ConocoPhillips PRE 14A 2008
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600 North Dairy Ashford
Houston, Texas 77079
600 North Dairy Ashford
Houston, Texas 77079
TABLE OF CONTENTS
NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS
Items of Business:
For specific instructions, please refer to the section entitled About the Annual Meeting beginning on page 2 of this proxy statement and the voting instructions on the proxy card.
By Order of the Board of Directors
Janet Langford Kelly
What are the Committees of the Board?
(Proposal 1 on the Proxy Card)
Who are this years nominees?
The Class III directors standing for election this year to hold office until the 2011 Annual Meeting of Stockholders and until his or her successor is elected are listed below. If the proposal to amend our Certificate of Incorporation and By-Laws to provide for the annual election of directors is approved, all directors will stand for election each year beginning with our 2009 Annual Meeting of Stockholders.
What does the Board recommend?
THE BOARD RECOMMENDS THAT
YOU VOTE FOR THE ELECTION
OF THESE DIRECTORS
Who are the directors continuing in office?
Class I Directors Term Expires in 2009
If the proposal to amend our Certificate of Incorporation and By-Laws to provide for the annual election of directors is approved, all directors will stand for election each year beginning with our 2009 Annual Meeting of Stockholders.
Class II Directors Term Expires in 2010
If the proposal to amend our Certificate of Incorporation and By-Laws to provide for the annual election of directors is approved, all directors will stand for election each year beginning with our 2009 Annual Meeting of Stockholders.
Directors scheduled to retire from the Board of Directors on May 14, 2008
The Supplement to the Summary Compensation Table below reconciles the targeted and awarded amounts considered by our Compensation Committee under each of our compensation programs for each Named Executive Officer (other than Messrs. Berry and Gates, who announced their retirement in 2007) with the amount that is required to be reported for 2007 in the Summary Compensation Table on page 39. Targets for equity awards are expressed in dollar amounts (using the assumptions identified in the notes to the table).
SUPPLEMENT TO SUMMARY COMPENSATION TABLE
SUPPLEMENTAL TABLE 2008 TARGET COMPENSATION
In addition to determining the 2007 compensation payouts, the Compensation Committee, at its December 2007 and February 2008 meetings, established the targets for 2008 compensation for our Named Executive Officers (other than Messrs. Berry and Gates, who announced their retirements in 2007) under our four primary compensation programs.
As discussed under Performance-Based Pay Programs beginning on page 28, with the exception of salary, the targeted amounts shown below are performance-based and, therefore, actual amounts received under such programs, if any, may differ from the targets shown below.
Stock Performance Graph
This graph shows ConocoPhillips cumulative total stockholder return over the five-year period from December 31, 2002, to December 31, 2007. The graph also shows the cumulative total returns for the same five-year period of the S&P 500 Index and our performance peer group of companies consisting of BP, Chevron, ExxonMobil, Royal Dutch Shell, and Total. The comparison assumes $100 was invested on December 31, 2002, in ConocoPhillips stock, in the S&P 500 Index and in ConocoPhillips peer group and assumes that all of the dividends were reinvested.
Five Years Ended December 31, 2007
Executive Compensation Tables
The following tables and accompanying narrative disclosures and footnotes provide information concerning total compensation paid to the Chief Executive Officer, the Chief Financial Officer, and certain other officers of ConocoPhillips (the Named Executive Officers). Please also see our discussion of the relationship between the Compensation Discussion and Analysis to these tables under Compensation Analysis beginning on page 32. The data presented in the tables that follow include amounts paid to the Named Executive Officers by ConocoPhillips or any of its subsidiaries in 2007. Information about stock and stock-based awards has been adjusted in the tables below to reflect the 2-for-1 split of the Companys common stock that was effective on June 1, 2005.
