium
10%
Bus
5%
Severe Service
5%
Cost
25%
Material Year Over Year
10%
Manufacturing Year over Year
5%
Structural Costs (excluding Annual Incentive)
10%
Cash
15%
Working Capital (excluding Used Truck Inventory)
5%
Gross Used Truck Inventory
10%
Quality
10%
Warranty Cash Spend
10%

Two additional 2016 AI key design features are:

An adjusted EBITDA multiplier which will scale the annual incentive up or down from the target level based upon actual financial performance of Navistar. Furthermore, this multiplier will be zero if actual financial performance is below the threshold level for EBITDA; and

An individual performance factor.

The final payout as a percent of target will be calculated based upon level of attainment of the performance metrics multiplied by the adjusted EBITDA multiplier and the individual performance factor. Payout levels will be interpolated on a straight line basis between threshold, target, and distinguished levels.

Long-Term Incentives or "LTI"

Our objectives for including long-term incentives as part of our executive officer’s total compensation package include:

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

Building long-term stockholder value; and

Cultivating stock ownership.

LTI awards are governed by the 2013 PIP, which is an omnibus plan that allows for various awards such as cash, time and performance based stock options, stock appreciation rights, time and performance based RSUs, PSUs, DSUs and performance shares.

The Compensation Committee approved LTI awards under the 2013 PIP for 2015 for eligible plan participants in February 2015. LTI awards granted to executives in 2015 were 100% performance based and included a mix of 50% performance-based stock options and 50% performance share units as indicated in the following table.

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Vesting
Term
Performance Measures
Performance Vesting Criteria
Performance Stock Options (50%)
3 year cliff
7 year exercise term
Adjusted EBITDA Margin
Based on the Company's average EBITDA over the three year performance period beginning on November 1, 2014 and ending on October 31, 2017
Revenue Growth
Based on the increase in yearly Revenue Growth for fiscal years 2015, 2016 and 2017 - and a Cumulative Revenue Growth based on the increase in fiscal year 2017 revenue vs. fiscal year 2014 revenue
Performance Share Units (50%)(1)
3 year cliff
N/A
Adjusted EBITDA Margin
Based on the Company's average EBITDA over the three year performance period beginning on November 1, 2014 and ending on October 31, 2017
 
Revenue Growth
Based on the increase in yearly Revenue Growth for fiscal years 2015, 2016 and 2017 - and a Cumulative Revenue Growth based on the increase in fiscal year 2017 revenue vs. fiscal year 2014 revenue

(1) Cash settled unless the Company elects to settle in shares.

2015 Long-Term Incentive Awards

The following table summarizes our 2015 long-term incentive grant for our NEOs.
NEO
Performance Stock Options
Cash-Settled Performance Share Units
Targeted Economic
Value
Troy A. Clarke(1)
Walter G. Borst
99,810
37,947
$2,100,000
William R. Kozek
66,540
25,298
$1,400,000
Persio V. Lisboa
66,540
25,298
$1,400,000
Steven K. Covey
47,529
18,070
$1,000,000
John J. Allen(2)
(1)
As previously noted, the President and CEO will not participate in the LTI plan for 2015. Per the terms of his Employment Agreement, he is not eligible for additional LTI plan awards for the duration of that agreement. In connection with Mr. Clarke’s promotion to President and CEO, effective April 15, 2013, he was awarded an equity grant of stock options in lieu of future grants under the Company’s 2014, 2015, and 2016 LTI plan. Half of the options granted are subject to a 125% premium exercise price and/or EBITDAPO and market share goals. The time vesting stock options are scheduled to vest at the rate of 331⁄3% on each of the first three anniversaries and performance vesting stock options vest as the performance goals pre-established by the Compensation Committee are satisfied. Mr. Clarke received a significant portion of the award in 2013 and on March 10, 2014, Mr. Clarke received the balance of his award in the amount of $3,659,358 or 270,024 shares.
(2)
Mr. Allen was not eligible to receive any LTI plan awards due to his termination of employment on January 1, 2015.








