EXHIBIT 10.3

NAVISTAR INTERNATIONAL CORPORATION

FORM OF CASH SETTLED PERFORMANCE-BASED

STOCK UNIT AWARD

NOTICE AND AGREEMENT

2004 PERFORMANCE INCENTIVE PLAN

GRANTEE:

ADDRESS:

 

PERFORMANCE PERIOD:    [            TIME PERIOD            ]   
TARGET PERFORMANCE STOCK UNITS:    xxxxx    PERFORMANCE MEASURE:    TOTAL
SHAREHOLDER RETURN    DATE OF GRANT:    [            DATE            ]   

Navistar International Corporation, a Delaware corporation (the “Corporation”),
is pleased to confirm that you (the “Grantee”) have been granted a Cash Settled
Performance Based Stock Unit Award (this “Award”), effective as of the Date of
Grant set forth above (the “Grant Date”). This Award is subject to the terms and
conditions of this Cash Settled Performance Based Stock Unit Award Notice and
Agreement (this “Agreement”) and is granted pursuant to the Corporation’s 2004
Performance Incentive Plan, as may be amended from time to time (the “Plan”);
which is incorporated into and made a part of this Agreement. Any capitalized
terms used in this Agreement that are otherwise not defined herein shall have
the same meaning prescribed under the Plan.

1. Acceptance of Terms and Conditions. By accepting this Award, the Grantee
agrees to be bound by the terms and conditions of this Agreement, and any and
all conditions established by the Corporation in connection with the Award and
understands that this Award does not confer any legal or equitable right (other
than those constituting the Award itself) against the Corporation or any of its
subsidiaries (collectively, the “Navistar Companies”), directly or indirectly,
or give rise to any cause of action at law or in equity against the Navistar
Companies.

2. Performance Period. The initial Performance Period for this Award shall
commence on [DATE] and shall end on [DATE]. If certain performance criteria are
not met, as described in Section 6 b below, an additional Performance Period
will commence on [DATE] and shall end on [DATE].

3. Grant of Cash Settled Performance Based Stock Unit. Subject to the
restrictions, limitations, terms and conditions specified in the Plan, the
Prospectus for the Plan (the “Prospectus”), and in this Agreement, the
Corporation, in the exercise of its sole discretion hereby grants this Award to
the Grantee as of the Grant Date listed above. The number of Target Cash Settled
Performance Based Stock Units (the “Stock Units”) granted are deemed the target
shares used to calculate the number of actual Stock Units awarded, if any, and
upon issuance will be used solely to calculate the cash payout, if any, awarded
to the Grantee in accordance with this Award Agreement, and do not create any
separate rights or entitlements. A single Stock Unit represents the right to
receive the cash value of one share of the Corporation’s Common Stock, $0.01 par
value per share (“Common Stock”), provided that certain Performance Measures as
detailed in Section 4 and 5 below are achieved.

4. Vesting Requirements. The vesting of this Award shall be subject to the
satisfaction of the conditions set forth in subsections a and b of this
Section 4:

 

  a. Service Vesting Requirement. Except as otherwise provided herein, the right
of the Grantee to receive payment of this Award, if any, shall become vested
only if he or she remains continuously employed by the Navistar Companies from
the Date of Grant of the Award until the end of the initial Performance Period,
[DATE].

 

1

--------------------------------------------------------------------------------

 

  b. Total Shareholder Return Test. The vesting of the stock units subject to
this Award shall be conditioned upon the satisfaction of a performance vesting
requirement based on the Relative Total Shareholder Return (“TSR”) of the
Corporation as compared to the TSR of the Corporation’s 23 peer companies, as
listed on Appendix A (the “Peer Group”) with respect to Performance Period
listed in Section 3 above.

5. Relative TSR Performance.

 

  a. Earning of Award. The extent to which the Grantee will receive Stock Units
is based on the Corporation’s TSR Percentile Ranking for the Performance Period
based on the following chart:

Outcome Relative to Peer Group TSR

 

Navistar Three-Year

Percentile Ranking in TSR

   Percentage of Stock Units
Earned  

Below 30th Percentile

     0 % 

30th Percentile

     0 % 

40th Percentile

     50 % 

50th Percentile

     100 % 

75th Percentile

     150 % 

90th Percentile and Higher

     200 % 

Note: Interpolation between points will be made on a straight line basis on each
scale.