SUMMARY COMPENSATION TABLE
As discussed in the Compensation Discussion and Analysis section of this proxy statement, ConocoPhillips provides its executives with a number of compensation and benefit arrangements. The Summary Compensation Table below reflects amounts earned with respect to 2007 under those arrangements. We have excluded arrangements that are generally available to our U.S.-based salaried employees, such as our medical, dental, disability, and flexible spending account arrangements, since all of our Named Executive Officers are U.S.-based salaried employees. Our Named Executive Officers each serve without an employment agreement. Salary and other compensation for these officers are set by the Compensation Committee of the Board of Directors, as described in the Compensation Discussion and Analysis. Based on the salary and total compensation amounts for Named Executive Officers for 2007 shown in the table below, salary accounted for approximately 5.3 percent of the total compensation of the Named Executive Officers and incentive compensation programs (stock awards, option awards, and non-equity incentive plan compensation) accounted for approximately 86.9 percent of the total compensation for Named Executive Officers. For the CEO alone in 2007, salary accounted for approximately 3.0 percent of the total compensation and incentive compensation programs accounted for approximately 92.9 percent of the total compensation. These numbers reflect the emphasis placed by the Company on performance-based pay, as discussed in the Compensation Discussion and Analysis section of this proxy statement.
GRANTS OF PLAN-BASED AWARDS TABLE
The Grants of Plan-Based Awards Table is used to show participation by the Named Executive Officers in the incentive compensation arrangements described below.
The columns under the heading Estimated Future Payouts Under Non-Equity Incentive Plan Awards show information regarding the ConocoPhillips Variable Cash Incentive Program (VCIP), a performance-based bonus program that sets a target level and minimum and maximum cash payouts for each one-year performance cycle. These targets are set as a percentage of salary, which varies by salary grade level. Minimum possible payouts are set at zero, as the Compensation Committee retains the authority to reduce any award from the target to zero. Maximum possible payouts are set at $10 million for each of the Named Executive Officers, under a limitation of the program designed to comply with section 162(m) of the Internal Revenue Code. This maximum was set at the December 2006 meeting of the Compensation Committee, at which it also approved separate performance criteria for any VCIP payment to the Named Executive Officers with regard to the 2007 program year. In practice, that limit has never been reached in the history of the program, due to the Compensation Committee exercising its discretion to reduce any award from the maximum payout level. Within the parameters of the program, a second (lower) maximum possible payout related to corporate and business unit performance is set at 200 percent of the target level, with a further possible adjustment of up to 50 percent of the target level for individual performance. This applies to all participants in VCIP, including the Named Executive Officers, although since the Compensation Committee has ultimate authority to grant awards, it is permitted to grant awards higher than the maximum set in the program. The maximum possible payouts set forth in the Table are shown at 250 percent of target. The amounts shown in the Table are those applicable to the 2007 program year using a minimum of zero and a maximum of 250 percent of VCIP target for each participant and do not represent actual payouts for that program year. Actual payouts for the 2007 program year were made in February 2008 and are shown in the Summary Compensation Table under the Non-Equity Incentive Plan Compensation column.
The columns under the heading Estimated Future Payouts Under Equity Incentive Plan Awards show information regarding the ConocoPhillips Performance Share Program (PSP), a performance-based program that sets a target level and minimum and maximum restricted stock unit payouts at the conclusion of the three-year performance period. The Compensation Committee, at its annual compensation review and approval meeting in February, approves targets for each of the Senior Officers of the Company, including each of the Named Executive Officers. These targets are set as a percentage of salary, which varies by salary grade level. Minimum possible payouts are set at zero, as the Compensation Committee retains the authority to reduce any award from the target to zero. Within the parameters of the program, the maximum possible payout is set at 200 percent of the target level. This applies to all participants in PSP, including the Named Executive Officers, although since the Compensation Committee has ultimate authority to grant awards, it may grant awards higher than the maximum set in the program. The maximum possible payouts set forth in the Table for Named Executive Officers are shown at 200 percent of target. The amounts shown in the Table are those set for 2007 compensation tied to the 2007 through 2009 program period under PSP (PSP V) and do not represent actual payouts for that program year. Actual payouts of restricted stock or restricted stock units, if any, for PSP V are not expected to be made until February 2010, after the close of the three-year performance period.
The All Other Stock Awards column reflects any off-cycle stock awards or any other stock awards outside of PSP. There were no such awards to our Named Executive Officers approved in 2007.
