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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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KBR, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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March 25,
2008
To
Our Stockholders:
You
are cordially invited to attend the Annual Meeting of Stockholders of KBR, Inc. The meeting will be held on Wednesday, May 7, 2008, beginning at 9:00 a.m., local
time at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024. The Notice of Annual Meeting of Stockholders, proxy statement and proxy card from the Board of Directors are
enclosed. The materials provide further information concerning the meeting.
At
the meeting, stockholders are being asked to:
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elect
three Class II directors to serve for three years and until their successors shall be elected and qualified;
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ratify
the selection of KMPG LLP as the independent registered public accounting firm to audit the consolidated financial statements of KBR, Inc. for the year
ending December 31, 2008;
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approve
the KBR, Inc. 2009 Employee Stock Purchase Plan; and
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transact
any other business that properly comes before the meeting or any adjournment or postponements of the meeting.
Please
refer to the proxy statement for detailed information on each of these proposals.
It
is very important that your shares are represented and voted at the meeting. Your shares may be voted electronically on the Internet, by telephone or by returning the enclosed proxy
card. Your proxy will not be used if you are present and prefer to vote in person or if you revoke your proxy. We would appreciate your informing us on the proxy card if you expect to attend the
meeting so that we can provide adequate seating.
We
appreciate the continuing interest of our stockholders in the business of KBR, and we hope you will be able to attend the meeting.
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Sincerely,
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WILLIAM P. UTT
Chairman of the Board, President
and Chief Executive Officer
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Notice of Annual Meeting of Stockholders
to be Held May 7, 2008
KBR, Inc., a Delaware corporation, will hold its Annual Meeting of Stockholders on Wednesday, May 7, 2008, at 9:00 a.m., local time, at The
Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024. At the meeting, stockholders will be asked to consider and act upon the following matters discussed in the attached proxy
statement:
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1.
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To
elect three Class II directors to serve for three years and until their successors shall be elected and shall qualify.
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2.
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To
consider and act upon a proposal to ratify the appointment of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements of
KBR for the year ending December 31, 2008.
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3.
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To
approve the KBR, Inc. 2009 Employee Stock Purchase Plan.
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4.
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To
transact any other business that properly comes before the meeting or any adjournment or postponements of the meeting.
These
items are fully described in the following pages, which are made a part of this Notice. The Board of Directors has set Friday, March 14, 2008, at the close of business, as
the record date for the determination of stockholders entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting.
We
request that you vote your shares as promptly as possible. If you have shares registered in your own name, you may vote your shares in a number of ways:
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electronically
via the Internet at
www.proxyvote.com
,
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by
telephone, if you are in the U.S. and Canada, by calling 1-800-690-6903, or
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by
marking your votes, dating and signing the proxy card or voting instruction form enclosed and returning it in the postage-paid envelope provided.
If
you hold KBR shares with a broker or bank, you may also be eligible to vote via the Internet or by telephone if your broker or bank participates in the proxy voting program provided
by Broadridge Investor Communication Services.
IF YOU PLAN TO ATTEND:
Attendance at the meeting is limited to stockholders. No guests will be admitted. Admission will be on a first-come,
first-served basis. Registration will begin at 8:00 a.m., and the meeting will begin promptly at 9:00 a.m. Each stockholder holding KBR shares in brokerage accounts is
required to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Please note that you may be asked to present valid picture identification, such as a driver's
license or passport.
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By Order of the Board of Directors,
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JEFFREY B. KING
Secretary
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March 25, 2008
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TABLE OF CONTENTS
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PROXY STATEMENT
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of KBR, Inc. ("KBR", the "Company", "we" or "us"). By executing and returning the enclosed
proxy or by following the enclosed voting instructions, you authorize the persons named in the proxy to represent you and vote your shares on the matters described in the Notice of Annual Meeting of
Stockholders.
Subject
to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Admission to the meeting will be on a
first-come, first-served basis and no guests will be admitted. Registration will begin at 8:00 a.m., and the meeting will begin at 9:00 a.m. Please note that you may be asked
to present valid picture identification, such as a driver's license or passport when you check in at the registration desk.
If
you hold your shares in "street name" (that is, through a broker or other nominee), you are required to bring a copy of a brokerage statement reflecting your stock ownership as of the
record date.
No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the meeting.
If
you attend the meeting, you may vote in person. If you are not present, your shares can be voted only if you have followed the instructions for voting via the Internet or by
telephone, or returned a properly executed proxy; and in these cases, your shares will be voted as you specify. If no specification is made, the shares will be voted in accordance with the
recommendations of the Board of Directors. You may revoke the authorization given in your proxy at any time before the shares are voted at the meeting.
The
record date for determination of the stockholders entitled to vote at the meeting is the close of business on Friday, March 14, 2008. KBR's common stock, par value $0.001, is
the only class of capital stock that is outstanding. As of March 14, 2008, there were 169,727,070 shares of common stock outstanding. Each of the outstanding shares of common stock is
entitled to one vote on each matter submitted to the stockholders for a vote at the meeting. A complete list of stockholders entitled to vote will be kept at our offices at the address specified below
for ten days prior to, and will be available at, the meeting.
Votes
cast by proxy or in person at the meeting will be counted by the persons appointed by us to act as election inspectors for the meeting. Except as set forth below, the affirmative
vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter will be the act of the stockholders. Except as set forth below,
shares for which a holder has elected to abstain on a matter will count for purposes of determining the presence of a quorum and will have the effect of a vote against the matter.
In
the election of directors, the candidates for election receiving the highest number of affirmative votes of the shares entitled to be voted, whether or not a majority of the shares
present, up to the number of directors to be elected by those shares, will be elected. Shares present but not voting on the election of directors will be disregarded, except for quorum purposes, and
will have no legal effect.
The
election inspectors will treat shares held in street name which cannot be voted by a broker on specific matters in the absence of instructions from the beneficial owner of the
shares, known as broker non-vote shares, as shares that are present and entitled to vote for purposes of determining the presence of a quorum. In determining the outcome of any matter for
which the broker does not have discretionary authority to vote, however, those shares will not have any effect on that matter. Those shares may be entitled to vote on other matters for which brokers
may exercise their own discretion.
1
In
accordance with our confidential voting policy, no vote of any stockholder will be disclosed to KBR's officers, directors or employees, except:
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as
necessary to meet legal requirements and to assert claims for and defend claims against KBR;
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when
disclosure is voluntarily made or requested by the stockholder;
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when
the stockholder writes comments on the proxy card; or
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in
the event of a proxy solicitation not approved and recommended by the Board of Directors.
The
proxy solicitor, the election inspectors and the tabulators of all proxies, ballots and voting tabulations that identify stockholders are independent and are not employees of KBR.
This
proxy statement, the form of proxy and voting instructions are being made available to stockholders on or about March 25, 2008, at
www.investoreconnect.com
. You may also request a printed copy of
this proxy statement and the form of proxy by any of the following methods:
(a) telephone at 1-800-579-1639; (b) internet at
www.investoreconnect.com
; or
(c) e-mail at sendmaterial@investoreconnect.com. Our Annual Report to Stockholders, including financial statements, for the fiscal year ended December 31, 2007 is being made
available at the same time and by the same methods. The Annual Report is not to be considered as a part of the proxy solicitation material or as having been incorporated by reference.
Our
principal executive office is located at 601 Jefferson Street, Suite 3400, Houston Texas 77002 and our website address is
www.kbr.com
. Information contained on our website, including
information referred to in this proxy statement, is not to be considered as part of the
proxy solicitation material and is not incorporated into this proxy statement.
2
QUESTIONS AND ANSWERS ABOUT VOTING
The following are answers to common questions about voting KBR shares at the meeting. If your question is not addressed below or elsewhere in this proxy
statement, please contact KBR's Investor Relations Department at (713) 753-5082.
Who is entitled to vote?
Holders of record at the close of business on March 14, 2008, which is the record date for the meeting, will be entitled to one vote per share. Fractional
shares will not be voted. On the record date, KBR had 169,727,070 shares of common stock, par value $0.001 per share, outstanding.
Who is soliciting my proxy to vote my shares?
KBR's Board of Directors is soliciting your proxy, or your authorization for our representatives to vote your shares. Your proxy will be effective for the
May 7, 2008 meeting and at any adjournment or postponement of that meeting.
What constitutes a quorum?
For business to be conducted at the meeting, a quorum constituting a majority of the shares of KBR common stock issued and outstanding and entitled to vote must
be in attendance or represented by proxy.
How do I give voting instructions?
As described on the enclosed proxy card, proxies may be submitted:
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over
the Internet,
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by
telephone or
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by
mail.
Votes
submitted over the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on Tuesday, May 6, 2008.
Can I change my vote?
A proxy may be revoked by a stockholder at any time before it is voted by:
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giving
notice of the revocation in writing to KBR's Corporate Secretary at 601 Jefferson Street, Houston, Texas 77002,
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submitting
another valid proxy by mail, telephone or over the Internet that is later dated and, if mailed, is properly signed or
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voting
in person at the meeting.
What are voting requirements to elect the directors and approve each of the proposals?
KBR's Bylaws provide that, in general, holders of a majority of the voting stock, present in person or represented by proxy, will constitute a quorum at any
meeting of the shareholders. The directors will be elected by a plurality of the shares of KBR's common stock cast in person or represented by proxy at the meeting. Adoption of the proposal to ratify
the appointment of the independent registered public accounting firm will require the affirmative vote of a majority of the shares of KBR's common stock present in person or represented by proxy at
the meeting and entitled to vote. Adoption of the proposal to approve the KBR, Inc. 2009 Employee Stock Purchase Plan will require the affirmative
3
vote
of a majority of the shares of KBR's common stock present in person or represented by proxy at the meeting and entitled to vote on, and voted for or against, the proposal at the meeting.
If my shares are held in "street name" by my broker, will my broker vote my shares for me?
If you are a beneficial owner and your broker holds your shares in its name, the broker is permitted to vote your shares on the election of directors and the
ratification of the appointment of our independent registered public accounting firm, even if the broker does not receive voting instructions from you. Accordingly, broker non-votes will
have no effect on the quorum requirement or the vote on those matters. However, a broker may not vote your shares on the proposal to approve the KBR, Inc. 2009 Employee Stock Purchase Plan
unless the broker receives voting instructions from you.
What happens if I abstain or withhold my vote on any proposal?
Abstentions are counted as present in determining whether the quorum requirement is satisfied. Abstentions from voting will not be taken into account in
determining the outcome of the election of directors or the approval of the KBR, Inc. 2009 Employee Stock Purchase Plan. Abstentions will be included in the voting tally and will have the same
effect as a vote against the ratification of the appointment of the independent registered public accounting firm.
Does KBR offer electronic delivery of proxy materials?
Yes. KBR encourages you to reduce printing and mailing costs by signing up for electronic delivery of KBR stockholder communications. With electronic delivery,
you will receive documents such as the Annual Report and the proxy statement as soon as they are available, without waiting for them to arrive in the mail. Electronic delivery also can help reduce the
number of bulky documents in your personal files and eliminate duplicate mailings. To sign up for electronic delivery, please follow the instructions on your proxy card to vote by internet at
www.proxyvote.com
and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.
What is "householding?"
In accordance with notices that KBR sent to certain stockholders, KBR is sending only one copy of its meeting materials to stockholders who share the same
address, unless they have notified KBR that they want to continue receiving multiple copies. This practice, known as "householding," is designed to reduce duplicate mailings and save significant
printing and postage costs.
If
you received a householded mailing this year and you would like to have additional copies of the Annual Report and/or proxy statement mailed to you, or you would like to revoke your
consent to the householding of documents, please submit your request to 1-800-542-1061. You will begin to receive individual copies within 30 days after your
request.
Unfortunately,
householding for bank and brokerage accounts is limited to accounts within the same bank or brokerage firm. For example, if you and your spouse share the same last name
and address, and you and your spouse each have two accounts containing KBR stock at two different brokerage firms, your household will receive two copies of the meeting materialsone from
each brokerage firm. To reduce the number of duplicate sets of meeting materials your household receives, you may wish to enroll some or all of your accounts in our electronic delivery program. See
"Does KBR offer electronic delivery of proxy materials?"
4
PROPOSAL FOR ELECTION OF DIRECTORS
Proposal 1 on Proxy Card
Our Board of Directors is "classified" into three classes serving staggered three-year terms, with Messrs. Utt and Curtiss being designated
Class I directors, Messrs. Huff, Lyles and Slater being designated Class II directors and Messrs. Carroll and Blount being designated Class III directors. The size
of our Board of Directors is currently set at seven.
Pursuant
to our Certificate of Incorporation and Bylaws, the members of the Board of Directors serve for three year terms and hold office until their successors are elected and qualified
or until their earlier resignation or removal. Class I directors will serve until the annual meeting of our stockholders to be held in 2010 and Class III directors will serve until the
annual meeting of our stockholders to be held in 2009. The terms of the current Class II directors will expire on the date of the upcoming Annual Meeting of Stockholders. Accordingly, three
persons are to be elected to serve as Class II directors at the Annual Meeting of Stockholders. Management's nominees for election by the stockholders to those three positions are the current
Class II members of the Board of Directors, Messrs. Huff, Lyles and Slater. Each nominee has indicated his willingness to serve, if elected. If any of the nominees declines to serve or
becomes unavailable for any reason, or if a vacancy occurs before the election, the proxies may be voted for such substitute nominee as we may designate. We have no reason to believe that any of the
Class II nominees will be unable to serve if elected. If a quorum is present, the nominees for Class II director receiving the highest number of votes will be elected as Class II
directors.
The Board of Directors recommends that you vote FOR the election of each Class II director nominee listed below. Properly dated and signed proxies, and
proxies properly submitted over the Internet and by telephone, will be so voted unless stockholders specify otherwise.
The
following biographical information is furnished with respect to each of the Class II director nominees for election at the meeting and each incumbent member of the Board of
Directors. The information includes age as of March 14, 2008, present position, if any, with KBR, period served as director, and other business experience during at least the past five years.
Nominees for Class II DirectorTerm Ending 2011
John R. Huff
, 62, has been Chairman of Oceaneering International, Inc.'s Board of Directors since
August 1990. Mr. Huff served as a director and Chief Executive Officer of Oceaneering International, an oil field services company, since joining the company in 1986, until his
retirement from the position of Chief Executive Officer in May 2006. Mr. Huff is also a director of BJ Services Company, Rowan Companies and Suncor Energy, Inc. Mr. Huff
joined the Board in April 2007 and is a member of the Nominating and Corporate Governance Committee and is Chairman of the Compensation Committee.
Lester L. Lyles
, 61, has been an independent consultant since 2003. Prior to that, he served in the U.S. Air Force for over
35 years as: Commander of the Space and Missile Systems Center from 1994 to 1996; Director of the Ballistic Missile Defense Organization from 1996 to 1999; Vice Chief of Staff of the
Headquarters of the U.S. Air Force from 1999 to 2000; and Commander of the U.S. Air Force Materiel Command from 2000 to 2003. Mr. Lyles is also a director of General Dynamics Corporation, MTC
Technologies, Inc., The Dayton Power and Light Company, ANSER Corp., and Baltelle Memorial Institute. Mr. Lyles joined the Board in November 2007 and is a member of the Audit
Committee and the Health, Safety and Environment (HSE) Committee.
Richard J. Slater
, 61, has been chairman of ORBIS LLC, an investment and corporate advisory firm, since
February 2003. Previously, Mr. Slater served in various executive positions with Jacobs Engineering Group Inc. (JEG) beginning in May 1980. Mr. Slater was employed
as a consultant to the chief executive officer of JEG from January 2003 to October 2006 and prior to that, he served as
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Executive
Vice President, Operations from March 1998 to December 2002. Mr. Slater presently serves as non-executive chairman of Bluebeam Software Inc., and as
an independent director of Reliance Steel & Aluminum Co. and as trustee and member of the executive committee of the board of trustees of Claremont Graduate University. Mr. Slater
joined the Board in November 2006 and is a member of the Nominating and Corporate Governance Committee and is Chairman of the Health, Safety and Environment (HSE) Committee.
Incumbent Class I DirectorsTerm Ending 2010
Jeffrey E. Curtiss
, 59, is a private investor. From January 2000 to June 2006,
Mr. Curtiss served as the Senior Vice President and Chief Financial Officer of Service Corporation International, a leading provider of funeral and cemetery services. Previously,
Mr. Curtiss was the Senior Vice President and Chief Financial Officer of Browning-Ferris Industries, Inc. from January 1992 to July 1999. Mr. Curtiss received law
degrees from two universities in 1971 and 1975. He received his CPA certificate from Colorado in 1971 and became a CFA charterholder in 2006. Mr. Curtiss joined the Board in
November 2006 and is a member of the Health, Safety and Environment (HSE) Committee and is Chairman of the Audit Committee.
William P. "Bill" Utt
, 51, was named President and Chief Executive Officer of KBR effective March 15, 2006. He was named
Chairman in April 2007. Prior to joining KBR, he was president and CEO of SUEZ Energy North America from 2000-2006, with responsibility for the LNG, retail energy, energy marketing
and trading, power generation and development businesses. From 1995-2000, he was president and CEO of Tractebel's North American energy businesses. Mr. Utt holds bachelor's and
master's degrees in mechanical engineering from the University of Virginia and has a master's degree in business administration from The Colgate Darden Graduate School of Business Administration at
the University of Virginia. Mr. Utt recently served on the National Petroleum Council, which provides advice and analysis to the U.S. Secretary of Energy. Mr. Utt is currently a trustee
for the School of Engineering and Applied Science at the University of Virginia. He is also a trustee of Episcopal High School in Houston.
Incumbent Class III DirectorsTerm Ending 2009
W. Frank Blount
, 69, is currently Chairman and Chief Executive Officer of JI Ventures, Inc., which is a
hi-tech venture capital company based in Atlanta, Georgia. From June 2000 to October 2002, he served as Chairman and Chief Executive Officer of Cypress Communications
Corporation, a telecommunications company. From January 1992 until March 1999, he served as Chief Executive Officer of Telstra Communications Corporation, Australia's principal
telecommunications company. Mr. Blount also serves on the Boards of Caterpillar, Inc., Alcatel-Lucent, Entergy, Inc. and the Advisory Board for China Telecom. Mr. Blount
joined the Board in April 2007 and is a member of the Compensation Committee and Chairman of the Nominating and Corporate Governance Committee. Mr. Blount also serves as KBR's Lead
Director.
Loren K. Carroll
, 64, is currently an independent consultant, advisor and director to Smith International, Inc. From
March 1994 until April 2006, Mr. Carroll served as President and Chief Executive Officer of M-I SWACO and Executive Vice-President of Smith
International, Inc, a worldwide supplier of drilling fluids and related equipment and services to the oil and gas industry. M-I SWACO is owned 60% by Smith
International, Inc. Mr. Carroll currently serves as a director of Forest Oil Corporation, Fleetwood Enterprises, Inc. and CGG Veritas, Inc. Mr. Carroll joined the
Board in April 2007 and is a member of the Audit Committee and the Compensation Committee.
6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information, as of February 29, 2008, regarding the beneficial ownership of KBR's common stock by persons known by KBR
to beneficially own more than five percent of its outstanding common stock, each director or nominee, each of the named executive officers referenced in the Summary Compensation Table contained in
this Proxy Statement, and all directors and executive officers as a group. Information regarding five percent stockholders in the table and footnotes is based on the most recent Statement on
Schedule 13G or 13D or amendment thereto filed by each such person with the Securities and Exchange Commission (the "SEC"), except as otherwise known to KBR. To our knowledge, except as
otherwise noted in the footnotes to this table or as provided by applicable community property laws, each individual has sole voting and investment power with respect to the shares of common stock
listed in the second column below as beneficially owned by the individual.
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Shares of KBR Common Stock Beneficially Owned
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Name and Address of Beneficial Owner(1)
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Number of
Shares(2)
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Percentage
of Class
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Capital World Investors(3)
333 South Hope Street
Los Angeles, California 90071
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20,131,420
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11.75%
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Mr. Jeffrey L. Gendell(4)
55 Railroad Avenue
Greenwich, Connecticut 06830
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18,964,512
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11.07%
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FMR LLC(5)
82 Devonshire Street, Boston,
Massachusetts 02109
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14,688,633
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8.57%
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William P. Utt(6)
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215,206
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*
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Cedric W. Burgher(6)(7)(8)(9)
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53,947
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*
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Andrew D. Farley(6)(7)(8)
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46,590
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*
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John L. Rose(6)(7)(8)
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36,120
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*
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Bruce A. Stanski(6)(7)(8)
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81,607
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*
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W. Frank Blount(6)(7)
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3,500
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*
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Loren K. Carroll(6)(7)
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3,500
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*
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Jeffrey E. Curtiss(6)(7)
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7,000
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*
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John R. Huff(6)(7)
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3,500
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*
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Lester L. Lyles(6)(7)
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3,500
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*
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Richard J. Slater(6)(7)
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7,000
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*
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All directors and executive officers as a group (18 persons)(6)(7)(8)
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779,393
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*
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*
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Less
than one percent (1%).
(1)
The
address of each of the named executive officers and directors is c/o KBR, Inc., 601 Jefferson Street, Suite 3400, Houston, Texas 77002.
(2)
Beneficial
ownership means the sole or shared power to vote, or to direct the voting of, shares of KBR common stock, or investment power with respect to KBR common stock, or any
combination of the foregoing. Each director and executive officer and the directors and executive officers as a group beneficially own less than 1% of the outstanding shares of KBR common stock.
(3)
Based
solely on a Schedule G filed January 10, 2008, Capital World Investors (CWI) is deemed to be the beneficial owner of 20,131,420 shares as a result of being a
division of Capital Research and
7
Management
Company, which is an investment advisor to various investment companies registered under Section 8 of the Investment Company Act of 1940. CWI has sole dispositive power over
20,131,420 shares and sole voting power over 9,606,130 shares.
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(4)
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Based
solely on a Schedule 13G filed January 25, 2008, Mr. Jeffrey L. Gendell is the managing member of Tontine Management, L.L.C. ("TM"), a Delaware
limited liability company, which is the general partner of Tontine Partners, L.P. ("TP"), a Delaware limited partnership. Mr. Gendell is also the managing member of Tontine Overseas
Associates, L.L.C., a Delaware limited liability company ("TOA"), the investment advisor to Tontine Overseas Fund, Ltd., a Cayman Islands Corporation ("TOF") and certain separately managed
accounts. TP directly owns 11,901,751 shares of common stock. TOA is deemed to be the beneficial owner of a total of 7,062,761 shares directly owned by TOF and the separately managed accounts.
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(5)
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Based
solely on a Schedule G filed February 14, 2008, FRM LLC ("FRM") is an investment adviser and is deemed to be the beneficial owner of 14,688,633 shares. FRM
has sole dispositive power over 14,688,633 shares and sole voting power over 995,633 shares.
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(6)
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Includes
the following shares of restricted stock as to which the holder has sole voting power, but no investment power: Mr. Utt, 197,608; Mr. Burgher, 25,603;
Mr. Farley, 26,277; Mr. Rose, 21,486; Mr. Stanski, 60,540; Mr. Blount, 3,500; Mr. Carroll, 3,500; Mr. Curtiss, 7,000; Mr. Huff, 3,500;
Mr. Lyles, 3,500; Mr. Slater, 7,000; and all executive officers and directors as a group, 506,124. The restrictions lapse, and the holder acquires sole investment power, at a rate of 20%
per year for a five year period (except that 55,306 of Mr. Utt's restricted shares must also meet certain performance measures to vest (11,061 of which have met the performance measures to
vest)).
-
(7)
-
Does
not include the following shares of restricted stock units as to which the holder has no voting power and no investment power, but which will convert to common stock on a
1-to-1 ratio, subject to certain conditions: Mr. Burgher, 12,764; Mr. Farley, 12,764; Mr. Rose, 15,406; Mr. Stanski, 15,406; Mr. Blount,
3,900; Mr. Carroll, 3,900, Mr. Curtiss, 3,900; Mr. Huff, 3,900; Mr. Lyles, 3,900; Mr. Slater, 3,900 and all executive officers and directors as a group, 130,167.
