BARNWELL INDUSTRIES INC — Proxy Solicitation & Information Statement 1998

Jan 6, 1998

BARNWELL INDUSTRIES, INC. Notice of Annual Meeting of Stockholders To the Stockholders of BARNWELL INDUSTRIES, INC.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of BARNWELL INDUSTRIES, INC., a Delaware corporation, will be held on March 9, 1998, at 9:30 A.M., Central Standard Time, at the Sheraton Shreveport Hotel, 1419 East 70th Street, Shreveport, Louisiana, for the purpose of considering and acting upon: (1) The election of a Board of Directors to serve until the next Annual Meeting of Stockholders and until their successors shall have been elected and qualified; and (2) Any and all other business which may properly come before the meeting or any adjournment thereof. Only stockholders of record at the close of business on January 12, 1998, are entitled to notice of and to vote at this meeting or any adjournment thereof. The Company's Annual Report to Stockholders for the fiscal year ended September 30, 1997, which includes consolidated financial statements, is enclosed herewith. We will be pleased to have you attend the meeting. However, if you are unable to do so, please sign and return the enclosed Proxy in the enclosed addressed envelope. By Order of the Board of Directors /s/ Alexander C. Kinzler ALEXANDER C. KINZLER Secretary Dated: January 22, 1998 2 BARNWELL INDUSTRIES, INC. SUITE 2900 1100 ALAKEA STREET HONOLULU, HAWAII 96813 PROXY STATEMENT SOLICITATION AND REVOCATION OF PROXIES The accompanying Proxy is solicited by the Board of Directors of Barnwell Industries, Inc., a Delaware corporation (the "Company"), and the Company will bear the cost of such solicitation. Solicitation of proxies will be primarily by mail. Proxies may also be solicited by regular employees of the Company by telephone at a nominal cost. Brokerage houses and other custodians, nominees and fiduciaries will be requested to forward soliciting material to the beneficial owners of Common Stock and will be reimbursed for their expenses. All properly executed proxies will be voted as instructed. Stockholders who execute proxies may revoke them by delivering subsequently dated proxies or by giving written notice of revocation to the Secretary of the Company at any time before such proxies are voted. No proxy will be voted if the stockholder attends the meeting and elects to vote in person. This Proxy Statement and the accompanying Form of Proxy are first being sent to stockholders on or about January 22, 1998. VOTING AT THE MEETING Only stockholders of record at the close of business on January 12, 1998, will be entitled to vote at the annual meeting and any adjournment thereof. As of the record date, 1,322,052 shares of common stock, par value $0.50, of the Company (the "Common Stock") were issued and outstanding. Each share of Common Stock outstanding as of the record date is entitled to one vote on any proposal presented at the meeting. With respect to abstentions, the shares will be considered present at the meeting for a particular proposal, but since they are not affirmative votes for the proposal, they will have the same effect as a vote withheld on the election of directors or a vote against such other proposal, as the case may be. If a broker indicates on the proxy that it does not have discretionary authority as to certain shares to vote on a particular proposal, those shares will not be considered as present at the meeting and will not be entitled to vote in respect of that proposal. ELECTION OF DIRECTORS At the meeting all ten directors of the Company are proposed to be elected, each elected director to hold office until the next annual meeting and until his successor is elected and qualified. The persons named as proxies in the enclosed Proxy are executive officers of the Company and, unless contrary instructions are given, they will vote the shares represented by the Proxy for the election to the Board of Directors of the persons named below. The election of directors will require a plurality vote of the Company's stockholders present at the meeting. The Board of Directors has no reason to believe that any of the nominees for the office of Director will be unable to serve; however, in the event any of the nominees should withdraw or otherwise become unavailable for reasons not presently known, the persons named as proxies will vote for other persons in place of such nominees. 3