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46


Executive Benefits and Perquisites

The following table summarizes the executive benefits and perquisites we provide to our NEOs:
NEO
Life Insurance(1)
Executive Flexible Perquisite Program(2)
Pension/Retirement/401(k) Plans(4)
Retiree Medical Benefits and Retiree Life Benefits(5)
RPSE
MRO
RAP
SRAP
SERP
Troy A. Clarke



Walter G. Borst



William R. Kozek



Persio V. Lisboa



Steven K. Covey
John J. Allen
(1)
Life Insurance. We provide our executives Company-paid life insurance equal to five times base salary. The beneficiary of each individual policy is as designated by the executive.
(2)
Executive Flexible Perquisites. This provides a cash stipend to each of our NEOs, the amount of which varies by executive, based upon the executive’s organization level. In certain circumstances, where a commercial flight is not available to meet an NEOs travel schedule, our NEOs and directors are authorized to use chartered aircraft for business purposes only. Our NEOs did not use chartered aircrafts in 2015. A spouse may accompany an NEO while he is traveling on Company business. Although this occurs on a limited basis, the spouse’s travel expense is included in taxable compensation of the NEO.

Executive Flexible Perquisite — 2015
Named Executive Officer
Annual Flexible
Perquisite Payment ($)
Troy A. Clarke
46,000
Walter G. Borst
37,000
William R. Kozek
37,000
Persio V. Lisboa
37,000
Steven K. Covey
28,000
John J. Allen(3)
18,500
(3)
Mr. Allen received a perquisite payment, paid in November 2014, which was his last payment due to his departure date of January 1, 2015.
(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. These plans are as follows:

Retirement Plan for Salaried Employees (‘‘RPSE’’). This is our tax-qualified defined benefit pension plan for salaried employees hired prior to January 1, 1996.
Managerial Retirement Objective Plan (‘‘MRO’’). 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 IRC limitations had not applied to the RPSE.
Retirement Accumulation Plan (‘‘RAP’’). This is our tax-qualified defined contribution/401(k) plan for salaried employees. Our NEOs receive age-weighted contributions and/or matching contributions depending on their eligibility for other retirement income programs and retiree medical coverage.
Supplemental Retirement Accumulation Plan (‘‘SRAP’’). This is our non-qualified deferred compensation plan designed primarily to restore the contributions that participants would otherwise have received if the IRC limitations had not applied to the RAP.
Supplemental Executive Retirement Plan (‘‘SERP’’). This is designed as a pension supplement to attract and retain key executives. The SERP is unfunded and is not qualified for tax purposes.
Effective January 1, 2014, Messrs. Allen and Covey are eligible for the SRAP. Accruals under the MRO were frozen as of December 31, 2013. Future benefits will accrue under the SRAP for these executives.

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 of this proxy statement.

(5)
Retiree Medical Benefits and Retiree Life Insurance Coverage. Certain represented and non-represented employees, including certain NEOs, are eligible for retiree medical benefits and retiree life insurance coverage as part of a 1993 court approved settlement restructuring of our postretirement health care and life insurance benefits. Non-represented employees hired on or after January 1, 1996, including our NEOs, other than Mr. Allen and Mr. Covey, are not eligible for retiree medical benefits or retiree life insurance coverage under the 1993 settlement agreement or any other program.



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47


Executive Stock Ownership Program

Our stock ownership guidelines are designed to increase an executive’s equity stake in Navistar and more closely align his or her financial interests with those of the Navistar’s stockholders. At year end 2015, our stock ownership guidelines applied to 32 executives, all of whom hold the title of vice president and above.

The Compensation Committee approved an Executive Stock Ownership Program effective November 1, 2013 which increased stock ownership guideline multiples to six times salary for the President and CEO and three times salary for other senior executives and has the following features:

A requirement that executives retain a certain amount of shares received pursuant to Company executive compensation programs (75% for the CEO and 50% for other executives) until the executive satisfies the stock ownership guideline multiples described above;

A one-year holding period (75% for the CEO and 50% for other executives for one year) of shares received pursuant to Company executive compensations programs after the executive satisfies the stock ownership guideline multiples described above;

Eliminated the required time frame to fulfill stock ownership guidelines; and

Eliminated premium shares granted as an inducement to executives to fulfilling stock ownership guidelines on an accelerated basis.