With respect to the units held by Messrs. Burgher, Farley, Rose, Stanski and all other executive officers, the restrictions lapse, and the holder acquires voting and investment power, at a rate
of 20% per year over a five year period. With respect to the units held by Messrs. Blount, Carroll, Curtiss, Huff, Lyles and Slater, the restrictions lapse, and the holder acquires voting and
investment power on July 29, 2008, which is six months from the date of grant.
-
(8)
-
Includes
shares of common stock that may be purchased by the following within 60 days of February 29, 2008, pursuant to outstanding options: Mr. Burgher, 22,466;
Mr. Farley, 15,172; Mr. Rose, 10,039; Mr. Stanski, 14,078; and all executive officers as a group, 207,581.
-
(9)
-
Cedric
Burgher resigned from his position as Senior Vice President and Chief Financial Officer as of March 5, 2008.
8
CORPORATE GOVERNANCE
Corporate Governance Materials
We are committed to good corporate governance and to effective communication with our stockholders. The roles, duties and responsibilities of the Board of
Directors and each committee of the Board of Directors are summarized below. To ensure that our stockholders have access to our governing documents, we provide copies of our Code of Business Conduct
and Corporate Governance Guidelines and the charters of each of the committees of our Board of Directors on our website at
www.kbr.com
, and copies will
be provided to any stockholder who requests them by writing to our Investor Relations Department at: 601 Jefferson Street, Suite 3400, Houston, Texas 77002.
Role of the Board of Directors
The Board of Directors represents the interests of our stockholders in perpetuating a successful business. It is the responsibility of the Board of Directors to
provide oversight of the effectiveness of management's policies and decisions, including the execution of its strategies, with a commitment to enhancing stockholder value over the long term. To this
end, Board members are expected to act in the best interests of all stockholders, be knowledgeable about our businesses, exercise informed and independent judgment and maintain an understanding of
general economic trends and conditions as well as trends in corporate governance. In addition, it is our Board's policy that Board members are expected to make every effort to attend the meetings of
the Board and committees of the Board upon which they serve, as well as stockholder meetings. All of KBR's incumbent directors attended seventy-five percent or more of the aggregate of all
meetings of the Board and of committees on which they served during the periods that they served during 2007. Our Corporate Governance Guidelines provide that all Directors should attend our annual
stockholder meetings and all of our directors attended our 2007 Annual Meeting of Stockholders.
Independence Standards
Effective upon our separation from Halliburton on April 5, 2007, the directors who were appointed by Halliburton and were not independent (other than
Mr. Utt) resigned and two non-employee, independent directors were appointed to replace them, bringing the number of non-employee, independent directors on our Board to
four. At such time our Corporate Governance Guidelines were also amended to provide that at least two-thirds of our directors must be independent. Later in April 2007, a fifth
non-employee, independent director was appointed and in November 2007, a sixth non-employee, independent director was appointed. At this time, all of our directors are
independent, as set forth in our Corporate Governance Guidelines and outlined below, except our Chairman, President and Chief Executive Officer, Mr. Utt, who does not qualify as an independent
director.
A
director will be considered independent under our Corporate Governance Guidelines if he or she:
-
-
has
no material relationship with KBR;
-
-
has
not been employed by us or any affiliate of ours during the preceding three years, and no member of the director's immediate family has been employed as an executive
officer of ours or any of our affiliates during the preceding three years;
-
-
has
not received, and does not have an immediate family member who has received, during any twelve-month period within the preceding three years, more than $100,000 in
direct compensation from KBR, other than director's fees, committee fees or pension or deferred compensation for prior service;
9
-
-
is
not a partner or an employee of KBR's independent auditor, and was not during the past three calendar years a partner or employee of KBR's independent auditor who
personally worked on KBR's audit;
-
-
does
not have an immediate family member who is a partner of KBR's independent auditor or an employee of KBR's independent auditor who participates in that firm's audit,
assurance or tax compliance (but not tax planning) practice or was during the past three calendar years a partner or employee of KBR's independent auditor who personally worked on KBR's audit;
-
-
is
not a current employee and does not have an immediate family member who is a current executive officer of any company that has made payments to, or received payments
from, KBR or any of its affiliates in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of our or such other company's consolidated gross revenues;
and
-
-
has
not (and has not had a family member who) within the preceding three years served as an executive officer with a company for which a KBR executive served on its
compensation committee.
The
definition of independence and compliance with this policy will be reviewed periodically by the Nominating and Corporate Governance Committee. All directors complete independence
questionnaires at least annually and our Board makes determinations of the independence of its members under the listing standards of the NYSE and the SEC requirements for Audit Committee members. Our
Board believes that its membership should include no more than two directors who are also employees of KBR. While this number is not an absolute limitation, other than the Chief Executive Officer, who
should at all times be a member of the Board, employee directors should be limited only to those officers whose positions or potential make it appropriate for them to sit on the Board.
Audit Committee Financial Expert Determinations
Our Board has determined that each member of its Audit Committee is financially literate and qualifies as an "audit committee financial expert," as defined in
Item 407(d) of Regulation S-K and, as described above, that each member of the Audit Committee is independent, as defined by our Corporate Governance Guidelines, the NYSE's
listing standards and Rule 10A-3 under the Securities Exchange Act of 1934.
Directors' Meetings and Stockholder Communications with Directors
The Board of Directors will meet each year immediately following the Annual Meeting of Stockholders to transact such business as may properly be brought before
the meeting. Additional regular meetings of the Board of Directors may be held without notice at such times as the Board of Directors may determine, but shall consist of at least four other regularly
scheduled meetings. Special meetings may be called by the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Corporate Secretary or a majority of the directors in
office. KBR's Bylaws permit action to be taken without a meeting if all members of the Board of Directors consent to such action in writing or by electronic transmission. During 2007, the Board of
Directors held 13 meetings.
During
each regular Board meeting, KBR's non-employee directors, all of whom have been determined by our Board to be independent under the standards of our Corporate
Governance Guidelines and the NYSE, meet in scheduled executive sessions. Our Lead Director, Mr. W. Frank Blount, presides at all executive sessions of the Board.
10
In
addition, each December our non-employee directors meet in executive session to evaluate the performance of our Chief Executive Officer. In evaluating our CEO, the
non-employee directors consider qualitative and quantitative elements of the CEO's performance, including:
-
-
leadership
and vision;
-
-
integrity;
-
-
keeping
the board informed on matters affecting KBR and its operating units;
-
-
performance
of the business (including such measurements as total stockholder return and achievement of financial objectives and goals);
-
-
development
and implementation of initiatives to provide long-term economic benefit to KBR;
-
-
accomplishment
of strategic objectives; and
-
-
development
of management.
In
addition, the non-employee directors review annually management succession plans and development programs for senior members of executive management. The evaluation and
compensation for the next full year, and management succession plans and development programs will be communicated to the Chief Executive Officer only after review and approval by the Compensation
Committee and the full Board of Directors (other than the CEO). During 2007, the non-employee directors met without management four times.
The
Chairman of the Board presides at all Board meetings. KBR's Chairman of the Board, William P. Utt, is our President and Chief Executive Officer.
Contact the Board
To foster better communication with our stockholders, KBR has established a process for stockholders and other interested parties to communicate with the Audit
Committee and the Board of Directors. The process has been approved by our Board and its Audit Committee and is designed to meet the requirements of the NYSE and the SEC. You may communicate with our
Board of Directors or the non-management directors via mail (Board of Directors c/o Director of Business Conduct, KBR, Inc., P.O. Box 3406, Houston, Texas
77253-3406), telephone (1-800-536-4217 (toll-free from the U.S. or Canada) or 770-776-5639 (calling collect from any
other country)), or e-mail (fhoukbrbod@kbr.com). Information regarding these methods of communication is also on our website,
www.kbr.com
,
under "Corporate Governance."
Our
Director of Business Conduct reviews all communications directed to the Audit Committee and the Board of Directors. The Chairman of the Audit Committee is promptly notified of any
significant communication involving accounting, internal accounting controls, auditing matters or any other
significant communications. Communications addressed to a named director are promptly sent to the director. Communications directed to the non-management directors are promptly sent to the
Lead Director. A report summarizing the significant communications is sent to each director quarterly and copies of communications are available for review by any director, except that those
designated for the non-management directors are not available to management directors. The process has been approved by both the Audit Committee and the Board, and is designed to meet the
requirements of the NYSE and the SEC.
Concerns
may be reported anonymously or confidentially. Confidentiality shall be maintained as required by law and otherwise shall be maintained unless disclosure is:
-
-
required
or advisable in connection with any governmental investigation or report;
-
-
in
the interests of KBR, consistent with the goals of KBR's Code of Business Conduct; or
-
-
required
or advisable in KBR's legal defense of the matter.
11
The Board of Directors and Standing Committees of Directors
KBR's Bylaws authorize the Board of Directors to appoint such committees as they deem advisable, with each committee having the authority to perform the duties as
determined by the Board. A substantial portion of the analysis and work of the Board is done by standing Board committees. A director is expected to participate actively in the meetings of each
committee to which he or she is appointed. At this time, the Board of Directors has four standing committees to which it has delegated certain duties and responsibilities: the Audit Committee, the
Compensation Committee, the Nominating and Corporate Governance Committee and the Health, Safety and Environment Committee. Each of the standing committees is comprised entirely of
non-employee and, in the business judgment of the Board, independent directors. The members and chairmen of the respective committees are indicated below:
|
|
Audit Committee
|
|
Compensation Committee
|
|
Nominating and Corporate Governance Committee
|
|
HSE Committee
|
|
W. Frank Blount
|
|
|
|
X
|
|
X
|
*
|
|
|
Loren K. Carroll
|
|
X
|
|
X
|
|
|
|
|
|
Jeffrey E. Curtiss
|
|
X
|
*
|
|
|
|
|
X
|
|
John R. Huff
|
|
|
|
X
|
*
|
X
|
|
|
|
Lester L. Lyles
|
|
X
|
|
|
|
|
|
X
|
|
Richard J. Slater
|
|
|
|
|
|
X
|
|
X
|
*
|
The
Board of Directors has approved a charter for each of the standing committees, which sets forth the duties and responsibilities delegated to each of the committees by the Board of
Directors and governs the committee's actions. The purpose, duties and responsibilities of each committee are briefly described below.
Audit Committee
The Audit Committee was established by the Board in November 2006 in accordance with Section 3(a)(58)(A) of the Exchange Act and currently comprises
Messrs. Carroll, Curtiss and Lyles. Mr. Curtiss serves as Chairman. The Board of Directors has determined that each member of the Audit Committee is independent and financially literate
as defined in the listing standards of the NYSE and that each member of the Audit Committee is an "audit committee financial expert," as defined in Item 407(d)(5) of
Regulation S-K. The Audit Committee met 10 times in 2007. A copy of the Audit Committee's charter is available on the Corporate Governance page of our website,
www.kbr.com
.
The
Audit Committee reviews and reports to the Board of Directors the scope and results of audits by our principal independent public accountants and our internal auditing staff and
reviews with the principal independent public accountants the effectiveness of our system of internal controls. It reviews transactions between us and our directors and officers, our policies
regarding those transactions and compliance with our Code of Business Conduct. The Audit Committee also engages our principal independent registered public accounting firm for each fiscal year,
reviews the audit and other professional services rendered by our principal independent registered public accounting firm and periodically reviews the independence of our principal independent
registered public accounting firm. Additional information about the Audit Committee and its responsibilities is included in the section of this proxy statement entitled "Audit Committee Report" and in
the charter of the Audit Committee, which was adopted by the Board of Directors.
12
Compensation Committee
The Compensation Committee was established by the Board in November 2006 and currently comprises Messrs. Blount, Carroll and Huff. Mr. Huff
serves as Chairman. The Board of Directors has determined that each member of the Compensation Committee is independent as defined in the listing standards of the NYSE. The Compensation Committee met
eight times during 2007.
The
Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of our executive officers, establishes and reviews general policies relating to
our compensation and benefits and administers the compensation plans described in the Compensation Discussion and Analysis below. The Compensation Committee's responsibilities include, but are not
limited to:
-
-
evaluating
and advising the Board regarding the compensation policies applicable to our executive officers, including guidance regarding the specific relationship of
corporate performance to executive compensation;
-
-
reviewing
and recommending to the Board: the corporate goals and objectives relevant to compensation for the Chief Executive Officer; the CEO's performance in light of these
established goals and objectives; the CEO's compensation, including salary, bonus, incentive and equity compensation based on this evaluation and considering, with respect to the long-term
incentive compensation component of the CEO's compensation, KBR's performance and relative stockholder return, the value of similar incentive awards to chief executive officers at comparable
companies, the awards given to the CEO in past years and any other factors it deems relevant;
-
-
reviewing
and making recommendations to the Board with respect to incentive compensation and other stock-based plans;
-
-
reviewing
and discussing with management the "Compensation Discussion and Analysis" and determining whether to recommend to the Board that it be included in KBR's annual
proxy statement or annual report on Form 10-K;
-
-
preparing
and publishing, over the names of the members of the Committee, an annual executive compensation report as required by the SEC to be included in KBR's annual proxy
statement or annual report on Form 10-K; and
-
-
evaluating
its own performance and reviewing the adequacy of its charter, at least annually.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee was established by the Board in March 2007, in anticipation of our separation from Halliburton, and
currently comprises Messrs. Blount, Huff and Slater. Mr. Blount serves as Chairman. The Board of Directors has determined that each member of the Nominating and Corporate Governance
Committee is independent as defined in the listing standards of the NYSE. The Nominating and Corporate Governance Committee met four times during 2007.
The
Nominating and Corporate Governance Committee's responsibilities include, but are not limited to:
-
-
developing,
implementing and periodically reviewing KBR's corporate governance guidelines;
-
-
developing
and implementing a process to assess Board and committee effectiveness;
-
-
identifying
individuals qualified to become Board members, consistent with Board-approved criteria;
13
-
-
determining
the composition of the Board and its committees; including selection of the Director nominees for the next annual meeting of stockholders; and
-
-
periodically
reviewing the compensation paid to non-employee directors (including Board and committee chairpersons) in the form of annual retainers and meeting
fees, if any, and making recommendations to the Board regarding any adjustments.
Stockholder Nominations of Directors.
Stockholders may suggest candidates for nomination by the Nominating and Corporate
Governance Committee by contacting the Committee in the manner provided above under "Contact the Board." If selected for nomination by the Nominating and Corporate Governance Committee, as described
below under "Process for the Selection of Directors," such candidate will be included in KBR's proxy statement for the annual meeting of stockholders.
Nominations
by stockholders may also be made at an Annual Meeting of Stockholders in the manner provided in our Bylaws, although such nominees will not necessarily be included in KBR's
proxy statement. The Bylaws provide that a stockholder entitled to vote for the election of Directors may make nominations of persons for election to the Board at a meeting of stockholders by
complying with required notice procedures. Nominations shall be made pursuant to written notice to our Secretary at the address set forth on page 2 of this proxy statement, and must be received
at our principal executive offices not less than ninety (90) days, nor more than one hundred twenty (120) days, prior to the anniversary date of the immediately preceding annual meeting
of stockholders. The notice shall set forth:
-
-
as
to each person the stockholder proposes to nominate for election or reelection as a Director:
-
-
the
name, age, business address and residence address of the person;
-
-
the
principal occupation or employment of the person;
-
-
the
class and number of shares of KBR common stock that are beneficially owned by the person;
-
-
all
other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended; and
-
-
such
person's written consent to serve as a director if elected; and
-
-
as
to the stockholder giving the notice:
-
-
the
name and record address of the stockholder;
-
-
the
class and number of shares of KBR common stock that are beneficially owned by the stockholder;
-
-
a
representation that the stockholder intends to appear in person or by proxy at the meeting to propose the nomination; and
-
-
a
representation whether the stockholder intends to solicit proxies from the holders of at least the percentage of common stock required to elect the nominee.
The
proposed nominee may be required to furnish other information as KBR may reasonably require to determine the eligibility of the proposed nominee to serve as a director. At any
meeting of stockholders, the presiding officer may disregard the purported nomination of any person not made in compliance with these procedures.
Qualifications of Directors.
Candidates nominated for election or re-election to the Board of Directors should
possess the following qualifications:
-
-
personal
characteristics:
-
-
highest
personal and professional ethics, integrity and values;
14
-
-
an
inquiring and independent mind;
-
-
practical
wisdom and mature judgment;
-
-
broad
training and experience at the policy-making level in business, government, education or technology;
-
-
expertise
that is useful to KBR and complementary to the background and experience of other Board members, so that an optimum balance of members on the Board can be achieved
and maintained;
-
-
willingness
to devote the required amount of time to carrying out the duties and responsibilities of Board membership;
-
-
commitment
to serve on the Board for several years to develop knowledge about KBR's principal operations;
-
-
willingness
to represent the best interests of all stockholders and objectively appraise management performance; and
-
-
involvement
only in activities or interests that do not create a conflict with the Director's responsibilities to KBR and its stockholders.
The
Nominating and Corporate Governance Committee is responsible for assessing the appropriate mix of skills and characteristics required of Board members in the context of the needs of
the Board at a given point in time and shall periodically review and update the criteria. Diversity in personal background, race, gender, age and nationality for the Board as a whole may be taken into
account in considering individual candidates.
Process for the Selection of New Directors.
The Board is responsible for filling vacancies on the Board. The Board has
delegated to the Nominating and Corporate Governance Committee the duty of selecting and recommending prospective nominees to the Board for approval. The Nominating and Corporate Governance Committee
considers suggestions of candidates for Board membership made by current Committee and Board members, KBR management, and stockholders. Each of the nominees for director at this meeting is an
incumbent director recommended by the non-management directors. The Committee may also retain an independent executive search firm to identify candidates for consideration. The Nominating
and Corporate Governance Committee will also consider candidates nominated by the stockholders in accordance with our Bylaws. A stockholder who wishes to recommend a prospective candidate should
notify KBR's Secretary, as described in this proxy statement. In 2007, the Nominating and Corporate Governance Committee retained the executive search firm Spencer Stuart to assist in identifying and
evaluating candidates for service on the Board and may use such firm or a similar firm to identify candidates in the future.
When
the Nominating and Corporate Governance Committee identifies a prospective candidate, the Committee determines whether it will carry out a full evaluation of the candidate. This
determination is based on the information provided to the Committee by the person recommending the prospective candidate, and the Committee's knowledge of the candidate. This information may be
supplemented by inquiries to the person who made the recommendation or to others. The preliminary determination is based on the need for additional Board members to fill vacancies or to expand the
size of the Board, and the likelihood that the candidate will meet the Board membership criteria listed above. The Committee will determine, after discussion with the Chairman of the Board and other
Board members, whether a candidate should continue to be considered as a potential nominee. If a candidate warrants additional consideration, the Committee may request an independent executive search
firm to gather additional information about the candidate's background, experience and reputation, and to report its findings to the Committee. The Committee then evaluates the candidate and
determines whether to interview the candidate. Such an interview would be carried out by one or
15
more
members of the Committee and others as appropriate. Once the evaluation and interview are completed, the Committee recommends to the Board which candidates should be nominated. The Board makes a
determination of nominees after review of the recommendation and the Committee's report.
Health, Safety and Environment ("HSE") Committee
The HSE Committee was established by the Board in April 2007 and currently comprises Messrs. Curtiss, Lyles and Slater. Mr. Slater serves as
Chairman. The HSE Committee met two times in 2007.
The
Health, Safety and Environment Committee's responsibilities include, but are not limited to:
-
-
reviewing
the status of KBR's health, safety and environmental policies and performance, including processes to ensure compliance with applicable laws and regulations;
-
-
reviewing
KBR's health, safety and environmental performance to determine consistency with policies and goals; and
-
-
reviewing
and providing input to KBR on the management of current and emerging health, safety and environmental issues.
Code of Ethics
KBR has adopted a "code of ethics," as defined in Item 406(b) of Regulation S-K. KBR's code of ethics, known as its Code of Business
Conduct, applies to all directors, officers and employees of KBR, including its principal executive officer, principal financial officer, principal accounting officer and controller, and also applies
to all employees of KBR and KBR's agents. KBR has posted its Code of Business Conduct on its website,
www.kbr.com
. In addition, KBR intends to satisfy
the disclosure requirements regarding any amendment to, or waiver from, a provision of the Code of Business Conduct that relates to any element of the definition of code of ethics set forth in
Item 406(b) of Regulation S-K, including the requirements of Item 5.05 of Form 8-K, by posting such information on its website,
www.kbr.com
.
In
addition, we have agreed that, for five years following our initial public offering, we will consistently implement and maintain the business practices and standards adopted by the
Halliburton Board of Directors for us with respect to internal control procedures relating to the use of foreign agents. We may amend such procedures from time to time during the five-year
period with Halliburton's prior consent, not to be unreasonably withheld.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, as provided below, with KBR's management. Based on its review, the
Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully
submitted,
The Compensation Committee of Directors
John R. Huff, Chairman
W. Frank Blount
Loren K. Carroll
March 12,
2008
16
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis explains our compensation philosophy, objectives, policies, and practices in place during 2007 with respect to our chief
executive officer ("CEO"), our chief financial officer, and the other three most highly-compensated executive officers who were employed at the end of 2007, all of whom are collectively referred to as
the "named executive officers." The named executive officers, together with the other members of our senior executive management whose compensation is determined by our Compensation Committee and our
Board of Directors, are referred to as our "senior executive management."
Until
the first meeting of our Compensation Committee in 2007, we generally continued the compensation programs established by our former parent, Halliburton, in 2006. In the first
quarter of 2007, our Compensation Committee met to evaluate and establish our compensation programs. Throughout the remainder of 2007, our Compensation Committee met seven more times to further
evaluate and revise our compensation programs as KBR transitioned to a fully independent company.
KBR's Compensation Philosophy, Objectives, Policies and Practices
Overview
Our Compensation Committee reviewed the elements of the individual compensation packages for our senior executive management. Our Compensation Committee delegated
to our CEO the duty to approve and administer the individual compensation packages for our other executives and employees, subject to our Compensation Committee's annual review of such administrative
delegation.
As
noted above, our Compensation Committee began the evaluation of our compensation programs as previously established by Halliburton, including our compensation philosophy and
objectives.
Our
compensation plans are designed to achieve the following primary objectives:
-
-
provide
a clear and direct relationship between executive pay and Company (and business unit) performance, both on a short and long-term basis;
-
-
emphasize
operating performance measures;
-
-
link
executive pay to measures of stockholder value;
-
-
support
our business strategies and management processes in order to motivate our executives; and
-
-
generally
target current market levels of total compensation opportunities near the 50th percentile for good performance and between the 50th and
75th percentile competitive level for outstanding performance.
Our
executive compensation program will be regularly reviewed so that:
-
-
the
program's components support our objectives and motivate our executives to achieve business success and generate value for our stockholders; and
-
-
the
program is administered in a manner consistent with established compensation policies.
The
basic elements of our 2007 executive compensation programs are summarized in the table below, and a detailed explanation of each element is set forth under the section titled
"Elements of Compensation." A number of these compensation elements, except for base salary, restricted stock, and certain retirement, health, and welfare benefits, are performance-based and therefore
at risk of
17
forfeiture.