4 The Board of Directors has a standing Compensation Committee, a standing Audit Committee, and a standing Executive Committee. It has no standing nominating committee. The members of the Compensation Committee are Mr. Warren, Chairman, and Messrs. Hunter, Jacobson, Anderson, and Kinzler, with Mr. Kinzler being a non-voting member. The Compensation Committee determines the annual compensation of the Company's senior officers, recommends, if appropriate, new employee benefit plans to the Board of Directors, administers all employee benefit plans and makes determinations in connection therewith as may be necessary or advisable. During the fiscal year ended September 30, 1997, the Compensation Committee held one meeting. The members of the Audit Committee are Mr. Jacobson, Chairman, and Messrs. Emes, Yago and Kinzler, with Mr. Kinzler being a non-voting member. The Audit Committee recommends the independent accountants appointed by the Board of Directors to audit the consolidated financial statements of the Company, and reviews with such accountants the scope of their audit and report thereon, including any questions and recommendations that may arise relating to such audit and report or the Company's internal accounting and auditing procedures. It also reviews periodically the performance of the Company's accounting and financial personnel. During the fiscal year ended September 30, 1997, the Audit Committee held one meeting. The members of the Executive Committee are Mr. Kinzler, Chairman, and Messrs. Anderson, Hazelhoff-Roelfzema, and Warren. The Executive Committee is empowered to exercise all of the authority of the Board of Directors, except for certain items enumerated in the Company's By-Laws. During the fiscal year ended September 30, 1997, the Executive Committee held no meetings. The Board of Directors held two meetings during the fiscal year ended September 30, 1997. Other than Mr. Hunter, who attended one Board meeting and one Compensation Committee meeting, all directors attended all meetings of the Board of Directors and of the Committees of the Board on which he served.

EXECUTIVE COMPENSATION

Directors who are not officers of the Company receive an annual fee of $7,500 and are reimbursed for expenses incurred with respect to meeting attendance. The Chairmen of the Compensation and Audit Committees receive an additional $7,500 annual fee. The members of the Executive and Compensation Committees, other than the Chairmen, receive an additional $1,250 annual fee. The members of the Audit Committee, other than the Chairman, receive an additional $3,750 annual fee. In lieu of payment of such fees to Mr. Hazelhoff-Roelfzema, the Company reimburses him for certain expenses incurred in connection with his service as a director. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values 6

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In November, 1996, the Company, through a wholly-owned subsidiary, entered into an agreement with KEP Energy Resources, LLC, for the exploration and development of certain oil and gas properties located in northwestern Michigan ("Michigan Basin Prospect"). The Company's participation in the Michigan Basin Prospect was conditioned upon the Company purchasing more than a 5% interest in the prospect. The Board of Directors determined, however, that it would not be financially prudent for the Company to purchase more than a 5% interest in the Michigan Basin Prospect. Therefore, in order to enable the Company to invest in the prospect, the Company entered into a joint venture agreement with investors, including certain executive officers, directors and beneficial owners of more than 5% of the Company's Common Stock ("Affiliated Participants"), who paid a total of $1,575,000 for interests in the Michigan Basin Prospect. The Company then acquired a 12.5% interest in the prospect (although it could have acquired a substantially greater interest) and committed to an exploratory program for an investment of approximately $2,625,000, and allocated 60% of the Company's 12.5% interest to the investors, including the Affiliated Participants. The investors, including the Affiliated Participants, acquired their interests in the Michigan Basin Prospect through the Company, at the same price and upon terms substantially the same and no more favorable than those under which the Company acquired its interest in the Michigan Basin Prospect, except that after the investors, including the Affiliated Participants, receive a return of their entire investment ("Payout"), 30% of their interest in the Michigan Basin Prospect will revert to the Company (see table below). 7 In fiscal 1997, one new well was drilled and seven existing well bores were re-entered with the goal of producing natural gas. In September, 1997, the venture raised approximately $900,000, of which $378,000 came from the Company and $522,000 came from investors, including the Affiliated Participants, through the exercise of a cash call. Additional funds for the venture may be raised in the future from the investors through the exercise of subsequent cash calls. Failure by an investor to respond to a cash call could result in a reduction of such investor's interest in the Michigan Basin Prospect. In October and November 1997, work began on a new natural gas exploration program in the Michigan Basin Prospect. The new program contemplates the drilling of three horizontal oil wells and the re-entry of four well bores for natural gas development.