The All Other Option Awards column reflects option awards granted in 2007 to our Named Executive Officers. Option awards are generally granted under our Stock Option (and Stock Appreciation Rights) Program (SOP), although off-cycle option awards or other option awards outside of SOP are possible under the 2004 Omnibus Stock and Performance Incentive Plan. In 2007, there were no option awards to Named Executive Officers other than those made under SOP. Targets for option awards under SOP are set as a percentage of salary, which varies by salary grade level. The option awards shown were granted on the same day that the target was approved. For the 2007 program year under SOP, targets were set and awards granted at the regularly scheduled February 2007 meeting of the Compensation Committee.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
Amounts presented in Number of Shares or Units of Stock That Have Not Vested and Market Value of Shares or Units of Stock That Have Not Vested represent restricted stock and restricted stock unit awards granted with respect to prior periods. The plans and programs under which such grants were made provide that awards made in the form of restricted stock and restricted stock units be held in such form until the recipient retires. If such awards immediately vested upon completion of the relevant performance period, as we are informed by our compensation consultant is more typical for restricted stock programs, the amounts reflected in this column would be zero.
OPTION EXERCISES AND STOCK VESTED
ConocoPhillips maintains several defined benefit plans for its eligible employees. With regard to U.S.-based salaried employees, the primary defined benefit plan that is qualified under the Internal Revenue Code is the ConocoPhillips Retirement Plan (CPRP).
The CPRP is a non-contributory plan that is funded through a trust. The CPRP consists of four titles, each one corresponding to a different pension formula and having numerous other differences in terms and conditions. Employees are eligible for current participation in only one title, and eligibility is based on heritage company and time of hire. Of the Named Executive Officers, Messrs. Mulva, Carrig, Gallogly, Lowe, and Berry (having been employees of Phillips) are eligible for, and vested in, benefits under Title I of the CPRP, while Mr. Cornelius (having been an employee of Conoco) is eligible for, and vested in, benefits under Title IV, and Mr. Gates (having been hired after January 1, 2002) is eligible for, and vested in, benefits under Title II. Both Titles I and IV provide a final average earnings type of pension benefit for eligible employees payable at normal or early retirement from the Company. Under both Titles I and IV, normal retirement occurs upon termination on or after age 65. Under Title I, early retirement can occur at age 55 with 5 years of service (or if laid off after age 50 with 5 years of service), while under Title IV, early retirement can occur at age 50 with 10 years of service. Under Title I, early retirement benefits are reduced by 5 percent per year for each year before age 60 that benefits are paid, but for benefits that commence at age 60 through age 65, the benefit is unreduced. Under Title IV, early retirement benefits are reduced by 5 percent per year for each year before age 57 and 4 percent per year between ages 57 and 60. Mr. Berry was eligible for early retirement treatment when he retired in 2007, and Mr. Gates was eligible for early retirement treatment when he retired in 2008. Messrs. Mulva, Carrig, Gallogly, and Cornelius were eligible for early retirement at the end of 2007. Mr. Lowe was not eligible for early retirement at the end of 2007. Employees become vested in the benefits after five years of service, and all of the Named Executive Officers are vested in their benefits. Titles I, II, and IV allow the employee to elect the form of benefit payment from among several annuity types and a single sum payment option, but all of the options are actuarially equivalent. The election for form of benefit is made at retirement.
For both Title I and Title IV, the benefit formula applicable to our eligible Named Executive Officers is the same. Retirement benefits are calculated as the product of 1.6 percent times years of credited service multiplied by the final annual average eligible compensation. For Title I, final annual eligible average compensation is calculated using the three highest consecutive years in the last ten years before retirement. For Title IV, final annual eligible average compensation is calculated using the higher of the highest consecutive 36 months of compensation or the highest non-consecutive 3 years of compensation. In both cases, such benefits are reduced by the product of 1.5 percent of the annual primary Social Security benefit multiplied by years of credited service. The formula below provides an illustration as to how the retirement benefits are calculated. For purposes of the formula, pension compensation denotes the final annual eligible average compensation described above.
Eligible pension compensation generally includes salary and bonus (shown in the Summary Compensation Table under the column titled Non-Equity Incentive Plan Compensation), and years of credited service generally include only actual years of service. However, under Title I, in the event that an eligible employee receives layoff benefits from the Company, eligible pension compensation includes the annualized salary for the year of layoff, rather than actual salary, and years of credited service are increased by any period for which layoff benefits are calculated. Furthermore, certain foreign service as an employee of Phillips is counted as time and a quarter when determining the service element in the benefit formula under Title I.