In addition, the vesting of our CEO's 2007 restricted stock grant is at risk of forfeiture under the performance condition described in the section titled "KBR Restricted Stock."
|
Element
|
|
Characteristics
|
|
Purpose
|
|
Base Salary
|
|
Fixed component of pay; targeted near the median of peer companies, with salary being less than or exceeding the median based on experience, performance, and other factors.
|
|
Support market-competitiveness of annual pay for skills and experience necessary to meet the requirements of the executive's role.
|
|
|
Short-Term Incentives (Annual)
|
|
Performance-based component of pay; payout dependent on Company/Division performance relative to targeted levels. Targeted near the median of peer companies, with payouts being less than or exceeding the median based on
Company and Division performance.
|
|
Motivate and reward achievement of, and performance in excess of, our Company's and Division's annual goals.
|
|
|
Long-Term Incentives (cash performance awards, restricted stock, and restricted stock units)
|
|
Performance-based cash awards, which are realized based on total stockholder return in relation to our peer companies and return on capital. Targeted near the median of peer companies. Restricted equity awards, which
increase in value to the extent our common stock price increases.
|
|
Reward achievement of our return on capital and total stockholder return goals. Align interests of management and stockholders. Reward achievement of increases in the value of our common stock over the long term. Vesting
over time facilitates retention and provides incentives to enhance long-term value. Change-in-control protection helps retention.
|
|
|
Supplemental Retirement
|
|
Fixed component of pay. Nonqualified retirement plans.
|
|
Provide retirement benefits for executives whose ability to save in qualified plans is limited; vesting provisions retain talent.
|
|
|
Other Generally Available Benefits
|
|
Fixed component of pay. 401(k) plan under which regular employees may defer compensation for retirement; matching contributions equal to 5.5% of eligible compensation. The same or comparable health and welfare benefits
(medical, dental, vision, disability insurance and life insurance) are available to regular, full-time employees.
|
|
Provide employees the opportunity to save for their retirement. Provide benefits to meet the health care and welfare needs of employees and their families.
|
|
Except
for equity awards under our long-term incentive program, under which we granted equity compensation in the form of restricted stock and restricted stock units during
2007, our compensation elements are cash based. There is no pre-established formula for the allocation between cash and
18
non-cash
compensation or short-term and long-term compensation. Instead, each year our Compensation Committee determines, in its discretion and business judgment,
the appropriate level and mix of short and long-term incentive compensation for our senior executive management to reward near-term excellent performance and to encourage
commitment to our long-range strategic business goals. To determine the appropriate combination of elements, we consider market pay practices and practices of peer companies, as well as
individual performance.
We
believe that short-term compensation is an important factor to achieve our goals of attracting, retaining, and motivating high-performing, experienced
executives. Annual performance criteria and award levels provide incentives for our executives to focus their efforts on adding value to our business on a day-to-day basis. We
believe that long-term incentive compensation strengthens our executives' stake in the Company and aligns their interests with the interests of our stockholders. The combination of
performance and vesting components is designed to link the value that our executives receive on strong Company performance over time.
Our
internal stock nomination process is designed and administered to provide equity award grant dates that are prospective and not retrospective, or back-dated. Stock awards
approved by our Compensation Committee are effective on the later of the date of the meeting at which the approval occurs or the date of the last signature on the Compensation Committee resolution
approving the award, if our Compensation Committee acts without a meeting. Exercise prices for option awards
are set at the closing price of our common stock on the date of grant. For 2007, we granted restricted stock, restricted stock units, and cash performance awards. In addition, our employees who held
equity awards under our former parent's stock plan, the Halliburton Company 1993 Stock and Incentive Plan ("Halliburton Stock and Incentive Plan"), received converted equity awards covering KBR common
stock upon KBR's separation from Halliburton.
Role of our Compensation Committee
In 2007, our Compensation Committee reviewed, approved, and recommended to our Board of Directors for approval, the compensation and equity awards for our senior
executive management.
Pursuant
to its charter, which is available on the corporate governance page of our website,
www.kbr.com
, our Compensation Committee is
primarily responsible for establishing our overall compensation philosophy and objectives and for overseeing and evaluating our compensation and employee benefit plans and practices, particularly
executive compensation. In 2007 our Compensation Committee's role in our executive compensation program was as follows:
-
-
Evaluated
and advised our Board of Directors regarding the compensation policies applicable to our executives;
-
-
Reviewed
and recommended to our Board of Directors:
-
A.
-
our
CEO's compensation, including salary, bonus, short-term incentive, and supplemental retirement;
-
B.
-
the
long-term incentive compensation component of our CEO's compensation;
-
-
Reviewed
our CEO's recommendations with respect to, and approved, the compensation to be paid to our senior executive management under its purview, which generally included
the Section 16 officers of the Company and the Vice President of Internal Audit;
-
-
Reviewed
and made recommendations to our Board of Directors with respect to our incentive compensation and other stock-based plans;
-
-
Administered
our incentive compensation and other stock-based plans; and
19
-
-
Reviewed
and discussed our annual "Compensation Discussion and Analysis" disclosure with management, and recommended to our Board of Directors that the "Compensation
Discussion and Analysis" be included in both our annual proxy statement and our annual report on Form 10-K.
In
addition, our Compensation Committee retained compensation consultants, as it deemed appropriate.
Third-Party Consultants
While our Compensation Committee believes that using third-party consultants is an efficient way to keep current regarding competitive compensation practices, our
Compensation Committee does not accord undue weight to the advice of outside professional advisors, but instead makes changes in our compensation program in light of whether the program's intended
effects are being achieved over time. In 2007, our Compensation Committee used the services of two compensation consultants, Hewitt Associates, LLC ("Hewitt") and Towers Perrin.
Our
Compensation Committee engaged Hewitt to provide the Compensation Committee with: (1) an external benchmarking assessment of our executive compensation program in
February 2007, (2) recommendations for salaries and bonuses for our senior executives for 2007 and 2008, and (3) a competitive market assessment of our executive compensation
program following the changes made in 2007. Hewitt reported to the Compensation Committee with respect to executive compensation matters. Outside of providing executive compensation advice, Hewitt
acted as our third-party benefit plan administrator and performed limited communications and actuarial consulting services for our benefits department. Our Compensation Committee managed its
relationship with the Hewitt executive compensation consultant. The management of our Hewitt relationship with respect to our benefit plan
administration and communications and actuarial consulting work was the responsibility of our internal benefits department.
Our
Compensation Committee engaged Towers Perrin to provide it with: (1) an evaluation of the competitive posture of KBR's executive compensation levels relative to the
marketplace, (2) a review of our long-term incentive program, our supplemental retirement plans, and our severance and change-in-control practice, and
(3) potential cost implications to KBR for our executive compensation program. Towers Perrin reported to the Compensation Committee with respect to executive compensation matters. Towers Perrin
also provided compensation consulting to our management on 2007 pay programs and pay level changes prior to being engaged by our Compensation Committee. Outside of providing executive compensation
advice, Towers Perrin acted as a benefits consultant for our internal benefits department. Our Compensation Committee managed its relationship with the Towers Perrin executive compensation consultant,
and our benefits department and management managed the Company's relationship with the Towers Perrin general benefits and compensation consultants.
Benchmarking Compensation
The elements of compensation were benchmarked for our senior executive management. In the design and administration of our 2007 executive compensation programs,
our Compensation Committee considered the market data for our peer and general industry group and also used its discretion and business judgment in determining overall compensation.
Our
peer group was selected based on the engineering, construction, and services companies against which we believe KBR competes for employees and business. The data from our peer group
was obtained from publicly available proxy data (without any adjustment). Our general industry data
20
consisted
of data from two sources, Hewitt and Towers Perrin. The comparison groups generally included the following companies:
Peer Group
Chicago Bridge & Iron Company NV
|
|
Foster Wheeler Ltd
|
|
McDermott International, Inc.
|
Dyncorp International, Inc.*
|
|
Granite Construction, Inc.
|
|
The Shaw Group Inc.
|
EMCOR Group, Inc.
|
|
Jacobs Engineering Group Inc.
|
|
URS Corp
|
Fluor Corp.
|
|
|
|
|
Hewitt General Industry
Ball Corporation
|
|
Hormel Foods Corporation
|
|
SCANA Corporation
|
Borg Warner Inc.
|
|
Leggett & Platt, Incorporated
|
|
Smurfit-Stone Container Corporation
|
Brunswick Corporation
|
|
MeadWestvaco Corporation
|
|
Temple-Inland Inc.
|
CenterPoint Energy, Inc.
|
|
Owens-Illinois, Inc.
|
|
The Timken Company
|
CMS Energy Corporation
|
|
Pepco Holdings, Inc.
|
|
USG Corporation
|
Eastman Chemical Company
|
|
Reliant Energy, Inc.
|
|
WPS Resources Corporation
|
Goodrich Corporation
|
|
|
|
|
Towers Perrin General Industry
Advanced Micro Devices
|
|
Goodrich
|
|
QUALCOMM
|
Alcon Laboratories
|
|
Gorton's**
|
|
Rinker Materials**
|
Alliant Techsystems
|
|
GROWMARK
|
|
Rockwell Automation
|
Altana Pharma**
|
|
Harley-Davidson
|
|
Rockwell Collins
|
Avaya
|
|
Harman International Industries
|
|
S.C. Johnson
|
Avery Dennison
|
|
Harsco
|
|
Schwan's
|
Big Lots
|
|
Hasbro
|
|
Sonoco Products
|
Black & Decker
|
|
Hershey Foods
|
|
St. Jude Medical
|
Boston Scientific
|
|
Hilton Hotels
|
|
Starbucks
|
Brinker International
|
|
Hovnanian Enterprises
|
|
Starwood Hotels & Resorts
|
CH2M Hill
|
|
IAC/InterActive
|
|
Steelcase
|
Charter Communications
|
|
IKON Office Solutions
|
|
SunGard Data Systems
|
Chemtura
|
|
Itochu International**
|
|
TAP Pharmaceuticals
|
Clear Channel Communications
|
|
J.R. Simplot
|
|
TDS Telecom**
|
Clorox
|
|
Jacobs Engineering
|
|
Terex UCB**
|
Constellation Brands
|
|
Jarden
|
|
Unisys
|
Convergys
|
|
John Crane**
|
|
United States Cellular
|
Cytec
|
|
Kerr-McGee
|
|
United Stationers
|
Darden Restaurants
|
|
Kohler
|
|
USG
|
Discovery Communications
|
|
Lafarge North America
|
|
Vistar
|
eBay
|
|
Lexmark International
|
|
Vulcan Materials
|
Ecolab
|
|
McGraw-Hill
|
|
W.R. Grace
|
EMCOR Group
|
|
MeadWestvaco
|
|
Washington Group International
|
Engelhard
|
|
Molson Coors Brewing
|
|
Wendy's International
|
FANUC Robotics America**
|
|
Nalco
|
|
Westinghouse Savannah River**
|
Forest Laboratories
|
|
Novo Nordisk Pharmaceuticals**
|
|
Wm. Wrigley Jr.
|
Genentech
|
|
Pernod Ricard USA**
|
|
Yahoo!
|
Genzyme
|
|
|
|
|
-
*
-
In
June, our Compensation Committee revised the peer group companies to remove Washington Group International, Inc. ("Washington Group") because of the acquisition of Washington
Group by URS Corp. As a result of losing Washington Group, our Compensation Committee added Dyncorp International, Inc. to provide our Compensation Committee with sufficient data to make
meaningful comparisons to the marketplace. Hewitt initially included Quanta Services, Inc. as a peer group company; however, our Compensation Committee decided to remove Quanta Services from
our peer group because it does not compete for our employees and business to the same degree as our peer group companies.
-
**
-
Subsidiary
21
The Hewitt General Industry Group consisted of 19 companies participating in Hewitt's TCM database, crossing multiple manufacturing
and operations-focused industries of similar size and scope as KBR. Hewitt reviewed raw data and performed regression analysis in assessing market compensation data to provide appropriate comparisons
based on company size, complexity and performance, and individual role and job content.
The
Towers Perrin General Industry Group consisted of 83 companies participating in Towers Perrin's 2006 CDB Executive Compensation Database for companies with revenues between $3 to
$6 billion dollars.
Our
Compensation Committee will periodically review and update the companies comprising our peer group, as it deems appropriate, to maintain a peer group that consists of the
engineering, construction and services companies against which we believe KBR competes for employees and business.
Role of CEO in Compensation Decisions
During 2007, our CEO made recommendations to our Compensation Committee regarding the compensation and incentives for our senior executive management. Our CEO
also:
-
-
recommended
performance measures, target goals and award schedules for short-term and long-term incentive awards, and reviewed performance goals for
consistency with our projected business plan;
-
-
reviewed
competitive market data with senior executive management;
-
-
reviewed
rationale and guidelines of our stock award program;
-
-
recommended
changes to our stock award program for review and discussion by our Compensation Committee; and
-
-
developed
specific recommendations regarding the amount and form of equity compensation to be awarded to other senior executive management and the aggregate amount and form
of equity compensation, by employee level and business unit, to be awarded below the senior executive management level.
In
addition to the role of our CEO, our Compensation Committee will review and annually approve the compensation and incentive awards for our senior executive management.
Executive Compensation Policies
Our executive compensation program procedures are guided by policies. Our policy sets the parameters around those positions that require approval by our
Compensation Committee and those where delegation to our CEO is authorized. The responsibilities outlined in our Compensation Committee's charter are supported by an internal process that guides and
details the actions to be taken by our Compensation Committee, our CEO, our senior executive management, and staff. These processes coincide with our Compensation Committee's annual calendar, which
details the timing of compensation events and associated Compensation Committee actions.
Elements of Compensation
Our executive compensation program has been designed to ensure that KBR is able to attract and retain the right people for the job and that its compensation plans
support KBR's strategies, focus efforts, help achieve business success and align with KBR's stockholders' interests. Since our initial public offering in late 2006, our Compensation Committee has
undertaken to evaluate and revise our executive compensation program originally established under Halliburton.
22
Our
2007 executive compensation program consisted of the following core elements:
-
A.
-
base
salary;
-
B.
-
short-term
incentives (annual);
-
C.
-
long-term
incentives;
-
D.
-
supplemental
retirement; and
-
E.
-
other
generally available benefits.
A. Base Salary
Because our Compensation Committee did not have historical performance data available on our senior executive management in their new roles as part of a fully
independent company, our Compensation Committee relied significantly on market data for comparable positions within the KBR peer group to determine base salary for our senior executive management.
Where no peer group information was available, our Compensation Committee relied on market data for comparable positions within the general industry group. In addition to considering market
comparisons in making salary decisions, our Compensation Committee exercises discretion and judgment based on the following factors:
-
-
level
of responsibility;
-
-
experience
in current role and equitable compensation relationships among our executives;
-
-
performance
and leadership; and
-
-
external
factors involving competitive positioning, general economic conditions and marketplace compensation trends.
No
specific formula is applied to determine the weight of each factor, and the factors are considered by the Compensation Committee in its discretion. Salary reviews are conducted
annually to evaluate each executive's individual performance; however, individual salaries are not necessarily adjusted each year. Our Compensation Committee generally established base salaries at or
near the median of our peer group (using general industry group data for additional input).
During
the first quarter of 2007, our CEO presented our Compensation Committee with salary recommendations for our senior executive management. In addition, Hewitt presented its
competitive compensation analysis of our senior executive managements' compensation using peer group proxy data and Hewitt's Total Compensation Measurement database. Further, Towers Perrin presented
an analysis similar to Hewitt's using our peer group and Towers Perrin's general industry group. After reviewing the information presented from the multiple data points used by Hewitt and Towers
Perrin, our Compensation Committee adopted our CEO's recommendations as they were consistent with the Compensation Committee's objective to set compensation near the median of our peer group or of the
general industry group when no peer group information was available.
Messrs. Burgher,
Farley, Rose, and Stanski's base salaries were in the aggregate approximately 13% below the median for our peer group companies and/or our general industry
groups.
In
addition, our Compensation Committee separately reviewed our CEO's salary. Based on our Compensation Committee's review of the data from Hewitt and Towers Perrin's analysis of our
peer group companies and general industry group data, our Compensation Committee increased our CEO's salary to within approximately 10% below the median of our peer group companies to be consistent
with its objectives to set salary near the median of our peer group.
23
In
July 2007, our Compensation Committee met, reviewed data from Towers Perrin on our peer groups, and to be competitive with KBR's peer group, decided to provide an approximately
10% salary increase to Messrs. Burgher, Farley, Rose, Stanski, and Utt (except that the additional salary increase was not included for purposes of determining benefits under our medical,
insurance, retirement, annual incentive, or supplemental retirement plan).
In
December 2007, our Compensation Committee met to establish base salary for 2008 with respect to our senior executive management. The salaries for 2008 are generally within 10%
of the salaries for comparable positions in our peer group (or general industry group), except that our Compensation Committee took into consideration individual performance and internal equity in
adjusting salaries for 2008.
B. Short-Term Incentives (Annual)
Our senior executive management was eligible to participate in the KBR Senior Executive Performance Pay Plan (the "Performance Pay Plan") for the 2007 calendar
year. The Performance Pay Plan was adopted in February 2007, as a performance program under the stockholder-approved KBR, Inc. 2006 Stock and Incentive Plan, as amended (the "KBR Stock
and Incentive Plan"). The Performance Pay Plan was established under the KBR Stock and Incentive Plan to enable KBR to design the annual incentive awards as performance-based awards under
section 162(m) of the Internal Revenue Code whenever appropriate and consistent with our compensation philosophy. Our Compensation Committee established the Performance Pay Plan to reward
senior executive management for improving financial results for stockholders of KBR and to provide a means to connect cash compensation directly to KBR's performance.
The
Performance Pay Plan metrics are reviewed annually by our Compensation Committee. In February 2007, our Compensation Committee, based on the recommendation of our CEO, decided
to expand upon the performance metric used in 2006, Cash Value Added (and division Cash Value Added), to add focus on KBR's financial and cost control goals. Also, our Compensation Committee added a
performance metric that would recognize sales performance. The following four performance metrics (and weightings) were adopted by our Compensation Committee:
-
-
25%
Cash Value Added (CVA);
-
-
25%
Fully Burdened Operating Income (FBOI);
-
-
25%
Job Income Booked (JIB); and
-
-
25%
Overhead Cost Management (OCM).
CVA
(Cash Value Added) measures the difference between after-tax cash income and a capital charge (based upon KBR's weighted average cost of capital) to determine the amount
of value, in terms of cash flow, added to KBR's business. This metric helps manage the Company's balance sheet. The formula is: Cash Value Added = Cash Flow-Capital Charge. Target
is the 2007 business plan as of February (modified as described below), Threshold is Target minus 25%, and Maximum is Target plus 25%. The 2007 business plan numbers as of February were modified from
the original annual plan for both the CVA and FBOI metrics to eliminate two planned projects that the Company lost prior to our Compensation Committee's February 2007 meeting.
FBOI
(Fully Burdened Operating Income) measures the actual operating income after minority interest for KBR as published in our financials. This metric helps focus on managing
operations. Each business unit is measured on business unit income after minority interest, which does not bear the burden of corporate overhead expenses. Target is the 2007 business plan as of
February (modified as described above), Threshold is Target minus 25%, and Maximum is Target plus 25%.
24
JIB
(Job Income Booked) measures the estimated income from new project awards. This metric helps measure and reward sales performance. Target is the 2007 annual plan, Threshold is Target
minus 25%, and Maximum is Target plus 25%. The 2007 annual plan numbers for JIB were not modified from the original annual plan as they were above for the CVA and FBOI metrics because our Compensation
Committee wanted to provide an incentive to our senior executive management to continue pursuing projects to fill the gaps left by the loss of the two planned projects.
OCM
(Overhead Cost Management) measures gross overhead for KBR and each division (less any incentive award costs and, for corporate and Government & Infrastructure positions, less
the costs of our Government & Infrastructure procurement office). This metric helps manage Company costs. OCM is measured 12.5% on gross overhead expenditure, where Target is the 2007 annual
plan (less the costs described above), Threshold is Target plus approximately 3%, and Maximum is Target minus approximately 6%. In addition, OCM is measured 12.5% on gross overhead as a percentage of
operating income where, for our corporate positions, Target is 240%, Threshold is 250%, and Maximum is 230% of operating income, for our former Energy & Chemical Division positions
(i.e., Mr. Rose), Target is 87%, Threshold is 90%, and Maximum is 84% of operating income, and for
our Government & Infrastructure Division positions (i.e., Mr. Stanski), Target is 84% of income, Threshold is 87% of income, and Maximum is 81% of income.
The
goals for the performance metrics for the senior executive management in corporate positions are based upon the performance measures of our Company on a consolidated basis. For our
named executive officers, this includes Messrs. Utt, Burgher, and Farley. The performance metrics (other than CVA) for the senior executive management who are responsible for a business
division are based on that business division's performance. For the former Energy & Chemical Division, that named executive officer is Mr. Rose. For the Government &
Infrastructure Division, that named executive officer is Mr. Stanski. In September 2007, our existing divisions were divided into six business units. As a result, in 2008, our
performance metrics for these executives will be based on business unit performance instead of division performance.
At
the beginning of 2007, our Compensation Committee established an incentive reward schedule that equates given levels of performance beyond a threshold level with varying reward
opportunities paid in cash. Incentive award opportunities were established at target and maximum levels as a percentage of base salary where base salary is based on the sum of the executive's base
salary on the first day of each month during a calendar year, divided by 12. The maximum amount any participant can receive under the Performance Pay Plan is limited to double the target opportunity
level. The level of achievement of the annual performance metrics determines the dollar amount of incentive compensation payable to participants.
When
establishing target levels for the incentive reward schedule for 2007, the Compensation Committee considered, among other things, projected Company performance, strategic business
objectives, and forecasted general business and industry conditions. Generally, target levels for the incentive reward schedule reflect the benchmarking objectives set by our Compensation Committee,
with annual incentive awards near the 50th percentile of our peer group (using general industry group data for additional input) for good performance and between the 50th and
75th percentile for outstanding performance. Peer group information was variable and not comparable in many respects to our incentive measures. At the time the target levels are established,
the outcome is intended to be substantially uncertain but achievable, and to require better than expected performance from our executives. Our Compensation Committee may adopt different target levels
for its annual incentive reward schedule from time to time, as it deems appropriate.
25
During
2007, the bonus award opportunities were based on a percentage of base salary
(1)
assuming attainment of specified threshold, target, and maximum performance levels,
which were, respectively: (i) for our CEO, 36%, 90%, and 180%, (ii) for Mr. Burgher and Mr. Farley, 24%, 60%, and 120%, and (iii) generally for our other senior
executive management, 20%, 50%, and 100%. The differences in award percentages among our named executive officers reflect the differences in similar positions among our peer and general industry
groups.
-
(1)
-
Base
salary for purposes of the Performance Pay Plan does not include certain supplemental base salary payments for our senior executive management. With respect to our
CEO, $50,000 is excluded, and for all other senior executive management, $15,000 is excluded for 2007.
In
February 2008, our Compensation Committee certified the results under the Performance Pay Plan. Our Compensation Committee elected to make negative adjustments to reduce the
compensation due under the Performance Pay Plan with respect to Messrs. Utt and Stanski as a result of the loss provisions recognized on the Skopje Embassy Project. Mr. Utt's payout
under the Performance Pay Plan was reduced by approximately 14% and Mr. Stanski's payout was reduced by approximately 20%.
26
The following table is a summary of the short-term incentives for the fiscal year 2007, including the target and maximum incentive compensation amounts, performance metric
goals and the level attained, and amounts actually paid for each of our named executive officers.
2007 Short-Term Incentives Table
|
|
|
2007 Short-Term Incentives
(Annual Cash Incentive
Compensation)
|
|
Performance Metric Goals
|
|
Goal Attainment Level (Millions)
|
|
Named Executive Officer
|
|
Target
($)
|
|
Maximum
($)
|
|
Actual
($)
|
|
Goal
|
|
Weighting
(%)
|
|
Target
($)
|
|
Maximum
($)
|
|
Actual
($)
|
|
William P. Utt
|
|
693,750
|
|
1,387,500
|
|
1,000,000
|
|
KBR CVA
KBR FBOI
KBR JIB Jan - Jun 2007
KBR JIB Jul - Dec 2007
KBR Gross OCM
KBR OCM Percentage
|
|
25
25
12.5
12.5
12.5
12.5
|
|
12.3
284.2
782.3
424.0
780.4
240%
|
|
53.4
355.3
978.0
530.0
730.4
230%
|
|
107.4
518.8
263.0
593.6
759.5
146%
|
|
Cedric W. Burgher
|
|
205,000
|
|
410,000
|
|
344,400
|
|
KBR CVA
KBR FBOI
KBR JIB Jan - Jun 2007
KBR JIB Jul - Dec 2007
KBR Gross OCM
KBR OCM Percentage
|
|
25
25
12.5
12.5
12.5
12.5
|
|
12.3
284.2
782.3
424.0
780.4
240%
|
|
53.4
355.3
978.0
530.0
730.4
230%
|
|
107.4
518.8
263.0
593.6
759.5
146%
|
|
Andrew D. Farley
|
|
187,500
|
|
375,000
|
|
315,000
|
|
KBR CVA
KBR FBOI
KBR JIB Jan - Jun 2007
KBR JIB Jul - Dec 2007
KBR Gross OCM
KBR OCM Percentage
|
|
25
25
12.5
12.5
12.5
12.5
|
|
12.3
284.2
782.3
424.0
780.4
240%
|
|
53.4
355.3
978.0
530.0
730.4
230%
|
|
107.4
518.8
263.0
593.6
759.5
146%
|
|
Bruce A. Stanski
|
|
180,000
|
|
360,000
|
|
282,240
|
|
KBR CVA
KBR G&I FBOI
KBR G&I JIB Jan - Jun 2007
KBR G&I JIB Jul - Dec 2007
KBR G&I Gross OCM
KBR G&I OCM Percentage
|
|
25
25
12.5
12.5
12.5
12.5
|
|
12.3
256.3
117.3
198.0
215.3
84%
|
|
53.4
320.4
146.6
247.5
201.5
81%
|
|
107.4
470.7
141.5
239.1
200.2
43%
|
|
John L. Rose
|
|
176,250
|
|
352,500
|
|
294,338
|
|
KBR CVA
KBR E&C FBOI
KBR E&C JIB Jan - Jun 2007
KBR E&C JIB Jul - Dec 2007
KBR E&C Gross OCM
KBR E&C OCM Percentage
|
|
25
25
12.5
12.5
12.5
12.5
|
|
12.3
173.7
665.0
144.0
151.5
87%
|
|
53.4
217.1
831.2
180.0
141.8
84%
|
|
107.4
202.6
66.1
314.0
138.1
68%
|
|
In addition, our Compensation Committee approved discretionary bonuses intended to reward selected executives and key non-officer
employees for their significant efforts in connection with our separation from Halliburton. The bonus amounts for our named executive officers were as follows:
(1) Mr. Utt$100,000, (2) Mr. Burgher$75,000, and (3) Mr. Farley$50,000, as noted in column (d) of the Summary
Compensation Table.