 

  b. Calculation of TSR.

 

“TSR”    =           Change in Stock Price + Dividends Paid     Beginning Stock
Price  

 

  i. Beginning stock price shall mean the average of the Closing Prices for each
of the 90 trading days immediately prior to the first trading day of the
Performance Period;

 

  ii. Ending Stock Price shall mean the average of the Closing Prices for each
the last 90 trading days of the Performance Period;

 

  iii. Change in Stock Price shall equal the Ending Stock Price minus the
Beginning Stock Price;

 

  iv. Dividends Paid shall mean the total of all dividends paid on one share of
stock during the Performance Period, provided that dividends shall be treated as
though they are reinvested;

 

  v. Closing Price shall mean the last reported sale price on the applicable
stock exchange or market of one share of Common Stock for a particular trading
day;

 

  vi. In all events, TSR shall be adjusted to give effect to any stock
dividends, stock splits, reverse stock splits and similar transactions.

 

  c. Calculation of Corporation’s TSR Percentile Ranking. The Corporation shall
determine (A) the Corporation’s TSR for the Performance Period and (B) the TSR
for the Performance Period of each of the companies in the Corporation’s Peer
Group, as listed on Appendix A. The Corporation’s TSR Percentile Ranking is the
percentage of TSRs of the companies in the Peer Group that are lower than the
Corporation’s TSR.

 

2

--------------------------------------------------------------------------------

6. Calculation of Stock Units Awarded. Subject to earlier forfeiture as provided
in Section 7 below, at the end of the initial Performance Period on [DATE], the
Corporation will calculate the actual number of Stock Units awarded, if any, by
using the calculations and metrics below:

 

  a. Number of Stock Units Earned. The number of Stock Units actually awarded,
if any, under the Agreement will equal the number of Target Performance Units
(as stated on page 1) subject to the Award multiplied by the applicable Percent
of Target Award achieved (as calculated in Section 5 above) by the Corporation
at the end of the Performance Period.

 

  b.

Measurement Period. If at the end of the initial three year Performance Period
[(DATE)], the Corporation’s TSR ranking, as compared to the Peer Group, is at or
above the 50th Percentile of the Peer Group, the Stock Units pay out and the
Award Agreement is terminated. However, if the Corporation’s TSR ranking, as
compared to the Peer Group, is below the 50th Percentile of the Peer Group, then
an additional Performance Period of two years, beginning on [DATE] and ending on
[DATE], will be added to the Agreement. At the end of this additional two year
Performance Period Grantee can earn up to but not more than the number of Target
Performance Units (as stated on page 1) less any amount of Stock Units paid out
at the end of the initial three year Performance Period that ended on [DATE].

7. Termination of Grantee Status as a Participant. Entitlement to the Award, and
any cash payment thereunder, is subject to the Grantee remaining continuously
employed through the last day of the Performance Period. Notwithstanding the
foregoing and any provision of Section XI of the Plan, if the Grantee terminates
employment during the Performance Period due to Retirement, as that term is
defined in the Plan, or due to death or Permanent Disability, after the end of
the Performance Period, Grantee (or in the event of death, Grantee’s estate)
will be entitled to a pro rata portion of the number of Stock Units Grantee
would have received, if any, had Grantee remained employed until the end of the
Performance Period. The pro rata portion will be based on the number of full
months in the Performance Period during which Grantee was employed as compared
to the total number of months in the Performance Period. If the Grantee
terminates employment with the Corporation for any other reason, all rights to
any Stock Units at the time of termination of employment shall be forfeited.

8. Treatment of Dividends. Notwithstanding any provisions of the Plan, the
Grantee shall not receive dividends or dividend equivalents on the Stock Units.

9. Form of Payment. Except as herein provided, after the end of the Performance
Period, Grantee shall be entitled to receive the total number of Stock Units
determined under Section 6. Each Stock Unit earned, if any, will be paid in a
lump sum cash payment, in aggregate, equal to the Fair Market Value of one share
of the Corporation’s Common Stock. The lump sum cash payment shall be paid to or
in respect of the Grantee as soon as practicable after the end of the
Performance Period, following the release of fiscal year-end earnings filed with
the SEC on Form 10-K. The stock price used for calculation of the payout of the
Awards will be the average of the high and low of the Corporation’s Common Stock
on the date of payout.