Benefits under Title II are based on monthly pay and interest credits to a cash balance account created on the first day of the month after a participants hire date. Pay credits are equal to a percentage of total salary and bonus.
Participants whose combined years of age and service total less than 44 receive a 6% pay credit, those with 44 through 65 receive a 7% pay credit, and those with 66 or more receive a 9% pay credit. Normal retirement age is 65, but participants may receive their vested benefit upon termination of employment at any age.
Eligible pension compensation under Titles I, II, and IV is limited in accordance with the Internal Revenue Code. In 2007, that limit was $225,000. The Internal Revenue Code also limits the annual benefit (expressed as an annuity) available under Titles I, II, and IV. In 2007, that limit was $180,000 (reduced actuarially for ages below 62).
In addition, the Company maintains several nonqualified pension plans. These are funded through the general assets of the Company, although the Company also maintains trusts of the type generally known as rabbi trusts that may be used to pay benefits under the nonqualified pension plans. The plan available to the Named Executive Officers is the ConocoPhillips Key Employee Supplemental Retirement Plan (KESRP). This plan is designed to replace benefits that would otherwise not be received due to limitations contained in the Internal Revenue Code that apply to qualified plans. The two such limitations that most frequently impact the benefits to employees are the limit on compensation that can be taken into account in determining benefit accruals and the maximum annual pension benefit. In 2007, the former limit was set at $225,000, while the latter was set at $180,000. The KESRP determines a benefit without regard to such limits, and then reduces that benefit by the amount of benefit payable from the related qualified plan, the CPRP. Thus, in operation the combined benefits payable from the related plans for the eligible employee equals the benefit that would have been paid if there had been no limitations imposed by the Internal Revenue Code. Benefits under KESRP are generally paid in a single sum the later of age 55 or six months after retirement. When payments do not begin until after retirement, interest at the current six-month T-bill rates will, under most circumstances, be credited on the delayed benefits. Distribution may also be made upon a determination of disability.
Certain foreign service as an employee of Phillips is counted as time and a quarter when determining the service element in the benefit formula under KESRP. Also under KESRP, certain incentive payments approved by the Phillips Board of Directors in 2000, are considered as pension compensation. Otherwise, the benefit formulas under KESRP take into account only actual service with the employer and compensation arising from salary and bonuses (including bonuses that are performance-based and are included in the Summary Compensation Table as Non-Equity Incentive Plan Compensation for that reason). The footnotes below provide further detail on extra credited service and compensation.
Except where otherwise noted, assumptions used in calculating the present value of accumulated benefits in the Table are found in Note 23 in the Notes to Consolidated Financial Statements in the Companys 2007 Annual Report on Form 10-K.
NONQUALIFIED DEFERRED COMPENSATION
ConocoPhillips maintains several nonqualified deferred compensation plans for its eligible employees. Those available to the Named Executive Officers are briefly described below.
The Key Employee Deferred Compensation Plan of ConocoPhillips (KEDCP) is a nonqualified deferral plan that permits certain key employees to voluntarily reduce salary and request deferral of VCIP, or other similar bonus program payments, that would otherwise be received in the subsequent year. KEDCP permits eligible employees to defer compensation of up 100 percent of VCIP and up to 50 percent of salary. All of the Named Executive Officers are eligible to participate in KEDCP.
Under KEDCP, for amounts deferred and vested after December 31, 2004, the default distribution option in KEDCP is to receive a lump sum to be paid at least six months after separation from service. Participants may elect to defer payments from 1 to 5 years after separation, and to receive annual, semiannual or quarterly payments for a period of up to 15 years. For elections that set a date certain for payment, the distribution will begin in the calendar quarter following the date requested and will be paid out on the distribution schedule elected by the participant.
For amounts deferred prior to January 1, 2005, a one-time revision of the 10 annual installment payments schedule is allowed from 365 days to no later than 90 days prior to retirement at age 55 or above or within 30 days after being notified of layoff in the calendar year in which the employee is age 50 or above. Participants may receive distributions in 1 to 15 annual installments, 2 to 30 semi-annual installments or 4 to 60 quarterly installments.
