Use and Public Disclosure of Material Nonpublic Information

KBR, Inc. and Subsidiary Companies
Corporate Policy

Date: November 10, 2006
Index No.: 3-0008

Purpose:

This Policy establishes guidelines for contacts with investors as well as for compliance with United States federal statutes and regulations of the Securities and Exchange Commission ("SEC") and the New York Stock Exchange ("NYSE") regarding the use and public disclosure of material nonpublic information.

Discussion:

The SEC, the NYSE, the United States and many other countries have developed Laws, rules and regulations regarding the use and public disclosure of material nonpublic information. The purpose of such regulations is to protect the interests of shareholders by providing them with prompt and complete information about significant corporate developments which might affect the value of their investments and to assure that insiders do not profit from information not available to the investing public.

These Laws, rules and regulations require the Company and its Directors, Employees and agents to ensure that information about the Company is not used unlawfully in connection with the purchase and sale of securities. Directors, Employees and agents should know that, in most cases, violation of federal securities Laws may also be a violation of state securities Laws and additional penalties may accrue under the Laws of other jurisdictions.

All Directors, Employees and agents should pay particularly close attention to the applicable Laws against insider trading, which is trading while in the possession of material nonpublic information. The securities Laws of the United States and other countries are based on the belief that all persons trading in a company's securities should have equal access to all "material" information about that company. For example, if a person possesses material nonpublic information regarding a company or its securities, that person is prohibited from buying or selling securities of the company until the information has been disclosed and disseminated to the public. This is because the person knows information that will probably cause the price of the company's securities to change, and it would be unfair for the person to have an advantage over the rest of the investing public.

In general, it is a violation of United States federal securities Laws for any person to buy or sell securities if he or she is in possession of material nonpublic information relating to those securities. Information is "material" if it could affect a person's decision whether to buy or sell securities. Information is "nonpublic" if it has not been publicly disclosed. Furthermore, it is illegal for any person in possession of material nonpublic information to provide other people with such information or to recommend that they buy or sell securities. (This is called "tipping.") In such case, both the person who provides and the person who receives the information may be held liable.

A violation of the United States federal insider trading Laws can expose a person to criminal fines of up to $5,000,000 and imprisonment for up to twenty years, in addition to civil penalties of up to three times the profits earned (or losses avoided), and injunctive actions. The securities Laws also subject controlling persons to civil penalties for illegal insider trading by Employees. Controlling persons include the Company and may also include Directors, officers and supervisory personnel. These persons may be subject to fines up to the greater of $1,000,000 or three times the profits earned (or losses avoided) by the inside trader.

Material nonpublic information (including information about companies other than the Company obtained as a result of working for the Company) does not belong to the individual Directors, Employees or agents who are aware of it, but instead is an asset of the Company. A person who uses such information for personal benefit or discloses it to others outside the Company is acting contrary to the Company's interests and commits a fraud against members of the investing public and against the Company.

Insider trading prohibitions also apply to trading in derivative or related securities, such as "put" and "call" options. Options trading is highly speculative and very risky. People who buy options are betting that the stock price will move rapidly. Selling a security "short" is also a highly speculative transaction wherein the trader sells stock that he or she does not yet own betting that the stock price will go down in the immediate future so that the trader may purchase the stock at the lower price and deliver such stock to the buyer of the stock he or she previously sold. For those reasons, when a person trades in options in his or her employer's securities or sells his or her employer's securities "short," regulators become suspicious that the person was trading on the basis of material nonpublic information, particularly when the trading occurs prior to an announcement or major event. In such cases it is difficult for an Employee to prove that he or she did not know about the announcement or event.

If information of a material nature regarding corporate activities, developments or discussions becomes or threatens to become known to outsiders, the Company is required to make prompt and thorough disclosure of such information to the public. (See the fourth paragraph under "Discussion" for comments on what is material.) The NYSE has issued guidelines stating that, "where it is possible to confine formal or informal discussions to a small group of the top management of the company or companies involved, and their individual confidential advisors where adequate security can be maintained, premature public announcement may properly be avoided." Corporate matters subject to such guidelines include negotiations leading to acquisitions and mergers, stock splits, the making of arrangements preparatory to an exchange or tender offer, changes in dividend rates or earnings, calls for redemption, new contracts, products or discoveries, and other major developments.