10. Tax Consequences. Upon exchange and receipt of Stock Units, if any, and the
subsequent payout, if any, of the Stock Units in cash, the full fair market
value of the Stock Units will be reported by the Corporation as employment
income to the Grantee. The Corporation will be required to withhold tax and
other amounts required by federal, state or local statute, ordinance, rule or
regulation in respect of this income. Such withholding will reduce the cash
payment made, in settlement of the Stock Units, to the Grantee. Grantee should
consult a tax advisor with respect to the tax treatment of receiving Stock Units
and subsequent settlement of the Stock Units in cash.

11. Rights as Stockholders. The Grantee shall have no rights as a stockholder of
the Company and no voting rights with respect to the Stock Units.

12. Non-Transferability. Grantee’s right in the Stock Units awarded under this
Award Agreement and any interest therein may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner, other than by will or
by the laws of descent or distribution. Stock Units shall not be subject to
execution, attachment or other process.

 

3

--------------------------------------------------------------------------------

13. Extraordinary Item: Coordination with Local Law. By voluntarily
acknowledging and accepting this Award, the Grantee acknowledges and understands
that (a) the Stock Units are an extraordinary item relating to compensation for
future services to the Navistar Companies and are not under any circumstances to
be considered compensation for past services; (b) the Stock Units are not part
of normal or expected compensation or salary for any purposes, including,
without limitation, calculating any severance, resignation, termination,
redundancy, end of service payments, bonuses, service-based awards, pension or
retirement benefits or similar payments; and (c) notwithstanding any terms or
conditions of the Plan or this Agreement to the contrary, in the event of the
Grantee’s involuntary termination of employment with the Navistar Companies, the
Grantee’s right to receive future Stock Units under the Plan and to receive
payouts of the Stock Units shall terminate as of the date that the Grantee is no
longer actively employed and will not be extended by any notice period under
local law (e.g., active employment would not include a period of “garden leave”
or similar period pursuant to local law); provided, however, that to the extent
the Grantee retains any right to continue to receive a pro rata amount of any
awarded Stock Units, if any, pursuant to and in accordance with the Plan and
this Agreement following such termination, the right to so receive such Stock
Units shall be measured from the date the Grantee terminates active employment
with the Navistar Companies and shall not be extended by any notice period under
local law.

14. No Right to Continued Employment. Neither the execution and delivery hereof
nor the granting of the Award shall constitute or be evidence of any agreement
or understanding, express or implied, on the part of the Navistar Companies to
employ or continue the employment of the Grantee for any period.

15. Confidentiality. The Grantee agrees to not disclose the existence or terms
of this Agreement to any other employees of the Navistar Companies or third
parties with the exception of the Grantee’s accountants, attorneys, or spouse,
and shall ensure that none of them discloses such existence or terms to any
other person, except as required to comply with legal process.

16. Consent to Transfer Personal Data. By accepting this Award, the Grantee
voluntarily acknowledges and consents to the collection, use, processing and
transfer of personal data as described in this Section 16. The Grantee is not
obliged to consent to such collection, use, processing and transfer of personal
data. However, failure to provide the consent may affect the Grantee’s ability
to participate in the Plan. The Corporation holds certain personal information
about the Grantee, which may include the Grantee’s name, home address and
telephone number, facsimile number, e-mail address, family size, marital status,
sex, beneficiary information, emergency contacts, passport/visa information,
age, language skills, drivers license information, date of birth, birth
certificate, social security number or other employee identification number,
nationality, C.V. (or resume), wage history, employment references, job title,
employment or severance contract, current wage and benefit information, personal
bank account number, tax related information, plan or benefit enrollment forms
and elections, equity or benefit statements, any shares of stock or
directorships in the Corporation, details of all equity awards or any other
entitlements to shares of stock awarded, canceled, purchased, vested, unvested
or outstanding in the Grantee’s favor, for the purpose of managing and
administering the Plan (“Data”). The Navistar Companies will transfer Data
amongst themselves as necessary for the purpose of implementation,
administration and management of the Grantee’s participation in the Plan, and
the Corporation may further transfer Data to any third parties assisting the
Corporation in the implementation, administration and management of the Plan.
These recipients may be located throughout the world, including the United
States of America. The Grantee authorizes such recipients to receive, possess,
use, retain and transfer the Data, in electronic or other form, for the purposes
of implementing, administering and managing the Grantee’s participation in the
Plan, including any requisite transfer of such Data as may be required for the
administration of the Plan and/or the subsequent holding of shares of Common
Stock or cash on the Grantee’s behalf to a broker or other third party with whom
the Grantee may elect to deposit any lump sum cash payment or shares of Common
Stock acquired pursuant to the Plan. The Grantee may, at any time, review Data,
require any necessary amendments to it or withdraw the consents herein in
writing by contacting the Corporate Secretary for the Corporation; however,
withdrawing the Grantee’s consent may affect the Grantee’s ability to
participate in the Plan.