The Defined Contribution Make-Up Plan of ConocoPhillips (DCMP) is a nonqualified restoration plan under which the Company makes employer contributions and stock allocations that cannot be made in the qualified ConocoPhillips Savings Plan (CPSP) a defined contribution plan of the type often referred to as a 401(k) plan due to certain voluntary reductions of salary under KEDCP or due to limitations imposed by the Internal Revenue Code. For 2007, the Internal Revenue Code limited the amount of compensation that could be taken into account in determining a benefit under the CPSP to $225,000. Employees make no contributions to DCMP.
Under DCMP, amounts vested after December 31, 2004, will be distributed as a lump sum 6 months after separation from service, or, at a participants election, in 1 to 15 annual payments, no earlier than 1 year after separation from service. For amounts vested prior to January 1, 2005, participants may, from 365 days to no later than 90 days prior to termination or within 30 days of being notified of layoff, indicate a preference to defer the value into their account under the KEDCP.
Each participant directs investments of the individual accounts set up for that participant under both KEDCP and DCMP. Participants may make changes in the investments as often as daily. All ConocoPhillips defined contribution nonqualified deferred compensation plans allow investment of deferred amounts in a broad range of mutual funds or other market-based investments, including ConocoPhillips stock. As market-based investments, none of these provide above-market return. Since each executive participating in each plan chooses the investment vehicle or vehicles and may change his or her allocations from time to time (as often as daily), the return on the investment will depend on how well the underlying investment fund performed during the time the executive chose it as an investment vehicle. The aggregate performance of such investment is reflected in the Nonqualified Deferred Compensation Table under the column Aggregate Earnings in Last Fiscal Year.
Benefits due under each of the plans discussed above are paid from the general assets of the Company, although the Company also maintains trusts of the type generally known as rabbi trusts that may be used to pay benefits under the plans. The trusts and the funds held in them are assets of ConocoPhillips. In the event of bankruptcy, participants would be unsecured general creditors.
Executive Severance and Changes in Control
Each of our Named Executive Officers serves without an employment agreement. Salary and other compensation for these officers is set by the Compensation Committee, as described in the Compensation Discussion and Analysis beginning on page 20 of this proxy statement. These officers may participate in the employee benefit plans and programs of the Company for which they are eligible, in accordance with their terms. The amounts earned by the Named Executive Officers for 2007 appear in the various Executive Compensation Tables beginning on page 39 of this proxy statement.
Each of our Named Executive Officers is expected to receive amounts earned during his term of employment unless he voluntarily resigns prior to becoming retirement-eligible or is terminated for cause. Such amounts include:
While normal retirement age under our benefit plans is 65, early retirement provisions allow benefits at earlier ages if vesting requirements are met, as discussed in the sections of this proxy statement entitled Pension Benefits Table and Nonqualified Deferred Compensation Table. For our compensation programs (VCIP, SOP, and PSP), early retirement is generally defined to be termination at or after the age of 55 with five years of service.
Messrs. Mulva, Carrig and Gallogly have each met the early retirement criteria under both our benefit plans and our compensation programs. Mr. Cornelius has met the early retirement criteria under the title of the pension plan for which he is eligible, but has not met the early retirement criteria for our compensation programs. Therefore, as of December 31, 2007, any voluntary resignations of Messrs. Mulva, Carrig and Gallogly would have been treated as retirements. Since Messrs. Mulva, Carrig and Gallogly are eligible for early retirement under these programs, they would be able to resign and retain all awards earned under the PSP and earlier programs. As a result, Messrs. Mulva, Carrig and Galloglys awards under such programs are not included in the incremental
amounts reflected in the tables below. Furthermore, any voluntary resignation of Mr. Cornelius as of December 31, 2007, would have been treated as a retirement for purposes of his pension benefits, but not under our compensation programs, and this is reflected in the tables below.
Mr. Lowe has not yet met either the criteria under our benefit plans or our compensation programs as of December 31, 2007. Mr. Berry met the early retirement criteria under both our benefit plans and our compensation programs at the time of his retirement on December 31, 2007. Mr. Gates met the early retirement criteria under the title of the pension plan for which he was eligible at the time of his retirement on January 2, 2008. While he had not met the criteria for early retirement under our compensation programs at that time, provisions of an agreement entered into by the Company on April 3, 2003 at the time of Mr. Gates initial hire, gave Mr. Gates rights substantially the same as being eligible for early retirement under our compensation programs. Messrs. Berry and Gates actually retired effective at the end of 2007 and the beginning of 2008, respectively, and therefore we show payments made or expected to be made to each of them under Quantification of Severance Payments below. Please see Outstanding Equity Awards at Fiscal Year End beginning on page 47 for more information.