Hedging and Pledging

The Company considers it improper and inappropriate for executives to engage in short-term or speculative transactions in Company securities. Navistar’s policy on transactions in securities prohibits executives from short selling and trading in derivatives. All pledges, hedges, and margin account use must be pre-cleared through the Corporate Secretary or the General Counsel.

Recoupment (Clawback) Policy

The Company maintains a clawback policy. Under this policy, the Company may recover incentive-based compensation from an executive officer in the event of an accounting restatement due to material non-compliance with financial reporting requirements, as well as intentional misconduct.

Employment Contracts and Executive Severance Agreements

Except for our President and CEO, Troy A. Clarke, we do not have employment contracts with our executive officers. Employment with each of them is ‘‘at will.’’ However, like many companies, to ensure stability and continuity of management, we provide our executive officers with an Executive Severance Agreement (an ‘‘ESA’’), which provides for severance benefits in the event of a specified termination event such as an involuntary termination or a termination in connection with a change in control. Please refer to the Potential Payments Upon Termination or Change-in-Control section of this proxy statement for more information. A summary of Mr. Clarke’s Employment Agreement appears in the Chief Executive Officer Compensation section of this proxy statement.

Tax and Accounting Implications

Policy on Deductibility of Compensation

Section 162(m) of the Internal Revenue Code ("IRC") 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 taxable year. However, this provision does not apply to performance-based compensation that satisfies certain legal requirements, including income from certain stock options and certain formula driven compensation. In general, the Compensation Committee has considered the effect of the IRC limitation and has structured AI plan awards and LTI plan awards to NEOs in a manner intended to be exempt from the limitation. However, under certain circumstances the Compensation Committee may decide to grant compensation that is outside of the limits.

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48


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 for 2015, 2014 and 2013:

Summary Compensation Table
Name and Principal  Position
Year
Salary
($)
Bonus
($)
Stock Awards 
($)(1)
Option Awards ($)(2)
Non-Equity
Incentive
Plan Comp
($)
(3)
Change in
Pension
Value & Non-
Qualified
Deferred  Comp
 