Policy:

  1. This Policy applies to all Directors, Employees and agents of the Company without regard to nationality or country of residence. All Directors, Employees and agents of the Company must observe the prohibition on trading on material nonpublic information.

  2. General Disclosure Policy. The Company will make prompt and complete disclosure of material nonpublic information to the public when and as required by Law and/or the rules of the SEC or the NYSE. Determinations regarding "materiality" involve subjective judgments; therefore, questions of materiality will be determined by the General Counsel and Chief Financial Officer. Any disclosures made by the Company in reports and documents filed with or submitted to the SEC and other public communications made by the Company shall be full, fair, accurate, timely and understandable. In furtherance of this Policy, the Company shall establish and maintain a Disclosure Committee and an Internal Controls Committee.

  3. Trading While in Possession of Material Nonpublic Information.

    Nondisclosure. Material nonpublic information must not be disclosed to anyone other than persons within the Company whose positions require them to know the information until it has been publicly released by the Company.

    Trading in Company Securities. No Director, Employee or agent shall place a purchase or sale order, or recommend that another person place a purchase or sale order, in the Company's securities (or related derivative securities, such as put or call options) when he or she has knowledge of material information concerning the Company that has not been disclosed to the public. Any Director, Employee or agent who possesses material nonpublic information shall wait until the end of business on the second business day after the information has been publicly released before trading or recommending that others trade.

    Speculation. The Company discourages Directors, Employees and agents from speculating in Company securities. The Company does encourage its Directors and Employees to invest in Company securities, but investing means buying to share in the growth of the Company; it does not mean short term speculation based on fluctuations in the market.

    Trading in Other Securities. No Director, Employee or agent shall place a purchase or sale order, or recommend that another person place a purchase or sale order, in the securities of another company (or related derivative securities, such as put or call options) if the Director, Employee or agent learns in the course of his or her position or employment confidential information about the other company that is likely to affect the value of those securities. For example, it would be a violation of this Policy and Law if an Employee learned through Company sources that the Company intended to purchase assets from another company, and then bought or sold stock in that other company because of the likely increase or decrease in the value of its securities.

    Because of their access to confidential information on a regular basis, two groups of Directors and Employees are subject to additional restrictions on trading in Company securities under this Policy. The first group, the Window Group, may trade only during a "window period." The second group, the Restricted Group, may trade only during a "permitted period." The restrictions for the Window Group and the Restricted Group are discussed below.

    Restrictions on the Window Group. The Window Group consists of all Directors and certain officers and Employees of the Company designated by the General Counsel or his or her designee. The Employees designated as members of the Window Group shall include, among others, officers subject to Section 16 of the Securities Exchange Act of 1934 and their secretaries. The Window Group is subject to the following restrictions on trading in Company securities which trades in all cases are subject to prior approval by the General Counsel or his or her designee:

    • trading is permitted from the end of business on the second business day after an earnings release for the preceding fiscal quarter until the end of business on the twentieth day of the third month of the fiscal quarter in which the release was made (the "Window Period"), subject to the restrictions below;

    • all orders to purchase or sell Company securities, including "cashless option exercises," as well as transfers and gifts, other than charitable gifts (the details of which must be reported to the Corporate Secretary's office at the time of the charitable gift), must be within the Window Period;

    • there shall be no trading outside the Window Period except for reasons of exceptional personal hardship; and

    • individuals in the Window Group are also subject to the general restrictions on trading applicable to all Directors and Employees set forth above in this Policy paragraph 3.

    Restrictions on the Restricted Group. The Restricted Group consists of all persons who are designated from time to time by the General Counsel or his or her designee. The Restricted Group is subject to the following restrictions on trading in Company securities:

    • trading is permitted from the end of business on the second business day after an earnings release for the preceding fiscal quarter until the end of the third month of the fiscal quarter in which the release was made (the "Permitted Period"), subject to the restrictions below;

    • there shall be no trading outside the Permitted Period except for reasons of exceptional personal hardship, subject to prior approval by the General Counsel or his or her designee; and

    • individuals in the Restricted Group are also subject to the general restrictions on trading applicable to all Employees set forth above in this Policy paragraph 3.