In addition, specific severance arrangements for executive officers, including the Named Executive Officers, are provided under two severance plans of ConocoPhillips, one being the ConocoPhillips Executive Severance Plan, available to a limited number of senior executives; and the other being the ConocoPhillips Key Employee Change in Control Severance Plan, also available to a limited number of senior executives, but only upon a change in control. These arrangements are described below. Executives are not entitled to participate in both plans as a result of a single event, that is, executives receiving benefits under the ConocoPhillips Key Employee Change in Control Severance Plan would not be entitled to benefits potentially payable under the ConocoPhillips Executive Severance Plan relating to the event giving rise to benefits under the ConocoPhillips Key Employee Change in Control Severance Plan. Mr. Berry became eligible for payment under the ConocoPhillips Executive Severance Plan at his departure from the Company effective December 31, 2007. The payment is reflected under Quantification of Severance Payments below.
ConocoPhillips Executive Severance Plan
The ConocoPhillips Executive Severance Plan (CPESP) covers executives in salary grades generally corresponding to vice president and higher. The CPESP provides that if the Company terminates the employment of a participant in the plan other than for cause, as defined in the plan, upon executing a general release of liability and, if requested by the Company, an agreement not to compete with the Company, the participant will be entitled to:
The CPESP may be amended or terminated by the Company at any time. Amounts payable under the plan will be offset by any payments or benefits that are payable to the severed employee under any other plan, policy, or program of ConocoPhillips relating to severance, and amounts may also be reduced in the event of willful and bad faith conduct demonstrably injurious to the Company, monetarily or otherwise.
ConocoPhillips Key Employee Change in Control Severance Plan
The ConocoPhillips Key Employee Change in Control Severance Plan (CICSP) covers executives in salary grades generally corresponding to vice president and higher. The CICSP provides that if the employment of a participant in the plan is terminated by the Company within two years of a change in control of ConocoPhillips, other than for cause, or by the participant for good reason, as such terms are defined in the plan, upon executing a general release of liability, the participant will be entitled to:
Upon a change in control, the participant becomes eligible for vesting in all equity awards and lapsing of any restrictions, with continued ability to exercise stock options for their remaining terms. After a change in control, the CICSP may not be amended or terminated if such amendment would be adverse to the interests of any eligible employee, without the employees written consent. Amounts payable under the plan will be offset by any payments or benefits that are payable to the severed employee under any other plan, policy, or program of ConocoPhillips relating to severance, and amounts may also be reduced in the event of willful and bad faith conduct demonstrably injurious to the Company, monetarily or otherwise.
Quantification of Severance Payments
Mr. Berry retired from the Company effective December 31, 2007, and Mr. Gates retired effective January 2, 2008. Mr. Berry met the criteria for early retirement under both our benefit plans and our compensation programs and was eligible for severance payments under our Executive Severance Plan in the amount of $3,591,036. Mr. Gates met the criteria for early retirement under the title of our pension plan for which he was eligible and, pursuant to the agreement between him and the Company entered into at the time of his initial hire, was entitled to treatment substantially similar to early retirement treatment under our compensation programs. Mr. Gates was not eligible for severance payments under our Executive Severance Plan.
The tables below reflect the amount of incremental compensation payable in excess of the items listed above to each of our Named Executive Officers (other than Messrs. Berry and Gates) in the event of termination of such executives employment other than as a result of voluntary resignation. The amount of compensation payable to
each Named Executive Officer (other than Messrs. Berry and Gates) upon involuntary not-for-cause termination, for-cause termination, termination following a change-in-control (CIC) (either involuntarily without cause or for good reason) and in the event of the death or disability of the executive is shown below. The amounts shown assume that such termination was effective as of December 31, 2007, and thus include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executives separation from the Company.
The following tables reflect additional incremental amounts to which each of our Named Executive Officers (other than Messrs. Berry and Gates) would be entitled if their employment were terminated due to the events described above.