In
2008, our Compensation Committee adopted new performance metrics under the Performance Pay Plan for the 2008 calendar year. For KBR corporate, our Compensation Committee adopted the
following new performance metrics (and weightings): (1) Return on Capital (20%), (2) Earnings Per Share (20%), (3) Job Income Sold (20%), (4) Net Overhead Expense (20%),
(5) Safety (10%), and
(6) Retention (10%). These metrics, along with business unit income, were generally also adopted for the business units, except with different weightings and measurements than with respect to
the measurements for KBR corporate. In addition, our Compensation Committee has discretion to reduce the payout levels based on personal performance.
27
C. Long-Term Incentives
KBR has two long-term incentive plans, the KBR Stock and Incentive Plan and the Transitional Stock Adjustment Plan. Under the KBR Stock and Incentive
Plan, our Compensation Committee made the following grants to our named executive officers in 2007: (1) KBR Performance Awards and (2) KBR Restricted Stock. A description of the KBR
Stock and Incentive Plan, the methodology used by our Compensation Committee to determine the mix of awards to grant, and the KBR Performance Awards and KBR Restricted Stock granted under the KBR
Stock Incentive Plan are provided below.
The
Transitional Stock Adjustment Plan was established solely to maintain the stock options and restricted stock granted to KBR employees under the Halliburton Stock and Incentive Plan
that were still outstanding at the time of our separation from Halliburton and subsequently converted to KBR stock options and restricted stock. No further grants may be made under the Transitional
Stock Adjustment Plan. The details of the conversion of these stock options and restricted stock are provided below.
KBR Stock and Incentive Plan
We use long-term incentives to achieve the following objectives:
-
-
reward
consistent achievement of value creation and operating performance goals;
-
-
align
management's interests with stockholders' interests; and
-
-
encourage
long-term perspectives and commitment.
Long-term
incentives represent the largest component of total executive compensation opportunity for our executives. We believe this is appropriate given our belief that
executive pay should be closely tied to stockholder appreciation.
The
KBR Stock and Incentive Plan provides for a variety of cash and stock-based awards, including nonqualified and incentive stock options, restricted stock/units, performance
shares/units, stock appreciation rights, and stock value equivalents, also known as phantom stock. The KBR Stock and Incentive Plan allows the Compensation Committee the discretion to select from
among these types of awards to establish individual long-term incentive awards. Our Compensation Committee met once in June 2007 and twice in July 2007 to review the amount
and appropriate mix of long-term incentive awards to be granted to our senior executive management.
For
purposes of establishing the amount of the long-term incentive awards, our Compensation Committee engaged Towers Perrin to provide our Compensation Committee with a
comparison of our senior executive management's target total direct compensation (including target total annual compensation plus long-term incentives). Our Compensation Committee decided
to target the long-term incentive awards at around the 50
th
percentile of our peer group for our senior executive management as a group.
Granting
a mix of incentives allows us to provide a diversified yet balanced long-term incentive program that effectively addresses volatility in our industry and in the
stock market, and maintains an incentive to meet performance goals. Our Compensation Committee granted our senior executive management a mixture of 60% performance awards (based on target value) and
40% restricted stock under the KBR Stock and Incentive Plan. Our Compensation Committee concluded that this mix of restricted stock and performance awards was consistent with its objectives.
Specifically, the restricted stock (i) is directly tied to our stock price performance and therefore, directly to stockholder value and (ii) provides a significant incentive for our
senior executive management to remain with the Company. The performance awards focus executives to improve long-term returns and reward consistent achievement. Our Compensation Committee
awarded a higher percentage of performance awards than restricted stock because our Compensation Committee believes that emphasizing performance is more
28
likely
to increase shareholder value. Our Compensation Committee decided in favor of using restricted stock instead of stock options because restricted stock instills more of a sense of ownership and
aligns our senior executive management's interest directly with our stockholders.
KBR Performance Awards
The KBR Performance Awards are long-term incentive awards designed to provide selected executives with specified incentive opportunities contingent on
the level of achievement of pre-established corporate performance objectives. When establishing target levels of corporate performance, our Compensation Committee considered, among other
things, projected Company performance, strategic business objectives, and forecasted general business and industry conditions. Generally, the target levels reflected the benchmarking objectives set by
our Compensation Committee, with target program awards near the 50th percentile of our peer group. At the time the target levels were established, the outcome was intended to be substantially
uncertain but achievable, and to require better than expected performance from our executives.
Performance
is based 50% on Total Shareholder Return (TSR), as compared to our peer group (Chicago Bridge & Iron Company NV, Chiyoda Corp., Dyncorp
International, Inc., Fluor Corp., Foster Wheeler Ltd, Jacobs Engineering Group Inc., JGC Corp., Saipem, The Shaw Group Inc., Technip, and URS Corp.), and 50% on KBR's
Return on Capital (ROC). The peer group used for our performance awards is slightly different than our peer group used for benchmarking compensation of our senior executive management, as described
above under
Benchmarking Compensation
. In our benchmarking compensation peer group, the foreign companies, Chiyoda Corp., JGC Corp., Saipem, and
Technip, were replaced with EMCOR Group, Inc., Granite Construction, Inc., and McDermott International, Inc. due to difficulties in determining compensation data for foreign
companies and to provide our Compensation Committee with sufficient data to make meaningful comparisons to the marketplace.
ROC
is the weighted average of the Company's net income from continuing operations plus (interest expense × (1-effective tax rate)), divided by
average monthly capital from continuing operations, with monthly capital from continuing operations equal to average monthly total assets less (average monthly non-interest bearing
liabilities plus average monthly minority interest), as reported in the Company's audited reported financials for (i) the period July 1, 2007 through December 31, 2007,
annualized, (ii) 2008, and (iii) 2009, with the 2007 period weighted 20% and the 2008 and 2009 years each weighted 40%. For the purpose of these awards, ROC is calculated in the
same manner as for the financial reports prepared for use by our senior executives for business purposes and as reported to our Board of Directors.
After
the end of each performance award cycle, our Compensation Committee will determine the extent to which the performance goals have been achieved, and the amount of the performance
award will be computed for each selected executive in accordance with the table below. For results between Threshold and Target and Target and Maximum, the Performance Percentage earned is determined
by linear interpolation between the two applicable standards based on the results achieved for the respective performance measures. The following table shows the manner in which the earned value of
the performance awards is determined.
Determination of the "Earned" Value of Performance Awards
Performance Percentage
|
|
Weighting
|
|
<Threshold
0%
|
|
Threshold
50%
|
|
Target
100%
|
|
Maximum
200%
|
Company's TSR Rank with Peer Group Members' TSR
|
|
50%
|
|
<25th
|
|
25th
|
|
50th
|
|
75th
|
ROC
|
|
50%
|
|
<6.4%
|
|
6.4%
|
|
8.4%
|
|
11.4%
|
29
For
TSR, achievement of the 25th percentile results in a 50% target payout, the 50th percentile in a 100% target payout, and the 75th percentile in a 200% target
payout. For ROC, achievement of 6.4% results in a 50% target payout, 8.4% in a 100% target payout, and 11.4% in a 200% target payout. The performance awards may only be paid in cash.
KBR Restricted Stock
Our Compensation Committee granted our senior executive management restricted stock that is subject to a five-year graded vesting schedule, based on
service with the Company. In addition, the vesting of our CEO's restricted stock is subject to the Company having net income greater than or equal to $0, under certain conditions described below, for
the calendar year preceding the annual vesting date. This puts a major component of our CEO's total annual compensation directly at risk and subject to the performance of the Company. The
determination of net income with respect to our CEO's restricted stock award will not be reduced by the after-tax earnings impact of: (i) any item that originated, or relates to the
period, prior to our CEO's first date of employment with the Company, (ii) the negative effect of required changes in accounting principles, or (iii) the negative effect of changes in
the tax law.
Transitional Awards
Following our separation from Halliburton, each stock option and restricted stock award granted to our employees under the Halliburton Stock and Incentive Plan
that was still outstanding was converted to an equity award covering KBR common stock in accordance with a pre-existing requirement under the Halliburton Stock and Incentive Plan. The
converted KBR equity awards were made pursuant to the Transitional Stock Adjustment Plan, which was adopted solely for that purpose. The converted equity awards are subject to substantially the same
terms as they were under the Halliburton Stock and Incentive Plan prior to conversion. No new awards can be made under the Transitional Stock Adjustment Plan.
The
conversion under the Halliburton Stock and Incentive Plan was based on a formula using an adjustment ratio based on the volume-weighted average price ("VWAP") of Halliburton common
stock on Thursday, April 5, 2007, and the VWAP of KBR common stock on Monday, April 9, 2007. This adjustment ratio was calculated to be 1.6156 (the "Adjustment Ratio").
Restricted
shares of Halliburton common stock were converted into a number of restricted shares of KBR Common Stock by multiplying the number of restricted shares of Halliburton stock by
the Adjustment Ratio, rounded to the nearest whole share (with fractional shares equal to or greater than 0.5 rounded up). The restricted shares of KBR Common Stock are subject to the same
restrictions as were applicable to the corresponding shares of Halliburton restricted stock.
Halliburton
stock options, whether vested and unexercised or unvested, were converted by multiplying the number of shares subject to the Halliburton stock option by the Adjustment Ratio,
rounded down to the nearest whole share. The resulting number is the number of shares of KBR Common Stock subject to the converted option. The new exercise price for the KBR stock options is equal to
the exercise price of the Halliburton stock option, divided by the Adjustment Ratio, rounded up to the
nearest whole cent. The exercise and vesting schedule for the original Halliburton stock options continue to apply to the adjusted KBR stock options.
To
comply with the Internal Revenue Code Section 409A, the adjustment was intended not to result in a more favorable adjustment outcome.
30
Total Equity Awards Outstanding for All Employees and Directors
As of December 31, 2007, under the Transitional Stock Adjustment Plan, 757,636 shares of restricted stock had not yet lapsed and 1,285,373 stock options
were outstanding. In addition, under the KBR Stock and Incentive Plan, 266,294 shares of restricted stock and 972,287 restricted stock units had not yet lapsed and 837,921 stock options were
outstanding.
D. Supplemental Retirement
Following our separation from Halliburton, our Compensation Committee met on April 12, 2007, and approved the KBR Supplemental Executive Retirement Plan,
KBR Elective Deferral Plan, KBR Benefit Restoration Plan, and KBR Dresser Deferred Compensation Plan in order to provide a continuation of benefits to our employees who were entitled to such benefits
under the Halliburton Company Supplemental Executive Retirement Plan, Halliburton Elective Deferral Plan, Halliburton Company Benefit Restoration Plan, and Dresser Industries Inc. Deferred
Compensation Plan and to comply with our obligations under the Employee Matters Agreement between Halliburton and KBR that was entered into prior to our initial public offering in 2006. These newly
approved Company retirement plans are substantially similar to the Halliburton plans, except as revised to comply with new Internal Revenue Code rules on deferred compensation.
KBR Supplemental Executive Retirement Plan
The KBR Supplemental Executive Retirement Plan (the "SERP") was established to provide competitive retirement benefits (based on a review of our peer group
companies and general industry group data) to selected executives of KBR. Determinations as to who would receive an allocation for a
particular plan year and the amount of the allocation are made in our Compensation Committee's sole discretion. Our Compensation Committee met once in June 2007 and twice in July 2007 to
determine which executives should participate in the SERP and to what extent. On July 28, 2007, our Committee approved a contribution equal to 26% of income for our CEO and each US based member
of our senior executive management over the age of 50. Each executive who receives a contribution must be employed for at least five years (three years for executives who were over age
60) following the contribution in order to begin vesting. The vesting provision was put in place to encourage participant retention.
In
making such determinations, our Compensation Committee considered the following factors:
-
-
our
current qualified retirement program;
-
-
the
nonqualified retirement plans provided by our peer group companies;
-
-
SERP
design considerations from Towers Perrin; and
-
-
cost.
Based
on these factors, our Compensation Committee decided on a goal of achieving a reasonable replacement of income (based on Company contributions to both the SERP and our qualified 401(k) plan),
assuming a scenario in which the executive began work at KBR at age 25, began participating in the SERP at age 50, and retired from KBR at age 65. To simplify the administration
of the SERP and to shift the risk of not achieving a reasonable replacement income away from KBR, our Compensation Committee elected to use an approximate average contribution to achieve this
resultthat is, to use a defined contribution SERP rather than a defined benefit SERP. Consequently, the actual replacement income for each participant will depend on the executive's
length of time in the SERP, actual salary increases, investment returns, and life span. Benefits under the plan are payable upon a termination of service.
31
Of
the named executive officers, only Mr. Utt and Mr. Rose received an allocation in 2007 under the terms of the SERP, as listed in the Nonqualified Deferred Compensation
table. Messrs. Utt and Rose were not credited with interest in 2007 because their 2007 allocation was received after 2007. Mr. Stanski was credited with interest for 2007 on amounts
already allocated to his account from prior years. The total account balance for Mr. Stanski is fully vested.
KBR Elective Deferral Plan
Our named executive officers may participate in the KBR Elective Deferral Plan, a nonqualified deferred compensation plan, to meet their retirement and other
future income needs. Participation is completely voluntary. Pre-tax deferrals of up to 75% of base salary and/or incentive compensation are allowed each calendar year. Interest is credited
based upon the participant's election from among four benchmark investment options. The only named executive officers who had an account balance under the Plan during 2007 were Messrs. Utt and
Farley. The elective deferral plan is a nonqualified deferred compensation plan that earns interest based on deemed investment options selected by the participants. Benefits under this plan are
payable upon a termination of employment (or a specified future date).
KBR Benefit Restoration Plan
Our named executive officers may participate in the KBR Benefit Restoration Plan, a nonqualified plan that provides a vehicle to restore qualified plan benefits
that are reduced as a result of limitations imposed under the Internal Revenue Code or due to participation in other Company sponsored plans. The benefit restoration plan is a nonqualified deferred
compensation plan that earns interest at the rate of 10% per annum, which is 4.32% above 120% of the federal long-term rate. In 2007, our named executive officers received awards under the
benefit restoration plan in the amounts shown in the footnotes to the Summary Compensation Table. Benefits under this plan are payable upon a termination of employment.
KBR Dresser Deferred Compensation Plan
One of our named executive officers, Mr. Rose, participates in the KBR Dresser Deferred Compensation Plan, an unfunded, frozen deferred compensation plan,
which was established to continue to provide benefits under the Dresser Industries, Inc. Deferred Compensation Plan sponsored by Halliburton. Prior to the plan being frozen on January 1,
2000, a participant could elect to defer compensation into the plan. A participant's deferrals were then converted to units equivalent to
company
(2)
stock based on a discounted price of company stock. The discount could be no more than 25% of company stock fair market value. While additional deferrals are no longer
permitted, a participant's benefit may continue to grow in three ways: through dividend equivalents on unit accounts, interest paid on cash accounts, and through unrealized gains. Interest is payable
annually on the participant's cash account, if any, at the annual savings account rate of a major bank designated by the plan administrator. A participant's cash account is payable in cash, and the
unit account is payable in company stock. Benefits under the plan are payable on the January 15
th
following the participant's termination of employment.
-
(2)
-
Prior
to the separation of KBR from Halliburton in April 2007, the units were equivalent to Halliburton common stock. Upon the separation, the units were
converted to KBR units, and are now based on the value of KBR common stock.
Defined Benefit Retirement Plan
Our named executive officers do not participate in any KBR sponsored defined benefit pension plans. Mr. Rose did participate in the frozen Halliburton
Retirement Plan, which is sponsored by our
32
former
parent company, Halliburton. However, KBR is not responsible for any of the liabilities under the Halliburton Retirement Plan.
E. Other Generally Available Benefits
Generally, our named executive officers participate in the same retirement and health and welfare programs as our other employees. In 2007, our named executive
officers participated in the Kellogg Brown & Root, Inc. Retirement and Savings Plan. Pursuant to this plan, we made employer matching contributions equal to 5.5% of eligible
compensation. Their health care and insurance coverage is the same as that provided to active employees.
Our
Compensation Committee determined that it would no longer offer perquisites to our senior executive management. Our Company does not own a private aircraft, nor do we participate in
a fractional aircraft ownership program. Our executives do not have company cars or car allowances. To
allow for maximum efficiency and productive use of time, one Company-leased car and driver is provided in Houston and one Company-leased car and driver is provided in Arlington for use by our named
executive officers for business purposes, except that our named executive officers may use a Company-leased car and driver for limited personal use only if the car is not being used by another named
executive officer for business purposes at that time.
Impact of Performance on Compensation
Some of our executives and key non-officer employees were eligible to participate in the KBR Performance Pay Plan during 2007 (as described above
under the heading "Short-Term Incentives (Annual)"). Our named executive officers earned annual incentive compensation for the 2007 fiscal year in the amounts shown in the Summary
Compensation Table. The 2007 rewards for the Performance Pay Plan were paid in cash in the first quarter of 2008. In addition, Mr. Utt's restricted stock grant for 2007 is subject to our
Company having $0 or greater income for the year ended prior to each vesting date as more fully described in the section titled "KBR Restricted Stock."
Impact of Accounting, Regulatory, and Tax Requirements on Compensation
Our Company has adopted Statement of Financial Accounting Standards 123(R), Share-Based Payment (or "FAS 123(R)"). The adoption of FAS 123(R) has
not affected the mix of equity awards under our long-term incentive compensation program.
Section 162(m)
of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation paid to the CEO or any of the four other most highly
compensated officers to the extent the compensation exceeds $1 million in any year. Qualifying performance-based compensation is not subject to this sanction if certain requirements are met.
Our
policy is to utilize available tax deductions whenever appropriate and consistent with our compensation philosophy. When designing and implementing our compensation programs, we
consider all relevant factors, including the availability of tax deductions with respect to compensation. Accordingly, we have attempted to preserve the federal tax deductibility of compensation in
excess of $1 million a year to the extent doing so is consistent with the intended objectives of our compensation philosophy. However, we may from time to time pay compensation to our
executives that may not be fully deductible.
The
KBR Stock and Incentive Plan was designed to allow qualification under Section 162(m) of stock options, stock appreciation rights, and performance share awards, as well as,
short-term and long-term cash performance plans.
Section 304
of the Sarbanes-Oxley Act of 2002 applies to any cash or equity-based incentive compensation paid to specified executives where the payment was predicated upon the
achievement of
33
certain
financial results that were subsequently the subject of restatement. We expect that our Compensation Committee will adopt a policy, when and where applicable, to seek to recover any amount
determined to have been inappropriately received by any individual executive.
We
are administering all nonqualified, deferred compensation plans and payouts in compliance with the provisions of Section 409A of the Internal Revenue Code added under the
American Jobs Creation Act of 2004. Plan documents will be amended in 2008 to incorporate the effects of Section 409A as adopted.
Conclusion
In a highly competitive market for executive talent, we believe our customers' and employees' interests, as well as those of our stockholders and other
stakeholders, are well served by our compensation programs. These programs are reasonably positioned to our peer group companies and general industry group, encourage and promote our compensation
objectives with a strong emphasis on pay for performance, and permit the exercise of our Compensation Committee's discretion in the design and implementation of compensation packages. Going forward,
we will continue to review our compensation plans periodically to determine what revisions, if any, should be made.
34
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth information regarding the compensation of our named executive officers during 2007.
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)(1)
|
|
Stock
Awards
($)(2)
|
|
Option
Awards
($)(2)
|
|
Non-Equity
Incentive Plan
Compensation
($)(3)
|
|
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)(4)
|
|
All Other
Compensation
($)(5)
|
|
Total
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
William P. Utt(6)
Chairman of the Board, President & CEO
|
|
2007
2006
|
|
817,704
487,987
|
|
100,000
417,810
|
|
714,998
221,694
|
|
|
|
1,000,000
235,966
|
|
755
|
|
272,774
21,489
|
|
2,906,231
1,384,946
|
|
Cedric W. Burgher
SVP & Chief Financial Officer
|
|
2007
2006
|
|
355,770
300,000
|
|
75,000
54,936
|
|
185,199
96,352
|
|
150,070
74,734
|
|
344,400
110,064
|
|
190
|
|
15,013
33,966
|
|
1,125,642
670,052
|
|
Andrew D. Farley(7)
SVP & General Counsel
|
|
2007
|
|
326,153
|
|
50,000
|
|
133,089
|
|
77,369
|
|
315,000
|
|
362
|
|
12,058
|
|
914,031
|
|
Bruce A. Stanski
President, Government & Infrastructure
|
|
2007
2006
|
|
375,006
359,678
|
|
|
|
230,497
177,682
|
|
143,947
77,663
|
|
282,240
438,038
|
|
1,179
733
|
|
62,376
86,543
|
|
1,095,245
1,140,337
|
|
John L. Rose
President, Upstream
|
|
2007
2006
|
|
366,701
301,302
|
|
38,460
|
|
151,432
65,377
|
|
106,834
57,565
|
|
294,338
117,647
|
|
728,700
4,427
|
|
195,357
48,197
|
|
1,843,362
632,975
|
|
-
(1)
-
For
bonuses in 2007, our Compensation Committee granted discretionary bonuses to Messrs. Utt, Burgher, and Farley and certain other employees for their efforts in the
separation of KBR from Halliburton. For bonuses in 2006, our Compensation Committee granted discretionary bonuses to selected senior executive management to reward them for their performance during
2006 and for their performance in their new management roles.
-
(2)
-
The
amounts in columns (e) and (f) reflect the dollar amount recognized for 2006 and 2007 in accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123(R), "Share-Based Payment," for awards pursuant to the KBR Stock and Incentive Plan and the KBR, Inc. Transitional Stock Adjustment Plan and thus may include
amounts from awards granted in and prior to 2006 and 2007. Assumptions used in the calculation of these amounts are described in note 3 under "Significant Accounting Policies" and
note 17 under "Stock Incentive Plans" of our audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2007, and the
comparable disclosures in 2006.
-
(3)
-
Earnings
reportable in column (g) relate to payments under our Performance Pay Plan for 2006 and 2007 and under Halliburton's Performance Unit Plan for 2006. Benefits under
these plans are payable by their terms at a later date.