Earnings 
($)(4)
All Other
Comp
 
($)(5)
Total
($)
Troy A. Clarke 
President and Chief
Executive Officer
2015
900,000
688,500
334,546
159,605
2,082,651
2014
900,000
3,607,507
721,284
134,428
5,363,219
2013(6)
843,182
1,333,352(7)
11,878,341
324,000
1,554
147,429
14,527,858
Walter G. Borst 
Executive Vice President
and Chief Financial Officer
2015
715,750
1,049,994
1,052,996
459,638
219,993
141,668
3,640,039
2014
700,000
425,000(8)
1,150,005
1,134,158
525,000
991,008
117,320
5,042,491
2013
175,000
500,000(9)
2,949,722(10)
1,000,001
525,000
1,439,225
1,332,006
7,920,954
William R. Kozek 
President, Truck and Parts
2015
575,000
699,996
701,998
366,563
570
107,830
2,451,957
Persio V. Lisboa 
President, Operations
2015
525,000
699,996
701,998
334,688
179,996
76,331
2,518,009
Steven K. Covey 
Senior Vice President and General Counsel
2015
592,250
499,996
501,431
330,395
438
94,027
2,018,537
2014
575,000
399,991
394,487
122,704
61,741
1,553,923
2013
575,000
411,951
408,227
149,500
43,238
1,587,916
John J. Allen Former Executive Vice President and Chief Operating Officer
2015
123,333
78,625
245,952
2,685,995
3,133,905
2014
740,000
875,004
862,952
631,159
68,271
3,177,386
2013
703,333
1,906,663
892,986
222,000
53,271
3,778,253
(1)
The amounts reported in this column reflect the aggregate fair value of stock-based awards (other than stock options) granted in the year computed in accordance with FASB ASC Topic 718, except that in compliance with SEC requirements, for awards that are subject to performance conditions, we reported the value at the grant date based upon the probable outcome of such conditions. These amounts may not be paid to or realized by the officer. The fair values of stock-based awards are estimated using the closing price of our stock on the grant date. Stock-based awards settle in common stock on a one-for-one basis, or the cash equivalent of the common stock. The grant date fair values of each individual stock based award in 2015 are set forth in the 2015 Grant of Plan Based Awards table on page 51 of this proxy statement. Additional information about these values is included in Note 19 to our audited financial statements included in our Form 10-K for 2015. In February 2015, we granted performance shares to all of our NEOs, except for Mr. Clarke. The performance conditions are measured at the end of the third fiscal year following the grant date and vest as long as performance conditions and service requirements have been met. The February 2015 Performance Awards were evenly divided between Revenue Growth Performance targets and EBITDA Margin Performance Goals. Our NEOs only earn performance shares if average earnings before interest, taxes, depreciation, and amortization over a three year performance period (EBITDA Margin) meet certain target levels or if certain Revenue Growth targets over a three year period are met. Potential payouts range from 0% to 200% of the target values of these awards. The amounts in this table assume achievement at target level (100% payout). Assuming performance at the highest level, the aggregate grant date values of the stock awards for each of our NEOs who received a performance share award were as follows: $2,099,987 for Mr. Borst; $1,399,991 for Mr. Kozek; $1,399,991 for Mr. Lisboa; and $999,994 for Mr. Covey.
(2)
The amounts reported in this column reflect the aggregate fair value of performance stock options, granted in the year computed in accordance with FASB ASC Topic 718, except that in compliance with SEC requirements, we reported the value at the grant date based upon the probable outcome of such conditions. These amounts may not be paid to or realized by the officer. Assumptions used in the calculation of these values are included in Note 19 to our audited financial statements included in our Form 10-K for 2015. A description of stock options appears in the narrative text on page 51 of this proxy statement following the 2015 Grants of Plan-Based Awards table. All of our NEOs, except for Mr. Clarke, received performance stock options in February 2015 which were evenly divided between Revenue Growth Performance targets and EBITDA Margin Performance goals and vest three years from the date of grant if certain EBITDA Margin and Revenue Growth targets over a three year period are met. The grant date fair value amounts for these awards assumed the highest level of performance condition would be met.
(3)
The amounts reported in this column represent the fiscal 2015 AI Plan award payment based on 85% of target. Awards will be paid in early February 2016 as a mix of 50% cash and 50% cash-settled RSUs unless the Company elects to grant share-settled RSUs. The portion of the award paid in RSUs will vest over a three year period at 60% (year 1), 30% (year2), and 10% (year 3).
(4)
This amount represents the change in the actuarial present value of the RPSE and MRO for Messrs. Allen and Covey. This amount represents the change in actuarial present value of the SERP for Messrs. Clarke, Borst, Kozek and Lisboa. These amounts also represent the difference in the market interest rate under the IRC and the interest crediting rate of 7.5% per annum compounded on a daily basis on the SRAP for Messrs. Clarke, Borst,

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Kozek, Lisboa, Covey and Allen. The 7.5% is the rate used to design the SRAP as a comparable replacement for the MRO. The interest credit rate constitutes an ‘‘above-market interest rate’’ under the IRC.
(5)
The table above under "All Other Compensation" reflects the following items: flexible perquisites cash allowances; Company-paid life and AD&D insurance premiums; Company contributions to the RAP and the SRAP; relocation; taxable spouse travel; smart phone stipends payments; and other miscellaneous compensation to the NEOs in 2015.
NEO
Flexible
Perquisites
Company
Paid Life
and AD&D Insurance
RAP
SRAP
Relocation
Taxable
Spouse
Travel
Smart
Phone
Stipend
 Other
Comp
Total
Clarke