    Members of the Restricted Group are encouraged, but not required, to trade only during the Window Period. Prior approval by the General Counsel or his or her designee is encouraged, but not required, for trading during the Permitted Period.

  4. Rule 10b5-1 Trading Plans. Rule 10b5-1 promulgated under the Securities Exchange Act of 1934 provides an affirmative defense for insider trading liability under Rule 10b-5 for transactions made pursuant to a previously established written contract, plan or instruction to purchase or sell securities (a "10b5-1 Plan"). Directors, Employees or agents subject to the trading restrictions set forth in this Policy may, notwithstanding such restrictions, purchase or sell the Company's securities without regard to whether such purchase or sale is within a Window Period or a Permitted Period or whether the Director, Employee or agent has material nonpublic information, if such purchase or sale is made pursuant to a 10b5-1 Plan, which is adopted and administered in compliance with the following:

    • When a Director, Employee or agent is (i) not subject to either a Window Group or Restricted Group restricted period, and (ii) such person is not in possession of material nonpublic information, such person may enter into a 10b5-1 Plan. Subsequent modifications of such plans may only occur during periods when the requirements of (i) and (ii) above are met.

    • In order to be a valid 10b5-1 Plan, the arrangement must satisfy the requirements of Rule 10b5-1, including documenting a previously established, bona fide plan that specifies the price, amount and date of trades, or provides a formula or mechanism to determine such information.

    • All Directors, Employees and agents who are either in the Window Group or the Restricted Group must obtain prior approval of a 10b5-1 Plan by the General Counsel or his or her designee, who may exercise absolute discretion in approving or disapproving a 10b5-1 Plan or any modification thereto. The 10b5-1 Plan shall provide that trading shall not begin until at least 30 calendar days following its adoption by the Director, Employee or agent. Notification to the General Counsel or his or her designee, but not prior approval, is required for termination of a 10b5-1 Plan.

    • Trading under 10b5-1 Plans will cease during any employee benefit plan blackout periods. The Company will provide advance written notice of any such blackout periods.

    While a 10b5-1 Plan will allow a Director, Employee or agent to purchase or sell securities even if they come into possession of material nonpublic information after implementing the plan, such persons remain obligated for transactions outside the 10b5-1 Plan to observe all other prohibitions on trading on material nonpublic information.

  5. Equal Access. No preferential treatment will be given to any shareholder, potential investor or security analyst; therefore, the release to any such person of any material financial or operating data relating to the Company must be available to all such persons.

  6. Forecasts. If appropriate "safe harbor" disclosures are made in advance, revenue and profit trends may be forecasted in general terms. It is the Company's policy, however, not to make any specific public projections of future operating results unless such forecast is specifically approved by the Chief Financial Officer.

  7. Authority to Release. No financial data regarding the Company will be released to the public except as authorized, specifically or generally, by the Chief Financial Officer.

  8. Analysts. Due to the sensitive nature of investor relations and federal regulations relating thereto, all interviews with shareholders, potential investors and security analysts must be coordinated through the Director/Vice President-Investor Relations.

  9. Transfers to Company. As used in this Policy, the term "trading" and variations thereof do not include sales or other transfers of stock to the Company.

Procedure:

  1. When leaks of material nonpublic information are suspected, rumored or discovered, such information must be reported immediately to the General Counsel.

  2. All announcements and news releases subject to statutes and regulations herein discussed must be coordinated among the Chief Financial Officer or General Counsel and the Director/Vice President-Investor Relations.

  3. If a Director, Employee or agent desiring to purchase or sell any Company securities is uncertain as to his or her responsibilities hereunder, such person should contact the Corporate Secretary.

Other References:

1. Corporate Policy No. 3-1002 Press Releases should be consulted.

Approved: Board of Directors
November 10, 2006