35
-
(4)
-
The
amounts shown in column (h) include the following:
|
Name
|
|
Year
|
|
Halliburton
Defined Benefit
|
|
Benefit
Restoration
|
|
Elective
Deferral
|
|
Dresser Deferred
Compensation
|
|
Total
(A)
|
|
Utt
|
|
2007
2006
|
|
|
|
637
|
|
118
|
|
|
|
755
|
|
Burgher
|
|
2007
2006
|
|
|
|
190
|
|
|
|
|
|
190
|
|
Farley
|
|
2007
|
|
|
|
199
|
|
163
|
|
|
|
362
|
|
Stanski(B)
|
|
2007
2006
|
|
|
|
1,179
733
|
|
|
|
|
|
1,179
733
|
|
Rose
|
|
2007
2006
|
|
622
892
|
|
1,517
1,145
|
|
|
|
726,561
2,390
|
|
728,700
4,427
|
|
-
(A)
-
Any
amounts reportable here and in column (h) of the Summary Compensation Table are payable in connection with KBR's nonqualified deferred compensation plans, the KBR Benefit
Restoration Plan (Benefit Restoration), KBR Elective Deferral Plan (Elective Deferral), and KBR Dresser Deferred Compensation Plan (Dresser Def. Comp.). These amounts reflect above market or
preferential earnings on nonqualified deferred compensation. The amounts reportable in connection with the Halliburton Defined Benefit Plan reflect the aggregate change in the actuarial present value
of Mr. Rose's plan benefit. KBR did not assume any responsibility for the Halliburton Defined Benefit Plan following our separation from Halliburton.
-
(B)
-
Mr. Stanski
was the only named executive officer who had earnings in the KBR Supplemental Executive Retirement Plan (SERP) during 2006 and 2007. While several of our other
named executive officers received a contribution to the SERP relating to 2007 service, such contributions were not contributed to the SERP until after 2007, and therefore, no earnings were credited to
their accounts in 2007. The earnings on Mr. Stanski's SERP account are excluded as they are not above market. Interest under the SERP for 2007 was credited at a rate of 5%, which is below
market.
-
(5)
-
The
amounts shown in column (i) above include the following:
|
Name
|
|
Year
|
|
Company
Match
(401k)
|
|
Benefit
Restoration
Award
|
|
Restricted
Dividends
|
|
SERP
|
|
Company
Car
(A)
|
|
Relocation
Costs
(B)
|
|
Per
Diem
(C)
|
|
Foreign
Income
Tax
Imputed
(D)
|
|
Total
|
|
Utt
|
|
2007
2006
|
|
8,559
|
|
29,849
14,739
|
|
6,750
|
|
234,000
|
|
366
|
|
|
|
|
|
|
|
272,774
21,489
|
|
Burgher
|
|
2007
2006
|
|
8,646
5,712
|
|
6,367
4,400
|
|
4,275
|
|
|
|
|
|
19,579
|
|
|
|
|
|
15,013
33,966
|
|
Farley
|
|
2007
|
|
7,320
|
|
4,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,058
|
|
Stanski
|
|
2007
2006
|
|
8,646
8,359
|
|
7,425
7,682
|
|
14,731
|
|
|
|
|
|
|
|
46,305
55,771
|
|
|
|
62,376
86,543
|
|
Rose
|
|
2007
2006
|
|
10,125
9,900
|
|
6,969
4,472
|
|
3,512
|
|
85,064
|
|
20
|
|
|
|
|
|
93,179
30,313
|
|
195,357
48,197
|
|
-
(A)
-
The
amounts in this column include $366 for Mr. Utt's and $20 for Mr. Rose's limited personal use of the Company-leased car and driver.
-
(B)
-
The
amounts in this column include $14,400 in imputed closing costs and $5,179 in tax equalization for the closing cost payments in connection with Mr. Burgher's
business-related relocation.
-
(C)
-
In
addition to the amount reported for Mr. Stanski's base salary earned in 2006 and 2007, he also received a per diem payment as a cost of living differential, which is
included under this column.
-
(D)
-
Foreign
Income Tax (imputed) for Mr. Rose represents company-paid host-country 2006 personal income taxes resulting from Halliburton stock options
exercised in 2006 that were awarded when Mr. Rose was on foreign assignment. A tax gross-up was paid in 2007 and was reported as 2007 non-payroll compensation.
-
(6)
-
Mr. Utt's
base salary for 2006 represents his salary for the nine months he was employed in 2006.
-
(7)
-
Mr. Farley's
2006 information is not included because he was not a named executive officer in 2006. Also, Mr. Farley ceased to be the Secretary of the Company on
February 29, 2008.
36
Grants of Plan Based Awards
The following table provides information regarding awards under the KBR Senior Executive Performance Pay Plan and the KBR Stock and Incentive Plan.
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(2)
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards
|
|
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
|
|
|
|
Grant
Date Fair
Value of
Stock
and
Option
Awards
($)(3)
|
|
|
|
|
|
|
|
|
Exercise
or Base
Price of
Option
Awards
($/Sh)
|
|
|
|
|
|
|
Number of
Non-equity
Incentive
Plan Units
Granted
|
|
|
|
|
|
|
|
Name
|
|
Grant
Type(1)
|
|
Grant
Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
(k)
|
|
(l)
|
|
(m)
|
|
(n)
|
|
William P. Utt
|
|
STI
PAs
RS
|
|
7/28/07
|
|
2,400,000
|
|
277,500
1,200,000
|
|
693,750
2,400,000
|
|
1,387,500
4,800,000
|
|
|
|
|
|
|
|
55,306
|
|
|
|
|
|
1,600,003
|
|
Cedric W. Burgher
|
|
STI
PAs
RS
|
|
7/28/07
|
|
480,000
|
|
82,000
240,000
|
|
205,000
480,000
|
|
410,000
960,000
|
|
|
|
|
|
|
|
11,062
|
|
|
|
|
|
320,024
|
|
Andrew D. Farley
|
|
STI
PAs
RS
|
|
7/28/07
|
|
480,000
|
|
75,000
240,000
|
|
187,500
480,000
|
|
375,000
960,000
|
|
|
|
|
|
|
|
11,062
|
|
|
|
|
|
320,024
|
|
Bruce A. Stanski
|
|
STI
PAs
RS
|
|
7/28/07
|
|
480,000
|
|
72,000
240,000
|
|
180,000
480,000
|
|
360,000
960,000
|
|
|
|
|
|
|
|
11,062
|
|
|
|
|
|
320,024
|
|
John L. Rose
|
|
STI
PAs
RS
|
|
7/28/07
|
|
480,000
|
|
70,500
240,000
|
|
176,250
480,000
|
|
352,500
960,000
|
|
|
|
|
|
|
|
11,062
|
|
|
|
|
|
320,024
|
|
-
(1)
-
During
fiscal year 2007, the named executive officers received three types of plan-based awards: Short-Term Incentive (Annual) (STI), Performance Awards (PAs),
and Restricted Stock (RS). All awards were granted under the KBR Stock and Incentive Plan, except that the STI was granted under the KBR Senior Executive Performance Pay Plan, which is a performance
plan under the KBR Stock and Incentive Plan.
-
(2)
-
Actual
bonus payments under the KBR Senior Executive Performance Pay Plan may equal amounts between performance level percentages. Estimated bonus payments are calculated using the
sum of the Participant's annual base salary (excluding any supplemental payments) as determined on the first day of each month during the calendar year, divided by twelve.
-
(3)
-
The
amounts in column (n) are calculated based on the product of the shares of RS granted and the closing price of our common stock on July 27, 2007, which was the last
trading day prior to the grant date of July 28, 2007 (Saturday).
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
We entered into employment agreements with Mr. Utt as of March 15, 2006, Mr. Burgher as of November 7, 2005, and Mr. Stanski as
of August 1, 2004, that will continue in effect until terminated by both parties and provide for base annual salaries of $625,000, $300,000, and $323,695, respectively, which may be increased
in accordance with our general compensation policies. Mr. Utt's employment agreement also provided for a one-time signing bonus of $75,000 plus a one-time bonus of
$225,000, to which Mr. Utt became entitled at the closing date of our initial public offering. Mr. Stanski's employment agreement provides for Mr. Stanski to receive a cost of
living adjustment during the time he is required to reside in the Washington, D.C. area.
Under
Mr. Utt's employment agreement, he received a grant of 15,000 (which were split to 30,000) restricted shares of Halliburton common stock (his outstanding Halliburton
restricted stock was converted into 38,744 shares of KBR restricted stock upon the separation of KBR from Halliburton), and in 2006, was afforded a reward opportunity of 65%-130% of his
base salary based on achievement of plan level/challenge level objectives. Mr. Utt's employment agreement also provided for his receipt of restricted shares of our common stock with a fair
market value of $2.2 million immediately after the closing of our initial public offering.
37
Under
the terms of Mr. Burgher's employment agreement, he was granted 7,500 restricted shares of Halliburton common stock and an option to purchase 7,500 shares of Halliburton
common stock (his outstanding Halliburton restricted stock and stock options were converted to similar KBR awards upon the separation of KBR from Halliburton).
KBR Stock and Incentive Plan
During fiscal year 2007, our named executive officers received three types of plan-based awards under our KBR Stock and Incentive Plan (including the
Performance Pay Plan adopted thereunder): (1) an annual Short-Term Incentive (STI) award, (2) a Non-equity Incentive Plan Unit or Performance Award (PAs), and
(3) Restricted Stock (RS). STI is paid based on achieving pre-established metrics, including cash value added, job income booked, fully burdened operating income, and overhead cost
management. Awards under the STI are paid in cash. The PAs were granted on July 28, 2007. Each PA has a target value of $1.00. The actual value, if any, of a PA at the end of the Performance
Period will be determined based 50% on the level of achievement during the Performance Period of the performance objectives based on the comparison of the total shareholder return (TSR) of the
Company's common stock at the end of the Performance Period to the TSR of each of the common stocks of the members of the Peer Group for the Performance Period and 50% on the Return on Capital. The
performance awards will be paid based on the performance period from July 1, 2007 through December 31, 2009. The RS was granted on July 28, 2007, under the KBR Stock and Incentive
Plan. Shares vest in increments of 20% for five years. RS provides for rights to any dividends paid on shares of common stock, in the same manner and at the same time as dividends are paid to our
common stockholders.
Our
named executive officers also received converted KBR restricted stock and stock options in accordance with a pre-existing requirement under the Halliburton Stock and
Incentive Plan. However, because these equity awards were converted in accordance with a pre-existing requirement and were merely a continuation of the prior Halliburton equity awards,
these awards were not included in the Grants of Plan Based Awards Table. However, the FAS 123(R) values of those converted equity awards are included in columns (e) and (f) under the
Summary Compensation Table.
38
Outstanding Equity Awards at Fiscal Year End
The following table provides information on the exercise and holdings of previously awarded equity grants outstanding as of December 31, 2007.
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Grant
Date(1)
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(2)
|
|
Equity
Incentive
Plan
Awards:
# of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number
of Shares
or Units
of Stock
That
Have
Not
Vested
(#)(3)
|
|
Market
Value of
Shares or
Units of
Stock
That
Have
Not
Vested
($)(4)
|
|
Equity
Incentive
Plan
Awards:
# of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
(#)(5)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
|
|
(a)
|
|
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
William P. Utt
|
|
03/15/2006
11/21/2006
07/28/2007
|
|
|
|
|
|
|
|
|
|
|
|
38,774
103,528
55,306
|
|
1,504,431
4,016,886
2,145,873
|
|
44,245
|
|
1,716,706
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,608
|
|
7,667,190
|
|
44,245
|
|
1,716,706
|
|
Cedric W. Burgher
|
|
11/07/2005
11/21/2006
07/28/2007
|
|
16,156
6,310
|
|
8,078
12,620
|
|
|
|
18.31
21.81
|
|
11/7/2015
11/21/2016
|
|
14,541
12,764
11,062
|
|
564,191
495,243
429,206
|
|
|
|
|
|
TOTAL
|
|
|
|
22,466
|
|
20,698
|
|
|
|
|
|
|
|
38,367
|
|
1,488,640
|
|
|
|
|
|
Andrew D. Farley
|
|
06/28/1999
10/01/2001
01/02/2002
04/01/2002
03/16/2004
02/17/2005
11/21/2006
07/28/2007
|
|
4,016
2,422
6,310
|
|
2,424
12,620
|
|
|
|
8.94
12.94
21.81
|
|
3/16/2014
2/17/2015
11/21/2016
|
|
646
2,908
3,635
3,635
2,016
4,653
12,764
11,062
|
|
25,065
112,830
141,038
141,038
78,221
180,536
495,243
429,206
|
|
|
|
|
|
TOTAL
|
|
|
|
12,748
|
|
15,044
|
|
|
|
|
|
|
|
41,319
|
|
1,603,177
|
|
|
|
|
|
Bruce A. Stanski
|
|
07/10/1998
04/09/1999
04/13/2001
10/01/2001
01/02/2002
04/01/2002
03/16/2004
08/19/2004
02/17/2005
11/21/2006
07/28/2007
|
|
7,615
|
|
6,463
15,231
|
|
|
|
12.94
21.81
|
|
2/17/2015
11/21/2016
|
|
194
517
3,232
6,689
8,361
8,361
7,639
6,463
14,540
15,406
11,062
|
|
7,527
20,060
125,402
259,533
324,407
324,407
296,393
250,764
564,152
597,753
429,206
|
|
|
|
|
|
TOTAL
|
|
|
|
7,615
|
|
21,694
|
|
|
|
|
|
|
|
82,464
|
|
3,199,603
|
|
|
|
|
|
John L. Rose
|
|
03/08/2000
06/09/2003
03/16/2004
02/17/2005
11/21/2006
07/28/2007
|
|
7,615
|
|
2,424
15,231
|
|
|
|
12.94
21.81
|
|
2/17/2015
11/21/2016
|
|
2,423
1,503
3,396
4,653
15,406
11,062
|
|
94,012
58,316
131,765
180,536
597,753
429,206
|
|
|
|
|
|
TOTAL
|
|
|
|
7,615
|
|
17,655
|
|
|
|
|
|
|
|
38,443
|
|
1,491,588
|
|
|
|
|
|
-
(1)
-
The
awards granted on November 21, 2006 and July 28, 2007 are of KBR restricted stock, restricted stock units, or options under the KBR Stock and Incentive Plan. The
awards granted prior to November 21, 2006 were of Halliburton restricted stock or options, which, following the split-off of KBR from Halliburton, were converted into awards under
the KBR Transitional Stock Adjustment Plan, consisting of KBR restricted stock and options to purchase KBR common stock.
39
-
(2)
-
All
options listed in this column vest at a rate of 33
1
/
3
% on the first anniversary, 67% on the second anniversary, and 100% on the third anniversary from the date of
grant.
-
(3)
-
All
restricted stock and restricted stock units listed in this column that were awarded on or after January 1, 2003 vest at a rate of 20% per year over the 5-year
vesting period. Restricted stock/units vest based solely on service with the Company, except for Mr. Utt's restricted award on July 28, 2007, which is also subject to KBR having positive
net income for the calendar year preceding the vesting date.
-
(4)
-
Market
value in this table assumes a fair market value of $38.80 per share for KBR common stock, as of December 31, 2007.
-
(5)
-
The
number of unearned shares includes 80% of Mr. Utt's July 28, 2007 restricted stock grant under column (g), the earning of which is subject to the Company
having net income greater than or equal to zero for the calendar year preceding each vesting date.
Option Exercises and Stock Vested
The following table shows information for 2007 regarding the exercise of stock options and the vesting of restricted stock and restricted stock units.
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of Shares
Acquired on
Exercise (#)(1)
|
|
Value Realized
on Exercise ($)
|
|
Number of Shares
Acquired on
Vesting (#)(1)
|
|
Value Realized
on Vesting ($)(2)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
William P. Utt
|
|
|
|
|
|
31,882
|
|
1,098,969
|
|
Cedric W. Burgher
|
|
|
|
|
|
8,037
|
|
298,870
|
|
Andrew D. Farley
|
|
|
|
|
|
7,371
|
|
246,760
|
|
Bruce A. Stanski
|
|
30,348
|
|
415,273
|
|
17,248
|
|
550,607
|
|
John L. Rose
|
|
25,049
|
|
730,166
|
|
7,863
|
|
253,469
|
|
-
(1)
-
The
number of shares acquired on exercise of Option Awards included 6,734 and 5,820 Halliburton shares acquired by Messrs. Stanski and Rose, respectively. In addition, the
number of shares acquired on vesting of Stock Awards included 6,000, 2,484, 7,041, and 2,510 Halliburton shares acquired by Messrs. Utt, Farley, Stanski, and Rose, respectively. These shares
were acquired prior to our separation from our former parent. All other acquired shares were of KBR common stock.
-
(2)
-
Represents
the pre-tax value realized on stock awards that vested during the fiscal year, computed by multiplying the number of shares acquired on vesting by the closing
price of common stock on the vesting date.
Pension Benefits
Our named executive officers did not participate in a KBR sponsored pension plan required to be reported under the Pension Benefits table. Accordingly, the
Pension Benefits Table has not been included here. For information on the Halliburton Defined Benefit Plan, see column (h) of the Summary Compensation Table.
40
Nonqualified Deferred Compensation
The following table provides information regarding each named executive officer's contributions to covered deferred compensation plans, earnings accrued during
the year, withdrawals and distributions during the year, and plan balances at fiscal year end.
|
Name
|
|
Plan
|
|
Executive
Contributions
in Last FY
($)(1)
|
|
Registrant
Contributions
in Last FY
($)(2)
|
|
Aggregate
Earnings
in Last FY
($)(3)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance
at Last FYE
($)(4)
|
|
(a)
|
|
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
William P. Utt
|
|
Elective Deferral
Restoration
SERP
|
|
107,656
|
|
29,849
234,000
|
|
2,439
1,474
|
|
|
|
110,095
46,062
234,000
|
|
Cedric W. Burgher
|
|
Elective Deferral
Restoration
SERP(5)
|
|
|
|
6,367
|
|
440
|
|
|
|
11,207
|
|
Andrew D. Farley
|
|
Elective Deferral
Restoration
SERP(5)
|
|
|
|
4,738
|
|
5,706
461
|
|
|
|
90,131
9,813
|
|
Bruce A. Stanski
|
|
Elective Deferral
Restoration
SERP(5)
|
|
|
|
7,425
|
|
2,730
2,756
|
|
|
|
37,454
57,881
|
|
John L. Rose
|
|
Elective Deferral
Restoration
SERP
Dresser Deferred
Compensation(6)
|
|
|
|
6,969
85,064
|
|
3,511
770,691
|
|
|
|
45,590
85,064
1,547,627
|
|
-
(1)
-
The
amounts in this column (b) are reported as compensation for 2007 in column (c) of the Summary Compensation Table.
-
(2)
-
The
amounts in this column (c) are reported as compensation for 2007 in column (i) of the Summary Compensation Table. For Dresser Deferred Compensation, no contributions
or earnings (columns b to d) were reported as compensation in the last completed Fiscal Year.
-
(3)
-
Only
the above market earnings in this column (d) are reported as compensation in for 2007 in column (h) of the Summary Compensation Table.
-
(4)
-
Only
the amount of the aggregate balance in this column (f) that relates to registrant contributions that are reported in this column (c) are reported as compensation
for 2007 in column (i) of the Summary Compensation Table.
-
(5)
-
There
were no SERP contributions made on behalf of Messrs. Burgher, Farley, or Stanski during 2007 because they were not age 50.
-
(6)
-
The
share price used for the Dresser Deferred Compensation Plan is the average of the daily closing prices of our stock during December 2007. This price was used because the
terms of the Dresser Deferred Compensation Plan value the account based on the average. The average amount equals $39.75.
Narrative Disclosure to Nonqualified Deferred Compensation Table
Under the KBR Elective Deferral Plan, pre-tax deferrals of up to 75% of base salary and/or incentive compensation are allowed each year. The other
plans do not allow employee elective deferrals. Earnings for the Elective Deferral Plan are based on deemed investment alternatives, including the following three that are under our 401(k) Plan, the
S&P Index Fund, the Aggressive Premixed Portfolio, and the Small Cap Equity Fund, and one that is not under our 401(k) Plan, the Moody's Corporate Bond Yield +2%. Investment elections may be changed
by the executive on a monthly basis. Earnings for the Restoration Plan are credited at a flat 10% per year. Earnings on amounts in the SERP are credited at a flat 5% (10% post termination) per year.
Earnings under the
41
Dresser
Deferred Compensation Plan are based on the trading price (and dividends, if any) of KBR common stock. Payouts under the Restoration Plan and the SERP are paid in a lump sum upon termination.
Payouts under the Elective Deferral Plan are paid on termination of employment or a specified future date, either as a lump sum or in installments. Payouts under the Dresser Deferred Plan are paid on
termination of employment, in installments. Withdrawals under the Elective Deferral Plan are allowed in the case of an unforeseeable emergency (non-emergency for
pre-January 1, 2005 account balances).
Elements of Post-Termination Compensation and Benefits
Our Compensation Committee has generally maintained the same termination benefits that were maintained by Halliburton. During 2007, our Compensation Committee
reviewed severance and change-in-control practices among our peer groups to determine what is competitive in our industry. However, our Compensation Committee did not establish
or enter into any new severance and change-in-control arrangements with our named executive officers during 2007.
Termination
events that trigger payments and benefits include normal or early retirement, change-in-control, cause, death, disability, and voluntary termination.
Post-termination payments may include severance, accelerated vesting of restricted stock and stock options, maximum payments under cash-based short and long-term
incentive plans, nonqualified account balances and health benefits among others. The KBR Stock and Incentive Plan and the Transitional Stock Adjustment Plan both allow for
the acceleration of vesting upon the occurrence of a change-in-control as defined in each respective plan. Generally, a change-in-control is triggered
upon any of the following: (a) a person acquires 20% or more of the voting power of the Company, (b) the majority of the Board of Directors changes, (c) a merger or consolidation
of the Company (unless it still controls a majority of the voting stock), (d) a complete liquidation or dissolution of the Company, or (e) a sale, disposition, lease, or exchange of all
or substantially all of the Company's assets.
We
previously entered into employment agreements with Messrs. Utt, Burgher, and Stanski. See the section below on 2007 Potential Payments Upon Termination or
Change-in-Control for more detail on the employment agreements. None of these employment agreements has payments triggered upon the occurrence of a
change-in-control. Under each of these employment agreements, if Messrs. Utt, Burgher or Stanski voluntarily terminates his employment other than for a "good reason" or
due to death, permanent disability or retirement, or if he is terminated by us for "cause," he will receive (a) his pro rata base salary through the date of such termination and (b) any
individual annual incentive compensation not yet paid but earned and payable under our Performance Pay Plan for the year prior to the year of his termination of employment. The agreements provide that
upon such termination, the executive shall not be entitled to any annual incentive compensation for the year in which he terminates employment or any other payments or benefits by or on our behalf
except for those which may be payable pursuant to the terms of our employee benefit plans.
If
Messrs. Utt, Burgher or Stanski's employment is terminated by us (except for "cause"), or if Messrs. Utt, Burgher or Stanski terminates his employment for "good reason,"
the employee will receive (a) a lump-sum cash severance benefit equal to one year's base salary as in effect at termination for Messrs. Stanski and Burgher and a
lump-sum cash severance benefit equal to two years' base salary as in effect at termination for Mr. Utt, (b) either (i) a lump-sum cash payment equal to
the value of the restricted shares on the date of termination of employment (which will automatically become forfeited) or (ii) full vesting of outstanding restricted shares, and (c) any
individual incentive compensation earned for the year of his termination of employment, determined as if he had remained employed by us for the entire year.