17. Electronic Delivery. The Company may, in its sole discretion, decide to
deliver any documents related to Stock Units awarded under the Plan or future
Stock Units that may be awarded under the Plan by electronic means or request
Grantee’s consent to participate in the Plan by electronic means. Grantee hereby
consents to receive such documents by electronic delivery and agrees to
participate in the Plan through an on-line or electronic system established and
maintained by the Company or another third party designated by the Company.

 

4

--------------------------------------------------------------------------------

18. Amendment. Except as otherwise specified in this Agreement, this Agreement
may be amended only by a writing executed by the Corporation and the Grantee
that specifically states that it is so amending this Agreement. Notwithstanding
the foregoing, this Agreement may be amended by the Committee, without the
consent of the Grantee, by a writing that specifically states that it is so
amending this Agreement, so long as a copy of such amendment is delivered to the
Grantee, and provided that no such amendment that eliminates or adversely
affects any right or obligation of the Grantee hereunder may be made without the
Grantee’s consent. Without limiting the foregoing, the Committee reserves the
right to change, by written notice to the Grantee, the provisions of the Stock
Units or this Agreement in any way it may deem necessary or advisable to carry
out the purpose of the Award as a result of a mistake of fact or any change in
applicable laws or regulations or any future law, regulation, ruling or judicial
decisions, provided that any such change shall be applicable only to the Stock
Units that are then subject to terms or conditions of this Agreement.

19. Change of Control. In the event of a Change of Control (as determined under
the Plan), all unvested Stock Units granted under this Agreement shall be fully
awarded and paid out at 100% of Target, and payout for the Stock Units, as
described in Section 9 above, shall be made immediately, without regard to the
attainment of the Performance Measurements. The date of a Change of Control
shall be considered the payout date for purposes of this Agreement.

20. Adjustments to Shares. Notwithstanding any provision in the Plan, in the
event of any merger, reorganization, recapitalization, stock dividend, stock
split, extraordinary distribution with respect to the Corporation’s Common Stock
or other change in corporate structure affecting the Corporation’s Common Stock,
the Committee or Board of Directors of the Corporation may make such
substitution or adjustments in the aggregate number and kind of shares of the
Corporation’s Common Stock subject to the Stock Units awarded under this
Agreement, as it may determine, in its sole discretion, to prevent dilution or
enlargement of rights.

21. Compliance with Section 409A of the Internal Revenue Code. Notwithstanding
anything in this Agreement or the Plan to the contrary, to the extent this
Agreement constitutes a nonqualified compensation plan to which Internal Revenue
Code Section 409A applies, the administration of this Award (including time and
manner of payments under it) shall comply with Section 409A.

22. Mandatory Deferral to Preserve Deductibility of Payments. To the extent that
any compensation to be paid to the Grantee under this Agreement with respect to
a taxable year would exceed the amount deductible by the Corporation under
Section 162(m) of the Internal Revenue Code, such compensation automatically
shall be deferred under the terms of this Agreement and the Plan without the
necessity of an election to defer. Such amount shall be held and administered
subject to the terms of the Plan, provided that it may not be distributed to the
Grantee prior to the first taxable year in which such amounts, if paid, would be
deductible to the Corporation.