In June, 1995, the Company issued $2,000,000 of convertible notes due July 1, 2003 for an aggregate price of $2,000,000. $400,000 of such notes were purchased by Mr. Morton H. Kinzler, President, Chief Executive Officer and Chairman of the Board of Directors of the Company, $200,000 were purchased by Mr. Martin Anderson, a director of the Company, $200,000 were purchased by Dr. Joseph E. Magaro, a 15.1% shareholder of the Company, $100,000 were purchased by Dr. R. David Sudarsky, an 8.6% shareholder of the Company, and $1,000,000 were purchased by Ingalls and Snyder, a 10.3% shareholder of the Company. See "Security Ownership of Certain Beneficial Owners and Management", below. The notes are payable in 20 consecutive equal quarterly installments beginning in October 1998. Interest is payable quarterly at an initial rate of 10% per annum until October 1, 1995, after which the interest rate will be adjusted quarterly to the greater of 10% per annum or 1% over the prime rate of interest. Throughout fiscal year 1997, the notes bore interest at the rate of 10% per annum. The notes are convertible into shares of Common Stock at a price of $20.00 per share, subject to adjustment for certain events including a stock split of, or stock dividend on, the Common Stock. The notes are redeemable, at the option of the Company, at any time after July 1, 1997 at premiums declining 1% annually from 5% to 0% of the principal amount of the notes. The Company is contingently liable for a demand loan made by a Canadian bank to Dr. Joseph E. Magaro, a 15.1% shareholder of the Company, in the amount of $100,000 in connection with the development of certain oil and gas properties in Canada in which he participated. The loan is secured by Dr. Magaro's interest in those oil and gas properties, the value of which, in the Company's opinion, far exceeds the amount of the loan. The annual rate of interest currently applicable to this loan is 6.40625%. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of beneficial ownership on Forms 3, 4, and 5 with the Securities and Exchange Commission and any national securities exchange on which such equity securities are registered. Based solely on the Company's review of the copies of such forms it has received and written representations from certain reporting persons that they were not required to file reports on Form 5 during the most recently completed fiscal year or prior years, the Company believes that all of its officers, directors and greater than 10% beneficial owners complied with all Section 16(a) filing requirements applicable to them during the Company's most recently completed fiscal year. 11 SELECTION OF INDEPENDENT ACCOUNTANTS The Board of Directors of the Company has appointed KPMG Peat Marwick LLP as the firm of independent public accountants to audit the accounts of the Company for the year ending September 30, 1998. This firm expects to have a representative available by telephone at the meeting who will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions. STOCKHOLDER PROPOSALS Any proposal submitted by a stockholder of the Company for action at the next Annual Meeting of Stockholders will not be included in the proxy material to be mailed to the Company's stockholders in connection with such meeting unless such proposal is received at the principal office of the Company no later than September 18, 1998. GENERAL No business other than that set forth in Item (1) of the Notice of Annual Meeting of Stockholders is expected to come before the meeting, but should any other matters requiring a vote of stockholders properly arise, including a question of adjourning the meeting, the persons named in the accompanying Proxy will vote thereon according to their best judgment in the best interests of the Company. Insofar as any of the information in this Proxy Statement may rest peculiarly within the knowledge of persons other than the Company, the Company has relied upon information furnished by such persons. By Order of the Board of Directors, /s/ Alexander C. Kinzler ALEXANDER C. KINZLER Secretary Dated: January 22, 1998 Stockholders may obtain a copy, without charge, of the Company's Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission, by writing to Alexander C. Kinzler, Barnwell Industries, Inc., 1100 Alakea Street, Suite 2900, Honolulu, Hawaii 96813. 12 Appendix A - ---------- FRONT OF CARD PROXY BARNWELL INDUSTRIES, INC. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY The undersigned stockholder of Barnwell Industries, Inc., a Delaware corporation, hereby appoints Morton H. Kinzler and Alexander C. Kinzler, and each of them, attorneys, agents and proxies of the undersigned, with full power of substitution to each of them, to vote all the shares of Common Stock which the undersigned may be entitled to vote at the Annual Meeting of Stockholders of the Company to be held at the Sheraton Shreveport Hotel, 1419 East 70th Street, Shreveport, Louisiana, on March 9, 1998, at 9:30 A.M., Central Standard time, and at any adjournment of such meeting, with all powers which the undersigned would possess if personally present: (Continued and to be signed on reverse side) - ------------------------------------------------------------------------------- BACK OF CARD X Please mark your votes as in this example. ----- 1. The election of the 10 Directors listed at right: FOR all nominees listed at right WITHHOLD AUTHORITY to vote (except as marked to the contrary) for all nominees listed at right ----- ----- (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST AT RIGHT.) Nominees: Morton H. Kinzler, Barry E. Emes, Alan D. Hunter, H. Whitney Boggs, Jr., Erik Hazelhoff-Roelfzema, William C. Warren, Daniel Jacobson, Martin Anderson, Glenn Yago, Murray C. Gardner. 2. Upon any and all other business which may come before the meeting or any adjournment thereof. The undersigned acknowledges receipt of the Notice of Annual Meeting of Stockholders, Proxy Statement of the Company for the Annual Meeting and the Company's Annual Report to Stockholders for the fiscal year ended September 30, 1997. 13 This Proxy, when properly executed, will be voted in accordance with the specification made hereon. If not otherwise specified, this Proxy will be voted FOR the election of Directors as proposed herein. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. SIGNATURE DATE SIGNATURE DATE ------------------ -------- ------------------ ------- IF HELD JOINTLY (Signature(s) should agree with name on stock certificate as stenciled hereon. Executors, administrators, trustees, etc., should so indicate when signing.)