42
2007 Potential Payments Upon Termination or Change-In-Control
|
Executive
|
|
Benefits
(1)(2)
|
|
Change in
Control on
12/31/2007
($)
|
|
Normal
Retirement on
12/31/2007
($)
|
|
Involuntary
Not For Cause
Termination on
12/31/2007
($)
|
|
Voluntary
for Good
Reason on
12/31/2007
($)
|
|
Disability on
12/31/2007
($)
|
|
Death on
12/31/2007
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
William P. Utt
|
|
Stock Awards
Stock Options(3)
Performance Awards(4)
Cash Severance(5)
|
|
7,667,190
4,800,000
|
|
7,667,190
480,000
|
|
7,667,190
1,600,000
|
|
7,667,190
1,600,000
|
|
7,667,190
480,000
|
|
7,667,190
480,000
|
|
|
|
|
|
TOTAL
|
|
12,467,190
|
|
8,147,190
|
|
9,267,190
|
|
9,267,190
|
|
8,147,190
|
|
8,147,190
|
|
Cedric W. Burgher
|
|
Stock Awards
Stock Options(3)
Performance Awards(4)
Cash Severance(5)
|
|
1,488,640
379,932
960,000
|
|
1,488,640
96,000
|
|
1,488,640
350,000
|
|
1,488,640
350,000
|
|
1,488,640
379,932
96,000
|
|
1,488,640
379,932
96,000
|
|
|
|
|
|
TOTAL
|
|
2,828,572
|
|
1,584,640
|
|
1,838,640
|
|
1,838,640
|
|
1,964,572
|
|
1,964,572
|
|
Andrew D. Farley
|
|
Stock Awards
Stock Options(3)
Performance Awards(4)
Cash Severance(5)
|
|
1,603,177
277,098
960,000
|
|
1,603,177
96,000
|
|
|
|
|
|
1,603,177
277,098
96,000
|
|
1,603,177
277,098
96,000
|
|
|
|
|
|
TOTAL
|
|
2,840,275
|
|
1,699,177
|
|
|
|
|
|
1,976,275
|
|
1,976,275
|
|
Bruce A. Stanski
|
|
Stock Awards
Stock Options(3)
Performance Awards(4)
Cash Severance(5)
|
|
3,199,603
425,908
960,000
|
|
3,199,603
96,000
|
|
3,199,603
360,000
|
|
3,199,603
360,000
|
|
3,199,603
425,908
96,000
|
|
3,199,603
425,908
96,000
|
|
|
|
|
|
TOTAL
|
|
4,585,511
|
|
3,295,603
|
|
3,559,603
|
|
3,559,603
|
|
3,721,511
|
|
3,721,511
|
|
John L. Rose
|
|
Stock Awards
Stock Options(3)
Performance Awards(4)
Cash Severance(5)
|
|
1,491,588
321,459
960,000
|
|
1,491,588
96,000
|
|
|
|
|
|
1,491,588
321,459
96,000
|
|
1,491,588
321,459
96,000
|
|
|
|
|
|
TOTAL
|
|
2,773,047
|
|
1,587,588
|
|
|
|
|
|
1,909,047
|
|
1,909,047
|
|
-
(1)
-
The
aggregate nonqualified deferred compensation payable to all named executive officers upon termination is set forth in column (f) of the Nonqualified Deferred Compensation
Table.
-
(2)
-
The
Table does not include amounts otherwise payable to the named executive officers if they remained employed through December 31, 2007 pursuant to the KBR Senior Executive
Performance Pay Plan (STI), as reported in column (g) of the Summary Compensation Table. If a named executive officer is terminated for "cause" (as defined under the applicable plan/program)
all such executive's rights to payment would be automatically forfeited. Also, the Table does not include those benefits that are generally available to all employees.
-
(3)
-
The
Table assumes full exercise of options that become exercisable upon termination or change in control as of December 31, 2007. This table does not include the exercisable
options reflected in column (b) of the Outstanding Equity Awards at Fiscal Year End Table. Option values are based on the difference between the option exercise price and the closing price for
our common stock on December 31, 2007, multiplied by the number of shares to be acquired upon exercise of the option. While options do not vest upon normal retirement age, they do continue to
vest on the original vesting schedule post-normal retirement.
-
(4)
-
Includes
maximum payout upon change in control for the Performance Awards. Assumes for purposes of normal retirement, death, and disability that payout for the Performance Awards will
be at Target.
-
(5)
-
Cash
severance does not include amounts that may be paid to the named executive officers under the severance plan generally available to all employees of the Company.
43
Employment Agreements
We entered into employment agreements with Mr. Utt as of March 15, 2006, Mr. Burgher as of November 7, 2005, and Mr. Stanski as
of August 1, 2004, that will continue in effect until terminated by both parties and provide for base annual salaries of $625,000, $300,000, and $323,695, respectively, which may be increased
in accordance with our general compensation policies. Mr. Utt's employment agreement also provided for a one-time signing bonus of $75,000 plus a one-time bonus of
$225,000, to which Mr. Utt became entitled at the closing date of our initial public offering. Mr. Stanski's employment agreement provides for Mr. Stanski to receive a cost of
living adjustment during the time he is required to reside in the Washington, D.C. area. Each of Messrs. Utt, Burgher, and Stanski was eligible to participate in our Performance Pay Plan and to
receive long-term incentive awards under the KBR Stock and Incentive Plan.
Under
Mr. Utt's employment agreement, he received a grant of 15,000 (which were split to 30,000) restricted shares of Halliburton common stock (his outstanding Halliburton
restricted stock was converted into 38,744 shares of KBR restricted stock upon the separation of KBR from Halliburton), and in 2006, was afforded a reward opportunity of 65%-130% of his
base salary based on achievement of plan level/challenge level objectives. Mr. Utt's employment agreement also provided for his receipt of restricted shares of our common stock with a fair
market value of $2.2 million immediately after the closing of our initial public offering. Twenty percent of these restricted shares vest on each of the first five anniversaries of the closing
date of our initial public offering.
Under
the terms of Mr. Burgher's employment agreement, he was granted 7,500 restricted shares of Halliburton common stock and an option to purchase 7,500 shares of Halliburton
common stock (his outstanding Halliburton restricted stock and stock options were converted to 19,387 shares of KBR restricted stock and an option to purchase 24,234 shares of KBR stock, respectively,
upon the separation of KBR from Halliburton). Mr. Burgher will also participate in our paid-time off program and will accrue an equivalent of 4 weeks of vacation annually.
Under
each of these employment agreements, if Messrs. Utt, Burgher or Stanski voluntarily terminates his employment other than for a "good reason" or due to death, permanent
disability or retirement, or is terminated by us for "cause," he will receive (a) his pro rata base salary through the date of such termination and (b) any individual annual incentive
compensation not yet paid but earned and payable under KBR's Performance Pay Plan for the year before the year of termination, but shall not be entitled to any annual incentive compensation for the
year in which he terminates employment, or any other payments or benefits, except for any that may be payable under KBR's employee benefit plans. "Good reason" means (a) a termination of
employment by the employee because of a material breach by the Company of any material provision of the employment agreement that remains uncorrected for 30 days after notice of the breach or
(b) a termination of employment by the employee within 6 months after a material reduction in the employee's rank or responsibility with the Company. "Cause" means (a) the
employee's gross negligence or willful misconduct in the performance of the duties and services required of the employee pursuant to the employment agreement, (b) the employee's final
conviction of a felony, (c) a material violation of KBR's Code of Business Conduct, or (d) the employee's material breach of any material provision of the employment agreement which
remains uncorrected for 30 days following notice of the breach. Determination as to whether or not "cause" exists for termination of an employee's employment will be reasonably made by our
Compensation Committee, or its delegate, in good faith.
44
If
Messrs. Utt, Burgher or Stanski's employment is terminated by us without "cause" or by the employee for "good reason," their employment agreements provide for (a) a lump
sum cash severance benefit equal to one year's base salary as in effect at termination for Messrs. Stanski and Burgher, or equal to two years' base salary as in effect at termination for
Mr. Utt, (b) either (i) a lump sum cash payment equal to the value of restricted shares that will automatically be forfeited on the date of termination of employment or
(ii) full vesting of outstanding restricted shares, and (c) any individual incentive compensation earned under KBR's Performance Pay Plan for the year of termination, determined as if he
had remained employed by us for the entire year.
Compensation Committee Interlocks and Insider Participation
Messrs. Blount, Carroll and Huff currently serve, and Messrs. Curtiss, Lyles and Slater have also served in the past year, as members of our
Compensation Committee. None of our executive officers serve, or in the past year have served, as members of the compensation committee (or if no committee performs that function, the board of
directors) of any other entity that has an executive officer who also serves as a member of our Board of Directors. None of our executive officers serves, or in the past year has served, as a member
of the board of directors of any other entity that has an executive officer serving as a member of our Compensation Committee.
45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Halliburton Company
KBR was incorporated in Delaware in March 2006 as an indirect, wholly-owned subsidiary of Halliburton Company. In November 2006, we completed our
initial public offering, in which we sold 32,016,000 shares of our common stock, representing approximately 19% of our total outstanding common stock, for aggregate net proceeds of
$511 million. The remainder of our common stock was retained by Halliburton. In connection with our initial public offering, we entered into a master separation agreement with Halliburton that
provided for the separation of our respective assets and businesses. The master separation agreement also contains agreements relating to our separation from Halliburton and the conduct of future
transactions with respect to KBR, and governs the relationship between Halliburton and KBR. In addition, we entered into several ancillary agreements with Halliburton in connection with our initial
public offering, including a tax sharing agreement, a registration rights agreement, two transition services agreements, an employee matters agreement, and an intellectual property matters agreement.
The terms of these agreements were determined by Halliburton, and approved by a special committee of our Board of Directors that consisted of Messrs. Curtiss and Slater, both independent from
Halliburton and KBR. It is possible, however, that the terms of these agreements may differ from those that would result from transactions among third parties.
On
April 5, 2007, Halliburton completed its exchange offer of all of our outstanding stock and our separation from Halliburton was complete. Except as described below, these
agreements continue in accordance with their terms. Summaries of the terms of the master separation agreement and the ancillary agreements are contained in our registration statement on
Form S-1 for our initial public offering and the Form S-4 filed in connection with Halliburton's exchange offer and such agreements were filed as exhibits to
those registration statements.
Pursuant to our master separation agreement, we agreed to indemnify Halliburton for, among other matters, all past, present and future liabilities related to our
business and operations, subject to specified exceptions. We agreed to indemnify Halliburton for liabilities under various outstanding and certain additional credit support instruments relating to our
businesses and for liabilities under litigation matters related to our business. Halliburton agreed to indemnify us for, among other things, liabilities unrelated to our business, for certain other
agreed matters relating to the Foreign Corrupt Practices Act ("FCPA") investigations and the Barracuda-Caratinga project and for other litigation matters related to Halliburton's business.
Halliburton
incurred $1 million pursuant to the master separation agreement for expenses relating to the FCPA and bidding practices investigations for the quarter ended
March 31, 2007. We do not know the amount of costs incurred by Halliburton following our separation from Halliburton on April 5, 2007. Halliburton did not charge any of these costs to
us. These expenses were incurred for the benefit of both Halliburton and us, and we and Halliburton have no reasonable basis for allocating these costs between us. Subsequent to our separation from
Halliburton and in accordance with the master separation agreement, Halliburton will continue to bear the direct costs associated with overseeing and directing the FCPA and bidding practices
investigations. We will bear the costs associated with monitoring the continuing investigations as directed by Halliburton which include our own separate legal counsel and advisors. For the year ended
December 31, 2007, we incurred approximately $1 million in expenses related to monitoring these investigations.
46
We have entered into a transition services agreement with Halliburton under which Halliburton provides to us, on an interim basis, various corporate support
services. These services consist generally of the services that have been provided to us on an intercompany basis prior to our initial public offering. These support services related to, among other
things, information technology, legal, human resources, risk management and internal audit. The services provided under the transition services agreement are substantially the same as the services
historically provided between Halliburton and KBR. Similarly, the related costs of such services will be substantially the same as the costs incurred and recorded in our historical financial
statements.
During
the year ended December 31, 2007, KBR paid $13 million to Halliburton pursuant to the transition services agreement for various support services provided to KBR by
Halliburton and certain of its subsidiaries, including information technology, legal and internal audit services. Prior to our April 5, 2007 separation from Halliburton, costs for information
technology, including payroll processing services, were allocated to KBR based on a combination of factors regarding Halliburton and KBR, including relative revenues, assets and payroll, and
negotiation of the reasonableness of the charge. Costs for other services, including legal services and audit services, were primarily charged to us based on direct usage of the service. Costs
allocated to KBR using a method other than direct usage are not significant, individually or in the aggregate. We believe the allocation methods were reasonable. In addition, KBR leased office space
to Halliburton at its Leatherhead, U.K. location. Subsequent to our separation from Halliburton, costs were no longer allocated but were charged to KBR pursuant to the terms of the transition services
agreement.
As
of December 31, 2007, most of the corporate service activities, which primarily related to human resources and risk management, have been discontinued. In 2008, the only
significant corporate service activities expected to be incurred relate to fees for ongoing guarantees provided by Halliburton on existing credit support instruments which have not yet expired. See
"Various Financing Agreements" below.
The tax sharing agreement, as amended, provides for certain allocations of U.S. income tax liabilities and other agreements between us and Halliburton with
respect to tax matters. Halliburton is responsible for filing all U.S. income tax returns required to be filed through April 5, 2007, the date KBR ceased to be a member of the Halliburton
consolidated tax group. Halliburton will also be responsible for paying the taxes related to the returns it is responsible for filing. We will pay Halliburton our allocable share of such taxes. We are
obligated to pay Halliburton for the utilization of net operating losses, if any, generated by Halliburton prior to the deconsolidation which we may use to offset our future consolidated federal
income tax liabilities.
As
of December 31, 2007, KBR had recorded an $11 million payable to Halliburton for tax related items under the tax sharing agreement. As of December 31, 2006, the
amount recorded was $94 million due to Halliburton under the tax sharing agreement.
The employee matters agreement provides for the allocation of liabilities and responsibilities to our current and former employees and their participation in
certain benefit plans maintained by Halliburton. Among other items, the employee matters agreement and the KBR, Inc. Transitional Stock Adjustment Plan provided for the conversion, upon the
complete separation of KBR from Halliburton, of Halliburton common stock awards into KBR common stock awards. On April 5, 2007, a total of 1,217,095 Halliburton stock options and 612,857
Halliburton restricted stock awards were converted into 1,966,061 KBR stock options with a weighted average exercise price per share of $9.35 and
47
990,080 million
KBR restricted stock awards with a weighted average grant-date fair value per share of $11.01. The conversion of such stock options and restricted stock was
accounted for as a modification in accordance with SFAS No. 123(R) and resulted in an incremental charge to expense of less than $1 million, recognized in 2007, representing the change
in fair value of the converted awards from Halliburton stock options and restricted stock awards to KBR stock options and restricted stock awards.
In connection with certain projects, we are required to provide letters of credit, surety bonds or other financial and performance guarantees to our customers. As
of December 31, 2007, we had approximately $1 billion letters of credit and financial guarantees outstanding of which $505 million related to our joint venture operations,
including $214 million issued in connection with the Allenby & Connaught project. Of the total $1 billion, approximately $545 million in letters of credit were irrevocably
and unconditionally guaranteed by Halliburton. In addition, Halliburton has guaranteed surety bonds and provided direct guarantees primarily related to our performance. Under certain reimbursement
agreements, if we were unable to reimburse a bank under a paid letter of credit and the amount due is paid by Halliburton, we would be required to reimburse Halliburton for any amounts drawn on those
letters of credit or guarantees in the future. The Halliburton performance guarantees and letter of credit guarantees that are currently in place in favor of KBR's customers or lenders will continue
until the earlier of (a) the termination of the underlying project contract or KBR's obligations thereunder or (b) the expiration of the relevant credit support instrument in accordance
with its terms or release of such instrument by the customer. Furthermore, we agreed to pay to Halliburton a quarterly carry charge for its guarantees of our outstanding letters of credit and surety
bonds and agreed to indemnify Halliburton for all losses in connection with the outstanding credit support instruments and any new credit support instruments relating to our business for which
Halliburton may become obligated following the separation.
Other Related Parties
We perform many of our projects through incorporated and unincorporated joint ventures. In addition to participating as a joint venture partner, we often provide
engineering, procurement, construction, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore
consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the joint venture under the
equity method of accounting, we do not eliminate any portion of our revenues or expenses. We recognize the profit on our services provided to joint ventures that we consolidate and joint ventures that
we record under the equity method of accounting primarily using the percentage-of-completion method.
Total
revenue from services provided to our unconsolidated joint ventures recorded in our consolidated statements of operations were $356 million for the year ended
December 31, 2007. Profit on transactions with our joint ventures recognized in our consolidated statements of operations were $30 million for the year ended December 31, 2007.
48
RELATED PERSON POLICIES
Our Board of Directors has adopted a policy requiring its approval of any transactions involving our directors, executive officers or any nominees for director
and any greater than 5% stockholders and their immediate family members. The types of transactions covered by this policy are transactions, arrangements or relationships or any series of similar
transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) we (including any of our subsidiaries) were, or will be a participant,
(2) the aggregate amount involved exceeds $120,000 in any calendar year, and (3) any related person had, has or will have a direct or indirect interest (other than solely as a result of
being a director or holding less than a 10 percent beneficial ownership interest in another entity), and which is required by the rules and regulations of the SEC to be disclosed in our public
filings. The Board of Directors will only approve transactions with related persons when the Board of Directors determines such transactions are in our best interests or the best interests of our
stockholders. In determining whether to approve or ratify a related person transaction, the Board of Directors will apply the following standards and such other standards it deems appropriate:
-
-
whether
the related person transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances;
-
-
whether
the transaction is material to us or the related person;
-
-
the
role the related person has played in arranging the related person transaction;
-
-
the
structure of the related person transaction;
-
-
the
extent of the related person's interest in the transaction; and
-
-
whether
there are alternative sources for the subject matter of the transaction.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires KBR's directors and executive officers, and persons who own
more than ten percent of a registered class of KBR's equity securities, to file with the SEC and the New York Stock Exchange (the "NYSE") initial reports of ownership and reports of changes in
ownership of common stock of KBR.
To
our knowledge, based solely on review of the copies of such reports furnished to us and written representations that such reports accurately reflect all reportable transactions and
holdings, with respect to the fiscal year ended December 31, 2007 and during 2008 through the date of this proxy statement, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were complied with, except as provided herein. Mr. Lyles's Form 4 for his initial grant of restricted stock
upon his appointment to the Board of Directors in November 2007, was three days late due to a delay in receiving his necessary filing information. Forms 4 for Dennis L. Calton,
Timothy B. Challand, Andrew D. Farley and Bruce A. Stanski filed in November 2007, and a Form 4 for Iain R. Fulton filed in August 2007 reporting
certain sales of stock by a broker on behalf of these executive officers to cover the withholding taxes due upon the vesting of certain restricted stock awards were late due to an administrative error
that resulted in us not receiving notice of the sales from the broker in a timely fashion.
49
DIRECTOR COMPENSATION
All non-employee Directors receive an annual retainer of $45,000 and an attendance fee of $1,500 for each board or board committee meeting attended in
person and $500 for each board or board committee meeting attended by telephone, plus incurred expenses where appropriate. The Chairman of each committee also receives an additional annual retainer as
follows: Nominating and Corporate Governance$10,000; Audit$7,500; Compensation$5,000; Health, Safety and Environment$5,000.
In
2007, each of our non-employee directors received an annual award of 3,500 shares of restricted stock or restricted stock units under the KBR Stock and Incentive Plan,
which awards vest at 20% per year over a five-year period. In December 2007, our Nominating and Corporate Governance Committee engaged Hewitt to analyze the compensation of our
non-employee directors for 2008. As recommended by our Nominating and Corporate Governance Committee, in 2008, each non-employee Director received 3,900 shares of restricted
stock units under the KBR Stock and Incentive Plan. The vesting period is six-month cliff vesting.
The
following table sets forth certain information with respect to KBR's director compensation for non-employee directors during the fiscal year ended December 31,
2007.
|
Name(1)
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
Stock
Awards
($)(3)
|
|
Option
Awards
($)
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension Value
and Non-qualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
Jeffrey E. Curtiss(2)
|
|
93,625
|
|
20,509
|
|
|
|
|
|
|
|
|
|
114,134
|
|
Richard J. Slater(2)
|
|
91,000
|
|
20,509
|
|
|
|
|
|
|
|
|
|
111,509
|
|
Frank W. Blount
|
|
67,750
|
|
8,812
|
|
|
|
|
|
|
|
|
|
76,562
|
|
Loren K. Carroll
|
|
65,250
|
|
10,254
|
|
|
|
|
|
|
|
|
|
75,504
|
|
John R. Huff
|
|
69,500
|
|
10,254
|
|
|
|
|
|
|
|
|
|
79,754
|
|
Lester L. Lyles
|
|
18,750
|
|
4,334
|
|
|
|
|
|
|
|
|
|
23,084
|
|
-
(1)
-
Directors
who were also full-time officers or employees of KBR received no additional compensation for serving as directors.
-
(2)
-
Messrs. Curtiss
and Slater were each awarded 7,000 shares of restricted stock under the KBR Stock and Incentive Plan for their services as directors in 2006 and 2007.
-
(3)
-
The
amounts in column (c) reflect the dollar amounts recognized for 2007 in accordance with Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123(R), "Share Based Payment," for awards pursuant to the KBR Stock and Incentive Plan, with a grant date fair value of $21.96 per share for the April 13, 2007 grants to
Messrs. Carroll, Curtiss, Huff, and Slater, with a grant date fair value of $26.40 for the June 27, 2007 grant to Mr. Blount, and with a grant date fair value of $40.02 for the
November 1, 2007 grant to Mr. Lyles. As of December 31, 2007, the aggregate number of restricted stock awards for Messrs. Curtiss and Slater was 7,000 shares, and for
Messrs. Blount, Carroll, Huff, and Lyles, 3,500 shares.
50
AUDIT COMMITTEE REPORT
KBR's Audit Committee operates under a written charter, a copy of which is available on KBR's website,
www.kbr.com
. As required by the
charter, we review and reassess the charter annually and recommend any changes to the Board of Directors for approval.
KBR's
management is responsible for preparing KBR's financial statements and the principal independent accountants are responsible for auditing those financial statements. The Audit
Committee's role is to provide oversight of management in carrying out management's responsibility and to appoint, compensate, retain and oversee the work of the principal independent accountants. In
fulfilling our oversight role for the year ended December 31, 2007, we:
-
-
reviewed
and discussed KBR's audited financial statements with management;
-
-
discussed
with KPMG LLP, KBR's principal independent accountants, the matters required by Statement on Auditing Standards No. 61, as amended, as adopted by the
Public Company Accounting Oversight Board in Rule 3200T;
-
-
received
from KPMG LLP the written disclosures and letter required by Independence Standards Board Standard No. 1, as adopted by the Public Company Accounting
Oversight Board in Rule 3600T; and
-
-
discussed
with KPMG its independence.
Based
on our:
-
-
review
of the audited financial statements;
-
-
discussions
with management;
-
-
discussions
with KPMG LLP, and
-
-
review
of KPMG LLP's written disclosures and letter,
we
recommended to the Board of Directors that the audited financial statements be included in KBR's Annual Report on Form 10-K for the fiscal year ended December 31, 2007,
for filing with the SEC. Our recommendation considers our review of that firm's qualifications as independent accountants for the Company. Our review also included matters required to be considered
under SEC rules on auditor independence, including the nature and extent of non-audit services. In our judgment the nature and extent of non-audit services performed by
KPMG LLP during the year did not impair the firm's independence.
|
|
Respectfully submitted,
|
|
|
THE AUDIT COMMITTEE OF DIRECTORS
|
|
|
Jeffrey E. Curtiss, Chairman
Loren K. Carroll
Lester L. Lyles
|
51
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents fees for audit services rendered by KPMG for the audit of our annual financial statements for the years ended December 31,
2007 and December 31, 2006, and fees billed or expected to be billed for audit-related, tax and all other services rendered by KPMG during those periods.
Thousands of dollars
|
|
2007
|
|
2006
|
Audit fees(a)
|
|
$
|
7,837
|
|
$
|
10,206
|
Audit-related fees(b)
|
|
|
312
|
|
|
66
|
Tax fees(c)
|
|
|
2,639
|
|
|
2,033
|
All other fees(d)
|
|
|
0
|
|
|
42
|
|
|
|
|
|
|
Total
|
|
$
|
10,788
|
|
$
|
12,347
|
|
|
|
|
|
-
(a)
-
Audit
fees represent the aggregate fees for professional services rendered by KPMG for the integrated audit of our annual financial statements for the fiscal years ended
December 31, 2007 and December 31, 2006. Audit fees also include the audits of many of our subsidiaries in regards to compliance with statutory requirements in foreign countries, and
review of registration statements.
-
(b)
-
Audit-related
fees primarily include professional services rendered by KPMG for audits of our employee benefit plans and audits of some of our subsidiaries relating to transactions.
-
(c)
-
Tax
fees consist of the aggregate fees billed for professional services rendered by KPMG for federal, state and international tax compliance and advice.
-
(d)
-
All
other fees consist of the aggregate fees billed for products and services provided by KPMG, other than the services described in notes (a) through (c) above.