23. Severability. If any provision of this Agreement is held to be invalid,
illegal, or unenforceable by appropriate authority under the law of any
jurisdiction applicable to this Agreement, the same shall not affect, in any
respect whatsoever, the validity, legality, or enforceability of any other
provision of this Agreement, and this Agreement shall continue, to the fullest
extent permitted by law, as if such invalid, illegal, or unenforceable provision
were omitted and/or modified by such appropriate authority so as to preserve its
validity, legality, or enforceability, unless such omission or modification
would substantially impair the rights or benefits under this Agreement of the
Grantee or the Corporation.

24. Construction. The Stock Units are being issued pursuant to the Plan and are
subject to the terms of the Plan. A copy of the Plan has been given to the
Grantee and additional copies of the Plan are available upon request during
normal business hours at the principal executive offices of the Corporation or
can be requested in writing sent to the Corporate Secretary, Navistar
International Corporation, 4201 Winfield Road, Warrenville, Illinois 60555. To
the extent that any provision of this Agreement violates or is inconsistent with
any provisions of the Plan, this Agreement shall govern and any inconsistent
provision in the Plan shall be of no force or effect.

 

5

--------------------------------------------------------------------------------

25. Interpretations. Any dispute, disagreement or question which arises under,
or as a result of, or in any way relates to the interpretation, construction or
application of the terms of this Agreement, the Plan, or the Prospectus will be
determined and resolved by the Committee or its authorized delegate. Such
determination or resolution by the Committee or its authorized delegate will be
final, binding and conclusive on all persons for all purposes.

26. Successors and Assigns. This Agreement shall be binding upon and, subject to
the conditions hereof, inure to the benefit of the Corporation, its successors
and assigns, and the Grantee and his successors and assigns.

27. Entire Understanding. This Agreement embodies the entire understanding and
agreement of the parties in relation to the subject matter hereof, and no
promise, condition, representation or warranty, expressed or implied, not herein
stated, shall bind either party hereto.

28. Governing Law. Subject to the terms of the Plan, all matters arising under
this Agreement including matters of validity, construction and interpretation,
shall be governed by the internal laws of the State of Illinois, without regard
to the conflicts of law provisions of that State or any other jurisdiction. The
Grantee and the Corporation agree that all claims in respect of any action or
proceeding arising out of or relating to this Agreement shall be heard or
determined in any state or federal court sitting in Illinois, and the Grantee
agrees to submit to the jurisdiction of such courts, to bring all such actions
or proceedings in such courts and to waive any defense of inconvenient forum to
such actions or proceedings. A final judgment in any action or proceeding so
brought shall be conclusive and may be enforced in any manner provided by law.

*    *    *

The Corporation and the Grantee hereby agree to the terms and conditions of this
Agreement and have executed it as of the Grant Date.

 

    NAVISTAR INTERNATIONAL CORPORATION     By:  

 

      Daniel C. Ustian       Chairman, President and CEO     GRANTEE Attest:    
   

 

 

    Curt A. Kramer     Corporate Secretary      

 

6

--------------------------------------------------------------------------------

Appendix A

23 Company Compensation Peer Group Used for Indexing TSR

 

23-Company Index AGCO Corp. Cummins Inc. Danaher Corp. Deere & Co. Dover Corp.
Eaton Corp. General Dynamics Corp. Genuine Parts Co. Goodrich Corp. Goodyear
Tire & Rubber Co. Harley-Davidson Inc. Illinois Tool Works Ingersoll-Rand plc
ITT Corp. Masco Corp. Oshkosh Corp. PACCAR Inc. Parker-Hannifin Corp. PPG
Industries Inc. Terex Corp. Textron Inc. TRW Automotive Holdings Corp. Whirlpool
Corp.

Note: The Peer Companies may change over the Performance Period as follows:

 

  •  

If a peer company merges with another company and is the surviving entity, then
it will remain a peer company.

 

  •  

If a peer company goes private or is not the surviving entity, then it will be
eliminated from the group.

 

  •  

Notwithstanding the above, a peer company that declares bankruptcy will continue
to be included in the peer group.

 

  •  

Other restructuring events will be dealt with on a case-by-case basis.

 

7