Pre-Approval Policy
The Audit Committee is directly responsible for appointing, setting compensation for and overseeing the work of KPMG, our principal independent registered public
accounting firm. The Audit Committee has established written pre-approval policies requiring approval by the Audit Committee of all services to be provided by KPMG and all audit services
provided by other independent accountants. The policy provides that all audit, audit-related and tax services to be provided by KPMG will be described in a written plan submitted to the Audit
Committee annually for pre-approval. The Audit Committee, its Chairman or another Audit Committee member designee must pre-approve any audit, audit-related or tax services to
be provided by KPMG that were not submitted for annual pre-approval if the fees to be paid for such services will exceed $150,000. All other services, for fees in excess of $50,000 must be
specifically approved in the same manner as audit, audit-related and tax services greater than $150,000.
The
policy also provides that all audit services to be provided by independent public accountants other than KPMG will be described in writing and presented to the Audit Committee by our
Chief Accounting Officer annually for pre-approval. Any audit services not included in the annual pre-approved plan must be approved in the same manner as unplanned audit,
audit-related and tax services to be provided by KPMG.
As
permitted by the SEC, to ensure prompt handling of unexpected matters, our policy allows for the delegation of the Committee's pre-approval authority under the policy to
the Chairman or another member of the Audit Committee designated by the Audit Committee or the Chairman. Any pre-approval decisions by the Audit Committee Chairman or other Audit Committee
designee will be reported to the Audit Committee at the next regularly-scheduled meeting following any such decisions.
52
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Proposal 2 on Proxy Card
KPMG LLP has audited the financial statements of KBR and its predecessor beginning with the year ended December 31, 2004. A resolution will be
presented at the Annual Meeting of Stockholders to ratify the appointment by the Audit Committee of the Board of Directors of that firm as independent registered public accounting firm to audit the
consolidated financial statements of KBR as of and for the year ending December 31, 2008. The engagement of KPMG LLP was made by the Audit Committee. KPMG LLP has advised that
neither the firm nor any member of the firm has any direct financial interest or any material indirect interest in KBR. Also, during at least the past three years, neither the firm nor any member of
the firm has had any connection with KBR in the capacity of promoter, underwriter, voting trustee, director, officer or employee.
Representatives
of KPMG LLP are expected to be present at the Annual Meeting of Stockholders and will be available to respond to appropriate questions from stockholders.
Although
the selection and appointment of an independent registered public accounting firm is not required to be submitted to a vote of stockholders, the Audit Committee of the Board of
Directors has decided to ask our stockholders to ratify this appointment.
The
proposal to ratify the appointment of KPMG LLP will be approved if it receives the affirmative vote of a majority of the shares of common stock present in person or
represented by proxy at the Annual Meeting of Stockholders. If the stockholders do not ratify the selection of KPMG LLP, the Audit Committee will reconsider the selection of an independent
registered public accounting firm.
The Audit Committee of the Board of Directors recommends that you vote FOR ratification of the appointment of KPMG LLP as our independent registered public
accounting firm to audit the consolidated financial statements for KBR as of and for the year ending December 31, 2008.
PROPOSAL TO APPROVE THE
KBR, INC. 2009 EMPLOYEE STOCK PURCHASE PLAN
Proposal 3 on Proxy Card
On February 28, 2008, our Board of Directors adopted, subject to stockholder approval, the KBR, Inc. 2009 Employee Stock Purchase Plan. The plan is
designed to provide a method for our employees to voluntarily purchase shares of our common stock at a favorable price and upon favorable terms and enables us to retain and attract qualified employees
by providing additional incentives through increased stock ownership. The affirmative vote of holders of a majority of the shares of common stock present in person or represented by proxy and entitled
to vote on, and voted for or against, the proposal at the meeting is required to approve the plan.
The Board of Directors recommends that the stockholders vote FOR approval of the KBR, Inc. 2009 Employee Stock Purchase Plan.
General
The plan is a vital element of our employees' compensation and helps align the interest of our employees with you, our stockholders. The purpose of the plan is to
furnish our employees an incentive to advance the best interests of KBR by providing a way for employees to purchase KBR common stock at a favorable price and on favorable terms. In our opinion, the
plan is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended. The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended, although KBR makes no undertaking nor representation to maintain such
53
qualification.
In addition, the plan is intended to be a non-compensatory, or "safe-harbor," employee stock purchase plan under Financial Accounting Standards
No. 123 (R).
The
plan provides for the issuance, upon purchase by its employees, of up to an aggregate of 5,000,000 shares of stock (subject to adjustment in the event of stock splits and certain
other corporate events, as described below under "Adjustments to Stock"). Such stock may be unissued or reacquired stock or stock bought on the market for purposes of the plan. To the extent stock is
set aside for purchase by employees at the beginning of an option period but is not purchased by such employees, that stock will again be available for purchase under the plan. Except for outstanding
rights to purchase stock, the plan will terminate on February 27, 2018, and no further right to purchase stock may be granted after that date. The plan can be terminated sooner as described
under "Amendment or Termination of the Plan." Any stock that is not subject to purchase upon the termination of the plan will cease to be subject to the plan.
Summary of the Key Terms of the Plan
This section summarizes the material terms of the plan. The full text of the plan is set forth in Appendix A to this Proxy Statement. Certain features of
the plan are summarized below, but the summary is qualified in its entirety by reference to the full text of the plan. Certain terms used below are defined in the plan.
Administration of the Plan
Under the terms of the plan, the plan will be administered by the Compensation Committee of the Board of Directors. The members of the Committee, as of the date
of this Proxy Statement, are
Messrs. John R. Huff (Chairman), W. Frank Blount, and Loren K. Carroll. The Committee is authorized to (1) interpret the plan and all rights to purchase stock,
(2) make rules and determinations, and (3) correct any defect or supply any omission or reconcile any inconsistency in the plan or in any right to purchase stock, as necessary or
desirable to administer the plan. In addition, the Committee may adopt rules or procedures relating to the operation and administration of the plan to accommodate the specific requirements of local
laws and procedures. The Committee will not be liable for any decision, determination or action taken in good faith in connection with the administration of the plan. The Committee will have the
authority to delegate administration of the plan to such officers and employees of KBR as the Committee deems appropriate.
Eligibility for Participation
All employees of KBR and those of any present or future KBR subsidiaries (within the meaning of Section 424(f) of the Internal Revenue Code) designated by
the Company are eligible to participate in the plan. No employee has a right to purchase stock if such employee, immediately after acquiring such right, owns stock with five percent or more of the
total combined voting power or value of all classes of KBR stock. The estimated number of employees eligible to participate in the plan is 54,801. Notwithstanding the foregoing, the Committee (or its
delegate) may at any time designate a KBR subsidiary as an entity whose employees will not be eligible under the plan.
An
eligible employee may elect to participate in the plan for any six-month option period (effective as of January 1, 2009) by designating an integral percentage of
such employee's "eligible compensation" (generally, the employee's regular rate of pay) to be deducted from compensation for each pay period and paid into the plan for such employee's account. The
Committee has the discretion to determine what constitutes "eligible compensation" for participants outside of the United States in a manner designed to be consistent with the definition in the plan.
An employee's purchases under the plan may not exceed either (1) 10% of "eligible compensation" from which the deduction (or, if payroll deductions are not permitted under local law, other
means of contributions specified by the
54
Committee)
is made, (2) $25,000 worth of stock (determined at the fair market value of the stock at the time the option is granted), or (3) 10,000 shares of stock per option period.
Purchase Price and Stock Purchased
Unless an employee's payroll deductions (or contributions) are withdrawn (as described below), the aggregate payroll deductions (or contributions) credited to the
employee's account will be used to purchase stock at the end of the six-month option period. The purchase price per share of stock to be paid by each employee on each purchase of stock is
an amount equal to 95% of the fair
market value of the stock on the date of exercise. The fair market value of the stock on the date of exercise will be the per share closing price of the last sale of the stock reported on the NYSE
composite tape for such date (or if such exchange is closed on that date, the first immediately preceding trading date).
An
employee does not have any rights or privileges of a stockholder of KBR for any stock subject to the plan until stock has been purchased and a certificate for stock has been issued to
the employee or on his behalf, as applicable.
Changes in and Withdrawal of Payroll Deductions
An employee's payroll deduction (or contribution) authorization may be decreased during the option period. An employee may withdraw in whole from the plan at any
time prior to 45 days before the date of exercise relating to a particular option period by timely delivering to us a notice of withdrawal in the manner specified by us. We promptly will refund
to the employee the amount of the employee's payroll deductions (or contributions) under the plan that have not been otherwise returned or used to purchase stock, and thereafter, the employee's
payroll deduction (or contribution) authorization and interest in unpurchased stock under the plan will terminate.
Termination of Employment; Leaves of Absence.
Except as described below, if the employment of a participant in the plan terminates for any reason, then the employee's participation in the plan ceases and we
will refund the amount of such employee's payroll deductions (or contributions) under the plan that have not yet been otherwise returned or used to purchase stock. An employee will not be deemed to
have terminated employment in the case of transfer between or amongst the Company and any subsidiary that remains a subsidiary of the Company which is participating in the plan. If the employment of a
participant terminates due to retirement (as defined in the plan), death, or disability, the employee, or the employee's personal representative, as applicable, and to the extent permitted by local
law, may elect either to (1) withdraw all of the accumulated unused payroll deductions (or contributions) credited to the employee's account or (2) exercise the employee's right to
purchase stock at the end of the option period. Any excess cash in such account will be returned to the employee or such personal representative. If we do not timely receive such election, the
employee or personal representative will automatically be deemed to have elected the first alternative.
During
a paid leave of absence approved by us and meeting the requirements of Internal Revenue Service regulations, an employee's elected payroll deductions (or contributions) will
continue. If an employee takes an unpaid leave of absence that is approved by us and meets the requirements of Internal Revenue Service regulations, then such employee may continue participation in
the plan by making cash payments to us in accordance with procedures established by the Committee, in an amount not exceeding the total amount of payroll deductions (or contributions) that would have
been made had the employee not taken such leave of absence. If an employee on such leave fails to make such payments, or if an employee takes a leave of absence other than one described above, then he
will be considered to have terminated his employment and withdrawn from the plan, unless otherwise required under local laws. Further, notwithstanding the foregoing, if an employee takes a leave of
55
absence
that is described in the first or second sentence of this paragraph and such leave of absence exceeds the maximum period (generally, the three-month period beginning on the first day of the
employee's leave of absence or such longer period during which the employee's reemployment rights are guaranteed either by statute or contract), then the employee will be considered to have withdrawn
from the plan and terminated his or her employment for purposes of the plan on the day immediately following the last day of the maximum period.
Adjustment to Stock
Whenever any change is made to the stock, by reason of a stock dividend or by reason of subdivision, stock split, reverse stock split, recapitalization,
reorganization, combination, reclassification of stock, or other similar changes, appropriate action will be taken by the Board of Directors to adjust the number of shares of stock subject to the plan
and the number and purchase price of stock subject to rights to purchase stock outstanding under the plan.
If
KBR is not the surviving corporation in any merger or consolidation (or survives only as a subsidiary of an entity other than a previously wholly owned subsidiary of KBR), or if KBR
is to be dissolved or liquidated, then unless a surviving corporation assumes or substitutes new purchase rights (in accordance with Section 424(a) of the Code) for all rights to purchase stock
then outstanding, (1) the date of purchase for all rights outstanding under the plan will be accelerated to dates fixed by the Board of Directors prior to the effective date of such merger or
consolidation or such dissolution or liquidation, (2) an eligible employee may make a lump-sum deposit prior to the specified date of purchase in lieu of the remaining payroll
deductions (or contributions) that otherwise would have been made and (3) upon such effective date any unexercised rights to purchase stock will expire.
Amendment or Termination of the Plan
The Board of Directors in its discretion may terminate the plan at any time as to any stock not then subject to an employee's rights to purchase. The Board of
Directors may alter or amend the plan from time to time, except that any right already granted may not be changed in a way that would impair the rights of an employee without his or her consent. Also,
the Board of Directors may not, without the approval of our stockholders, make any alteration or amendment that would:
-
1.
-
increase
the aggregate number of shares of stock that may be issued under the plan (other than as prescribed for changes in capitalization), or
-
2.
-
change
the persons eligible to purchase stock.
Use of Funds
All funds received or held by us under the plan will be included in our general funds free of any trust or other restriction, and may be used for any corporate
purpose, except as may be required by local law. No interest will be paid to any employee or credited to his or her account under the plan, except as required by local law.
Federal Income Tax Consequences
In General.
The following is a brief summary of certain of the U.S. federal income tax consequences of certain transactions
under the plan based on federal income tax laws currently in effect, which are subject to change (possibly retroactively). This summary applies to the plan as normally operated and is not intended to
provide or supplement tax advice to eligible employees. The summary contains general statements based on current U.S. federal income tax statutes, regulations, and currently available interpretations
thereof. This summary is not intended to be exhaustive and does not describe state, local, or foreign tax consequences or the effect, if any, of gift, estate, and inheritance
56
taxes.
The tax treatment of a participant in the plan may vary depending on his particular situation and may, therefore, be subject to special tax rules not discussed below. The plan is not qualified
under Section 401(a) of the Code.
Status of Rights to Purchase Stock under the Plan.
For tax purposes, rights to purchase stock under the plan are intended to
qualify as employee stock purchase plan options as defined in Section 423 of the Code.
Tax Consequences of Grant of Right to Purchase Stock under the Plan.
An employee's payroll deductions (or contributions) to
purchase stock are made on an after-tax basis. No federal income tax is imposed on an employee upon the grant of a right to purchase stock under the plan. We are not entitled to a business
expense deduction as a result of the grant of a right to purchase stock.
Tax Consequences of Exercise of Right to Purchase Stock under the Plan.
Generally, no federal income tax is imposed on an
employee upon the purchase of stock under the plan, and we are not entitled to take a business expense deduction as a result of the purchase of stock under the plan. However, for certain participants
whose employment terminates by reason of retirement (as defined in the plan) more than three months before the end of the option period and who elect to purchase stock at the end of such option period
(in lieu of withdrawing all of the accumulated unused payroll deductions (or contributions) credited to such employee's account), ordinary income will be recognized at the time of the purchase of
stockin an amount equal to the excess of the fair market value of the stock on the date of purchase over the purchase priceand we will be entitled to a deduction for a
corresponding amount. In such event, the employee's basis in plan stock is increased by the ordinary income recognized, and upon a subsequent disposition of the stock, any additional gain or loss
recognized will be a capital gain or loss, as described below.
Tax Consequences of a Qualifying Disposition of Stock.
If an employee disposes of plan stock (including by way of gift) more
than twelve months after the date of acquisition of the stock (typically at the end of the option period) and two years after the granting of the right to purchase stock under the plan, or dies while
owning plan stock, any gain is first recognized as ordinary income up to the lesser of (1) the excess of the fair market value of stock at the time of disposition (or death) over the purchase
price of such stock, or (2) the excess of the fair market value of stock at the date of grant of the right to purchase the stock (typically the beginning of the option period), over the
purchase price. The employee's basis in plan stock is increased by any ordinary income recognized. Any remaining gain upon disposition is recognized as a long-term capital gain. If the
employee disposes of
plan stock more than twelve months after the date of exercise for less than the purchase price, a long-term capital loss is recognized. If an employee satisfies the long-term
capital gain holding period requirements discussed above, then we will not be allowed a deduction with respect to the employee's disposition of the stock.
Tax Consequences of Disqualifying Disposition.
If an employee disposes of plan stock (other than by reason of death) within
one year after the date of exercise (or within two years after the granting of the right to purchase stock under the plan), then the employee would be treated as having received, at the time of
disposition, compensation taxable as ordinary income. The amount recognized as ordinary income upon such disposition is the difference between the purchase price and the fair market value of plan
stock at the date of exercise. The difference between the basis (the purchase price) of the plan stock, increased by any ordinary income recognized, and the selling price of the plan stock is a
short-term capital gain or loss. In such event, provided that, among other things, any applicable reporting obligations are satisfied, we may claim a deduction for compensation paid at the
same time and in the same amount as the ordinary income recognized by the employee.
Federal Income Tax Rates.
Compensation taxable to an employee is generally subject to a maximum income tax rate of 35%.
Long-term capital gain is generally subject to a maximum tax rate of 15%.
57
Parachute Payment Sanctions.
Certain actions that may be taken by the Board of Directors in relation to the plan may afford
an employee (generally, officers or highly compensated employees) special protections or payments that are contingent on a change in the ownership of KBR, the effective control of KBR or the ownership
of a substantial portion of KBR's assets. To the extent triggered by the occurrence of any such event, these special protections or payments may constitute "parachute payments" that, when aggregated
with other parachute payments received by the employee, if any, could result in the employee's receiving "excess parachute payments" (a portion of which would be allocated to those protections or
payments derived from the right to purchase stock). We would not be allowed a deduction for any such excess parachute payment, and the recipient of the payment would be subject to a nondeductible 20%
excise tax upon such payment in addition to income tax otherwise owed with respect to such payment.
The
following table sets forth certain equity compensation plan information for KBR as of December 31, 2007.
Plan Category
|
|
Number of
Securities to be
Issued Upon
Exercise of
Outstanding Options
|
|
Weighted-Average
Exercise Price of
Outstanding Options
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities in column (a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity Compensation Plans Approved by Security Holders(1)
|
|
2,123,294
|
|
$
|
14.49
|
|
7,720,478
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
|
|
|
|
|
Total
|
|
2,123,294
|
|
|
|
|
7,720,478
|
|
|
|
|
|
|
|
|
-
(1)
-
The
equity compensation plans approved by security holders include the KBR, Inc. 2006 Stock and Incentive Plan and the KBR, Inc. Transitional Stock Adjustment Plan. The
latter covers equity awards that were originally granted under the Halliburton Company 1993 Stock and Incentive Plan, which was approved by security holders, and converted to KBR equity awards on our
April 2007 separation from Halliburton.
ADDITIONAL INFORMATION
Stockholder Proposals for 2009 Annual Meeting and Director Nominations
If you wish to present a proposal to be considered for inclusion in our proxy material for our Annual Meeting of Stockholders to be held in 2009, you must submit
the proposal in writing to our Corporate Secretary at 601 Jefferson Street, Suite 3400, Houston, Texas 77002, and we must receive your proposal not later than November 27, 2008
(the 120th day prior to March 27, 2009, the date on which we estimate that we will send our materials for our 2009 Annual Meeting of Stockholders). Proposals submitted for inclusion in
our proxy materials must comply with Rule 14a-8 under the Exchange Act.
In
order for stockholder proposals to have been properly submitted for presentation at our Annual Meeting of Stockholders, we must have received notice of the proposal not earlier than
January 13, 2009, nor later than February 12, 2009 (the 120th and 90th days, respectively, prior to May 14, 2009, the intended date of the 2009 Annual Meeting of
Stockholders). Your proposal must comply with Article I, Section 9 of our Bylaws.
A
nomination or proposal that does not comply with the above procedures will be disregarded. Compliance with the above procedures does not require KBR to include the proposed nominee or
business in KBR's proxy solicitation materials.
58
Proxy Solicitation Costs
The proxies accompanying this proxy statement are being solicited by KBR. The cost of soliciting proxies will be paid by KBR. We have retained
Morrow & Co. to aid in the solicitation of proxies. For these services, we will pay Morrow & Co. $8,000 and reimburse it for out-of-pocket expenses.
Some of the executive officers and other employees of KBR also may solicit proxies personally, by telephone, mail, facsimile or other means of communication, if deemed appropriate. KBR will, upon
request, reimburse banks, brokers or other
persons holding stock in their names or in the names of their nominees for their reasonable expenses in forwarding proxy materials to beneficial owners of KBR common stock.
OTHER MATTERS
As of the date of this proxy statement, we know of no business that will be presented at the 2008 Annual Meeting of Stockholders other than the matters described
in this proxy statement. If any other matters should properly come before the Annual Meeting of Stockholders for action by stockholders, it is intended that proxies in the accompanying form will be
voted on those matters in accordance with the judgment of the person or persons voting the proxies.
ADDITIONAL INFORMATION AVAILABLE
KBR files an Annual Report on Form 10-K with the Securities and Exchange Commission. Stockholders may obtain a copy of
this report (without exhibits), without charge, by writing to KBR's Investor Relations Department at 601 Jefferson Street, Suite 3400, Houston, Texas 77002.
59
APPENDIX A
KBR, INC. 2009 EMPLOYEE STOCK PURCHASE PLAN
1. PLAN.
The purpose of the
KBR, INC. 2009 EMPLOYEE STOCK PURCHASE
PLAN
(the "
Plan
") is to furnish to eligible employees an incentive to advance the best interests of
KBR, INC.
(the
"
Company
") by providing a method whereby they voluntarily may purchase stock of
the Company at a favorable price and upon favorable terms. The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the U.S. Internal Revenue Code of 1986, as
amended (the "
Code
"), although the Company makes no undertaking nor representation to maintain such qualification. The provisions of the Plan shall be
construed in a manner consistent with the requirements of that section of the Code.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Compensation Committee (the
"
Committee
") of the Board of Directors of the Company (the "
Board
"). Subject to the provisions of the
Plan, the Committee shall interpret the Plan and all options granted under the Plan, shall make such rules as it deems necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan, and shall correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option granted under
the Plan in the manner and to the extent that the Committee deems desirable to carry the Plan or any option into effect. The Committee may adopt rules or procedures relating to the operation and
administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Committee specifically is authorized to adopt
rules or procedures regarding the handling of payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures, participation limits and handling of stock
certificates which vary with local requirements. Any action taken or determination made by the Committee pursuant to this and the other paragraphs of the Plan shall be conclusive on all parties. The
act or determination of a majority of the Committee shall be deemed to be the act or determination of the Committee. The Committee shall not be liable for any decision, determination, or action taken
in good faith in connection with the administration of the Plan. The Committee shall have the authority to delegate administration of the Plan to such officers and employees of the Company as the
Committee deems appropriate, and such persons shall not be liable for any decision, determination, or action taken in good faith in connection with such delegated administration.
3. ELIGIBILITY.
All employees of the Company and those of any present or future subsidiary corporations of the
Company designated by the Company shall be eligible to participate in the Plan; provided, however, no option shall be granted to an employee if such employee, immediately after the option is granted,
owns stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of its parent or subsidiary corporation (within the meaning of
Sections 423(b)(3) and 424(d) of the Code). Notwithstanding the foregoing, the Committee may at any time and from time to time, in its sole discretion, designate a subsidiary corporation of the
Company as an entity whose employees shall not be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of paragraph 11 (relating to adjustment upon
changes in stock), the aggregate number of shares which may be sold pursuant to options granted under the Plan shall not exceed 5,000,000 shares of the authorized $.001 par value common stock of the
Company ("
Stock
"), which shares may be unissued shares or reacquired shares or shares bought on the market for purposes of the Plan. Should any option
granted under the Plan expire or terminate prior to its exercise in full, the shares theretofore subject to such option may again be subject to an option granted under the Plan. Any shares which are
not subject to outstanding options upon the termination of the Plan shall cease to be subject to the Plan.
A-1
5. GRANT OF OPTIONS.
(a) GENERAL STATEMENT; "DATE OF GRANT;" "OPTION PERIOD;" "DATE OF EXERCISE."
Following the
effective date of the Plan and continuing while the Plan remains in force, the Company will offer options under the Plan to all eligible employees to purchase shares of Stock. These options shall be
granted twice each year on a date to be determined by the Committee (each of which dates is hereinafter referred to as a "
Date of Grant
"). The term of
each option is 6 months (each of which 6 month periods is hereinafter referred to as an "
Option Period
"), which shall begin on a Date of
Grant (the last day of each Option Period is hereinafter referred to as a "
Date of Exercise
"). Subject to subparagraph 5(e), the number of shares
of Stock subject to an option for a participant shall be equal to the quotient of (i) the aggregate payroll deductions (or, if payroll deductions are not permitted under local law, other means
of contributions specified by the Committee) withheld on behalf of such participant in accordance with subparagraph 5(b) (including any participant contributions made in accordance with
subparagraph 5(f)) during the Option Period, divided by (ii) the "Option Price" (defined below) of the Stock applicable to the Option Period; provided however, that the maximum number of
shares of Stock that may be subject to any option offered under such Option Period for a participant may not exceed 10,000 (subject to adjustment in the same manner as provided in paragraph 11
with respect to the number of shares subject to the Plan and the number and Option Price of shares subject to options outstanding under the Plan). Notwithstanding the foregoing, if, as of any date
that the Plan is in effect, there are not sufficient shares of Stock available under the Plan to allow for the grant to each participant of an option covering the number of shares determined in
accordance with the preceding sentence, each participant shall be granted an option under the Plan for his or her pro-rata share of the total number of shares of Stock then available under
the Plan.
(b) ELECTION TO PARTICIPATE; PAYROLL DEDUCTION AUTHORIZATION.
Except as provided in
subparagraph 5(f), an eligible employee may participate in the Plan only by means of payroll deduction, unless payroll deductions are not permitted under local laws, in which case an eligible
employee may contribute by such other means as specified by the Committee. Each eligible employee who elects to participate in the Plan shall deliver to the Company a payroll deduction or contribution
authorization form within the time period and in a manner prescribed by the Committee (which may be in electronic or telephonic form) whereby he gives notice of his election to participate in the Plan
as of the next following Date of Grant, and whereby he designates an integral whole percentage of his "Eligible Compensation" (as defined in subparagraph 5(d)) to be deducted from his
compensation on each pay day and paid into the Plan for his account. The designated percentage may not be less than 1%, may not result in the payment into the Plan of less than $5.00 each pay day, and
may not exceed either of the following: (i) 10% of the amount of Eligible Compensation from which the deduction is made; or (ii) an amount which will result in noncompliance with the
$25,000 limitation stated in subparagraph 5(e).
(c) CHANGES IN PAYROLL AUTHORIZATION.
All payroll deductions or contributions made for a
participant shall be credited to his account under the Plan. A participant may discontinue his participation in the Plan as provided in paragraph 7 hereof, or may decrease the rate of his
payroll deductions or contributions during the Option Period by completing or filing with the Company, at a time and in a manner prescribed by the Committee, a new payroll deduction or contribution
authorization form authorizing a decrease in his payroll or contribution rate. The Committee may, in its discretion, limit the number of payroll or contribution rate decreases during any Option
Period. The decrease in rate shall be effective as soon as administratively practicable after the Company's receipt of the new payroll deduction or contribution authorization form. A participant's
payroll deduction or contribution authorization form shall remain in effect for successive Option Periods unless terminated as provided in paragraph 7 hereof.
(d) "ELIGIBLE COMPENSATION" DEFINED.
The term "
Eligible
Compensation
" means regular rate of pay on the Date of Grant. "Eligible Compensation" does not include short or long-term
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incentive
plan payments, bonuses, overtime, or other special payments, fees, or allowances, except for special payments required by local law and treated as an integral, recurring part of
compensation. The Committee shall have the discretion to determine what constitutes Eligible Compensation for participants outside the United States in a manner designed to be consistent with the
foregoing definition.
(e) $25,000 LIMITATION.
No employee shall be granted an option under the Plan to the extent the
grant of an option under the Plan would permit his rights to purchase Stock under the Plan and under all other employee stock purchase plans of the Company and its parent and subsidiary corporations
to accrue at a rate which exceeds $25,000 of fair market value of Stock (determined at the time the option is granted) for each calendar year in which any such option granted to such employee is
outstanding at any time (within the meaning of Section 423(b)(8) of the Code). Any payroll deductions or
contributions (or participant contributions made under subparagraph 5(f)) in excess of the amount specified in the foregoing sentence shall be returned to the participant as soon as
administratively feasible after the next following Date of Exercise.
(f) LEAVES OF ABSENCE.
During a paid leave of absence approved by the Company and meeting the
requirements of U.S. Treasury Regulation Section 1.421-1(h)(2), a participant's elected payroll deductions shall continue. If a participant takes an unpaid leave of absence that is
approved by the Company and meets the requirements of Treasury Regulation Section 1.421-1(h)(2), then such participant may contribute amounts to the Plan in lieu of his elected
payroll deductions or contributions in accordance with procedures established by the Committee; provided, however, that a participant's contributions while on such an unpaid leave of absence may not
exceed the total amount of payroll deductions that would have been made had such participant not taken such an unpaid leave of absence. If a participant takes a leave of absence that is not described
in the preceding sentences of this subparagraph 5(f), then he shall be considered to have terminated his employment for purposes of the Plan, unless otherwise required under local laws.
Further, notwithstanding the preceding provisions of this subparagraph 5(f), if a participant takes a leave of absence that is described in the first or second sentence of this
subparagraph 5(f) and such leave of absence exceeds the Maximum Period, then he shall be considered to have terminated his employment for purposes of the Plan on the day immediately following
the last day of the Maximum Period. For purposes of the preceding sentence, the term "
Maximum Period
" shall mean, with respect to a participant, the
three-month period beginning on the first day of the participant's leave of absence; provided, however, that if the participant's right to reemployment by the Company (or a parent or subsidiary
corporation of the Company) is guaranteed either by statute or contract, then such three-month period shall be extended until the last day upon which such reemployment rights are so guaranteed.
(g) CONTINUING ELECTION.
Subject to the limitation set forth in subparagraph 5(e), a
participant (i) who has elected to participate in the Plan pursuant to subparagraph 5(b) as of a Date of Grant and (ii) who takes no action to change or revoke such election as of
the next following Date of Grant and/or as of any subsequent Date of Grant prior to any such respective Date of Grant shall be deemed to have made the same election, including the same attendant
payroll deduction or contribution authorization (or participant contribution agreement under subparagraph 5(f) if applicable), for such next following and/or subsequent Date(s) of Grant as was
in effect immediately prior to such respective Date of Grant. If a participant's payroll deductions or contributions, as applicable, are limited by subparagraph 5(e) for the Option Period
beginning in any calendar year, then, subject to the limitation set forth in subparagraph 5(e), such payroll deductions or contributions shall recommence at the rate provided in such
participant's payroll deduction or contribution authorization or contribution agreement, as applicable, for the next Option Period unless the participant decreases the amount of his payroll deduction
or contribution authorization or contribution agreement pursuant to paragraph 5, withdraws from the Plan as provided in paragraph 7, or is terminated from participation in the Plan as
provided in paragraph 8.
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(h) TAX WITHHOLDING.
At the time an option under the Plan is exercised, in whole or in part, or at
the time some or all of the Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any,
that arise upon the exercise of the option or the disposition of the Stock. At any time, the Company may withhold from the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including without limitation any withholding required to make available to the Company any tax deductions or benefits attributable to the sale or disposition of
Stock purchased by the participant under the Plan.
(i) FRACTIONAL STOCK.
The Company shall issue or transfer fractional Stock under the Plan. In the
event that the amount of salary reduction contributions of any participant is not exactly equal to the purchase price for a whole number of shares of Stock, then any excess amount shall be used to
purchase fractional Stock.
6. EXERCISE OF OPTIONS.
(a) GENERAL STATEMENT.
Subject to the limitation set forth in subparagraph 5(e), each
participant in the Plan automatically and without any act on his part will be deemed to have exercised his option on each Date of Exercise. Notwithstanding any provision of the Plan to the contrary,
prior to the commencement of any Option Period, the Committee in its discretion may establish a minimum exercise price for such Option Period to the effect that if the Option Price for such Option
Period is less than such minimum exercise price, then each participant shall be deemed to have withdrawn from the Plan pursuant to paragraph 7 immediately prior to the Date of Exercise of such
offering period; provided, however, that a participant's payroll deduction or contribution authorization (or participant contribution agreement under subparagraph 5(f), if applicable) shall not
be terminated with respect to the Date of Grant of any subsequent Option Period by reason of any such deemed withdrawal. Any such minimum exercise price shall be subject to adjustment in the same
manner as provided in paragraph 11 with respect to the number of shares subject to the Plan and the number and Option Price of shares subject to options outstanding under the Plan.
(b) "OPTION PRICE" DEFINED.
The "
Option Price
" per
share of Stock to be paid by each optionee on each exercise of his option shall be a sum equal to 95% of the fair market value of the Stock on the Date of Exercise. The fair market value of the Stock
on the Date of Exercise shall be the per share closing price of such Stock reported on the New York Stock Exchange composite tape for such date (or if such exchange is closed on that date, the first
immediately preceding trading date). If the Stock is traded over the counter at the time a determination of its fair market value is required to be made hereunder, its fair market value shall be
deemed to be equal to the closing price of Stock on the most recent date on which Stock was publicly traded. In the event Stock is not publicly traded at the time a determination of its value is
required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate.
(c) DELIVERY OF SHARES.
Except as provided below, the Company shall deliver to each participant a
certificate issued in his name for the number of shares of Stock with respect to which such participant's
option was exercised and for which such participant has paid the Option Price. The certificate shall be delivered as soon as practicable following the Date of Exercise.
In
lieu of delivering share certificates directly to participants, the Company in its discretion may take such steps as it deems necessary or advisable (including, without limitation,
the execution of service agreements and contracts) to effect the delivery of shares to a broker-dealer or similar custodian designated by the Company (the "
Plan
Broker
") on such terms and conditions as the Company determines in its discretion. In such event, as soon as practicable following the Date of Exercise, the Company, on behalf
of each participant, shall deliver to the Plan Broker a certificate for (or shall otherwise cause to be credited with the Plan Broker) the number of shares of Stock with respect to which such
participant's option was exercised and for which such participant has paid the
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Option
Price. The Plan Broker shall keep accurate records of the beneficial interests of each participant in such shares by means of the establishment and maintenance of an account for each
participant. Fees and expenses of the Plan Broker shall be paid by the Company and/or allocated among the respective participants in such manner as the Company determines in its discretion. During any
period that the Plan Broker arrangement described above is utilized in connection with the Plan, participants shall be required, at such time or times as may be designated by the Company, to enter
into such agreements and authorizations (the terms of which may include, without limitation, restrictions on the transfer of shares from participants' Plan Broker accounts) with the Plan Broker and
the Company as the Company may prescribe.
In
the event the Company is required to obtain from any commission or agency authority to issue any shares as provided above, the Company will seek to obtain such authority. Inability of
the Company to obtain from any such commission or agency authority which counsel for the Company deems necessary for the lawful issuance of any such shares shall relieve the Company from liability to
any participant in the Plan except to return to him the amount of the balance in his account.
7. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL.
Any participant may withdraw in whole from the Plan at any time prior to
45 days before the Date of Exercise relating to a particular Option Period. Partial withdrawals shall not be permitted. A participant who wishes to withdraw from the Plan must deliver to the
Company a notice of withdrawal in a form prepared by the Company (which may be in electronic or telephonic form). The Company, promptly following the time when the notice of withdrawal is delivered,
will refund to the participant the amount of the balance in his account under the Plan; and thereupon, automatically and without any further act on his part, his payroll deduction or contribution
authorization or participant contribution agreement (as applicable), his interest in the Plan, and his option under the Plan shall terminate.
(b) ELIGIBILITY FOLLOWING WITHDRAWAL.
A participant who withdraws from the Plan shall be eligible
to participate again in the Plan upon expiration of the Option Period during which he withdrew (provided that he is otherwise eligible to participate in the Plan at such time).
8. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT OTHER THAN BY RETIREMENT, DEATH OR DISABILITY.
If the employment of
a participant terminates prior to the Date of Exercise relating to a particular Option Period, other than by retirement, death, or disability as provided in subparagraph 8(b) below, his
participation in the Plan automatically and without any act on his part shall terminate as of the date of the termination of his employment; provided, however, that if the Date of Exercise for the
Option Period during which such termination of employment occurs is not a Business Day and the participant's employment terminates on the last Business Day of the Option Period, then such participant
will be considered to have terminated employment, for purposes of this subparagraph 8(a), on the Date of Exercise. For purposes of the preceding sentence, the term
"
Business Day
" shall mean any day except a Saturday, Sunday or other day on which national banking associations in the State of New York are generally
closed for the conduct of commercial banking business. Following the participant's termination of employment as described above, the Company promptly will refund to him the amount of the balance in
his account under the Plan, and thereupon his interest in the Plan and in any option under the Plan shall terminate. For purposes of this paragraph, an employee will not be deemed to have terminated
employment or failed to remain in the continuous employ of the Company or any of its subsidiaries in the case of transfer between or amongst the Company and any subsidiary that remains a subsidiary of
the Company which is participating in the Plan.
(b) TERMINATION OF EMPLOYMENT BY RETIREMENT, DEATH OR DISABILITY.
If the employment of a
participant terminates by reason of such participant's retirement (which shall
A-5
mean
a termination of employment for any reason other than cause (as defined below) after such participant has attained age 55) or due to such participant's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Code), then such participant, or such participant's personal representative in the event of the participant's death, and to the extent
permitted by local law, shall have the right to elect either to:
(1) withdraw
the amount of the balance in the participant's account under the Plan at the date of such participant's termination of employment; or
(2) exercise
such participant's option for the purchase of Stock on the last day of the Option Period during which termination of employment occurs for the
purchase of the number of full shares of Stock which the amount of the balance in the participant's account under the Plan at the date of such participant's termination of employment will purchase at
the applicable Option Price (subject to
subparagraph 5(e)), with any balance remaining in the participant's account under the Plan to be returned to such participant or such personal representative.
The
participant or, if applicable, such personal representative, must make such election by giving notice to the Company at such time and in such manner as the Committee
prescribes. In the event that no such notice of election is timely received by the Company, the participant or personal representative will automatically be deemed to have elected as set forth in
clause (1) above, and the balance in such participant's account under the Plan shall be promptly distributed to the participant or such personal representative. For purposes of this
subparagraph 8(b), "
cause
" shall mean a termination of a participant's employment because he is discharged for (A) fraud, theft, or
embezzlement committed against the Company or a subsidiary, affiliated entity, or customer of the Company, (B) such participant's willful misconduct in performance of the duties of his
employment, or (C) such participant's final conviction of a felony.
9. RESTRICTION UPON ASSIGNMENT.
An option granted under the Plan shall not be transferable otherwise than by
will or the laws of descent and distribution. Each option shall be exercisable, during his lifetime, only by the employee to whom granted. The Company will not recognize and shall be under no duty to
recognize any assignment or purported assignment by an employee of his option or of any rights under his option or under the Plan.
10. RIGHTS OF STOCKHOLDER.
With respect to shares of Stock subject to an option, an optionee shall not be deemed
to be a stockholder, and he shall not have any of the rights or privileges of a stockholder. An optionee shall have the rights and privileges of a stockholder when, but not until, shares have been
issued to him or on his behalf, as applicable, following exercise of his option.
11. CHANGES IN STOCK; ADJUSTMENT.
Whenever any change is made in the Stock, by reason of a stock dividend or by
reason of subdivision, stock split, reverse stock split, recapitalization, reorganization, combination, reclassification of shares or other similar change, appropriate action will be taken by the
Board to adjust accordingly the number of shares subject to the Plan, the maximum number of shares that may be subject to any option, the number and Option Price of shares subject to options
outstanding under the Plan, and the minimum Option Price, if any, established pursuant to subparagraph 6(a) with respect to outstanding options.
If
the Company shall not be the surviving corporation in any merger or consolidation (or survives only as a subsidiary of another entity, or if the Company is to be dissolved or
liquidated, then unless a surviving corporation assumes or substitutes new options (within the meaning of Section 424(a) of the Code) for all options then outstanding, (i) the Date of
Exercise for all options then outstanding shall be accelerated to dates fixed by the Board prior to the effective date of such merger or consolidation or such dissolution or liquidation,
(ii) an employee (or his legal representative) may make a lump-sum deposit prior to the Date of Exercise in lieu of the remaining payroll deductions (or remaining participant
contributions under subparagraph 5(f)) which otherwise would have been made, and (iii) upon such effective date any unexercised options shall expire.
A-6
12. USE OF FUNDS; NO INTEREST PAID.
All funds received or held by the Company under the Plan will be included in
the general funds of the Company free of any trust or other restriction and may be used for any corporate purpose, except as may be required by applicable local law. No interest will be paid to any
participant or credited to his account under the Plan, except as may be required by applicable local law.
13. TERM OF THE PLAN.
The Plan shall be effective on January 1, 2009, or upon the date of its adoption by
the Board, if later, provided the Plan is approved by the stockholders of the Company within twelve months before or after the date the Plan is adopted. Notwithstanding any provision in the Plan, no
option granted under the Plan shall be exercisable prior to such stockholder approval, and, if the stockholders of the Company do not approve the Plan by the Date of Exercise of the first option
granted hereunder, then the Plan shall automatically terminate, no options may be exercised hereunder, and the Company promptly shall refund to each participant the amount of the balance in the
participant's account under the Plan; and thereupon, automatically and without any further act on his part, his payroll deduction authorization (and participant contribution agreement, if applicable)
and his interest in unexercised options under the Plan shall terminate. Except with respect to options then outstanding, if not sooner terminated under the provisions of paragraph 14, the Plan
shall terminate upon and no further options shall be granted after February 27, 2018.
14. AMENDMENT OR TERMINATION OF THE PLAN.
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which options have not theretofore been granted. The Board shall have the right to alter or amend the Plan or any part thereof from time to time; provided, that no change in
any option theretofore granted may be made which would impair the rights of the optionee without the consent of such optionee; and provided, further, that the Board may not make any alteration or
amendment which would increase the aggregate number of shares which may be issued pursuant to the provisions of the Plan (other than as a result of the antidilution provisions of the Plan) or change
the class of individuals eligible to receive options under the Plan, without the approval of the stockholders of the Company.
15. SECURITIES LAWS.
The Company shall not be obligated to issue any Stock pursuant to any option granted under
the Plan at any time when the offer, issuance, or sale of shares covered by such option has not been registered under the U.S. Securities Act of 1933, as amended, or does not comply with such other
state, federal, or foreign laws, rules, or regulations or the requirements of any stock exchange upon which the Stock may then be listed, as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the requirements of such laws, rules, regulations, or requirements available for the offer, issuance, and sale of such shares.
Further,
all Stock acquired pursuant to the Plan shall be subject to the Company's policies concerning compliance with securities laws and regulations, as such policies may be amended
from time to time. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the U.S. Securities Exchange Act of 1934, as amended
(the "
Exchange Act
"), shall comply with any applicable provisions of Rule 16b-3. As to such persons, the Plan shall be deemed to
contain, and such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required from time to time by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
16. NO RESTRICTION ON CORPORATE ACTION.
Nothing contained in the Plan shall be construed to prevent the Company
or any subsidiary from taking any corporate action which is deemed by the Company or such subsidiary to be appropriate or in its best interest whether or not such action would have an adverse effect
on the Plan or any award made under the Plan. No employee, beneficiary or other person shall have any claim against the Company or any subsidiary as a result of any such action.
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17. MISCELLANEOUS PROVISIONS.
(a) PARENT AND SUBSIDIARY CORPORATIONS.
For all purposes of the Plan, a corporation shall be
considered to be a parent or subsidiary corporation of the Company only if such corporation is a parent or subsidiary corporation of the Company within the meaning of Sections 424(e) and (f) of
the Code.
(b) NUMBER AND GENDER.
Wherever appropriate herein, words used in the singular shall be considered
to include the plural and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender.
(c) HEADINGS.
The headings and subheadings in the Plan are included solely for convenience, and if
there is any conflict between such headings or subheadings and the text of the Plan, the text shall control.
(d) NOT A CONTRACT OF EMPLOYMENT; NO ACQUIRED RIGHTS.
The adoption and maintenance of the Plan
shall not be deemed to be a contract between the Company and any person or to be consideration for the employment of any person. Participation in the Plan at any given time shall not be deemed to
create the right to participate in the Plan, or any other arrangement permitting an
employee of the Company to purchase Stock at a discount, in the future. The rights and obligations under any participant's terms of employment with the Company shall not be affected by participation
in the Plan. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any
time, nor shall the Plan be deemed to give the Company the right to require any person to remain in the employ of the Company or to restrict any person's right to terminate his employment at any time.
The Plan shall not afford any participant any additional right to compensation as a result of the termination of such participant's employment for any reason whatsoever.
(e) COMPLIANCE WITH APPLICABLE LAWS.
The Company's obligation to offer, issue, sell, or deliver
Stock under the Plan is at all times subject to all approvals of and compliance with any governmental authorities (whether domestic or foreign) required in connection with the authorization, offer,
issuance, sale, or delivery of Stock as well as all federal, state, local, and foreign laws. Without limiting the scope of the preceding sentence, and notwithstanding any other provision in the Plan,
the Company shall not be obligated to grant options or to offer, issue, sell, or deliver Stock under the Plan to or behalf of any employee who is a citizen or resident of a jurisdiction the laws of
which, for reasons of its public policy, prohibit the Company from taking any such action with respect to such employee.
(f) SEVERABILITY.
If any provision of the Plan shall be held illegal or invalid for any reason,
said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable, and the Plan shall be construed and enforced as if said illegal or
invalid provision had never been included herein.
(g) ELECTRONIC AND/OR TELEPHONIC DOCUMENTATION AND SUBMISSION.
Any of the payroll deduction
authorizations, enrollment documents, and any other forms and designations referenced in the Plan and their submission may be electronic and/or telephonic, as directed by the Committee.
(h) GOVERNING LAW.
All provisions of the Plan shall be construed in accordance with the laws of
Texas except to the extent preempted by federal law.
(i) PERSONAL REPRESENTATIVE.
For purposes of paragraph 8 of the Plan, a participant's
personal representative shall be the executor or administrator of the participant's estate or equivalent individual having the authority under local law to act on behalf of the deceased participant
with respect to the actions regarding the participant's Plan participation set forth in paragraph 8.
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ATTN: DOLORES BROOKS
601 JEFFERSON STREET, SUITE 3400
HOUSTON, TX 77002
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VOTE BY INTERNET
www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the
instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by KBR, Inc. in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic
delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years.
VOTE BY
PHONE1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY
MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to KBR, Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KBRIN1
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KEEP THIS PORTION FOR YOUR RECORDS
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN THIS PORTION ONLY
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KBR, INC.
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For
All
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Withhold
All
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For All
Except
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To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below.
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Vote On Directors
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The Board of Directors recommends that you vote FOR election of each Class II director nominee listed below.
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1.
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To elect three Class II directors to serve for the ensuing three years and until their successors shall be elected and shall qualify;
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Nominees for Class II director-Term Ending 2011:
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01) John R. Huff
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02) Lester L. Lyles
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03) Richard J. Slater
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Vote On Proposals
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The Board of Directors recommends that you vote FOR each of the proposals below.
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For
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Against
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Abstain
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2.
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To ratify the selection of KMPG LLP as the independent registered public accounting firm to audit the consolidated financial statements of KBR, Inc. for the year ending December 31, 2008; and
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3.
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To approve the KBR, Inc. 2009 Employee Stock Purchase Plan.
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Yes
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No
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Yes
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Please indicate if you plan to attend this meeting.
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Signature [PLEASE SIGN WITHIN BOX]
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Signature (Joint Owners)
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Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting:
The
Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
Notice of Annual Meeting of Stockholders
to be Held May 7, 2008
The
undersigned stockholder of KBR, Inc., a Delaware corporation, hereby acknowledges the receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated
March 25, 2008, and hereby appoints William P. Utt and Jeffrey B. King, and each of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf of and in the name of the undersigned, to represent the undersigned at the 2008 Annual Meeting of Stockholders of KBR, Inc. to be held on May 7, 2008 at
9:00 a.m. CDT, at The Houstonian Hotel, 111 North Post Oak Lane, Houston, TX, 77021, and at any adjournment or adjournments thereof, and to vote all shares of Common Stock which the undersigned
would be entitled to vote if then and there personally present, on the matters set forth on the reverse side.
THIS
PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR EACH OF THE NOMINEES FOR THE BOARD OF DIRECTORS LISTED IN THIS PROXY STATEMENT; FOR THE RATIFICATION
OF THE SELECTION OF KPMG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2008; FOR THE APPROVAL OF THE KBR, INC. 2009 EMPLOYEE STOCK PURCHASE PLAN, AND AS SAID
PROXY HOLDERS DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
To vote through the Internet or by telephone, please see the instructions on the reverse side of this card. To vote by mail, please mark, sign and date this card on the reverse
and mail promptly in the enclosed postage-paid envelope.
SEE REVERSE
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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SEE REVERSE
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