SCHEDULE 13D/A: Activist Investor Ned Sherwood Terminates Agreement with Barnwell Industries, Prepares for Proxy Fight

Activist investor Ned L. Sherwood has terminated his cooperation agreement with Barnwell Industries, Inc. due to an alleged material breach by the company's board, signaling an imminent proxy contest to replace current management.

Summary

• Ned L. Sherwood, along with MRMP-Managers LLC and Ned L. Sherwood Revocable Trust (collectively, the "Reporting Persons"), has terminated their cooperation and support agreement with Barnwell Industries, Inc. (BRN) as of January 21, 2025.
• The termination stems from an alleged material breach by the Company and its Board, specifically concerning the actions and asserted authority of a 'Special Committee' (comprising Mr. Grossman and Mr. Horowitz) that the Reporting Persons claim initially represented it lacked executive authority but then rejected their proposals.
• Ned L. Sherwood beneficially owns 3,006,033.138 shares of Common Stock, representing approximately 29.90% of the Company's outstanding shares.
• The Reporting Persons intend to file a proxy statement and accompanying proxy card to solicit votes for the election of director nominees at the next annual meeting of shareholders.
• The investor highlights a significant decline in BRN's share price, from $2.92 on May 14, 2012, to $1.65 on January 17, 2025, representing a 44% decrease, while key executives received substantial compensation.
• The investor alleges that Mort Kinzler (until his death) and Alex Kinzler received approximately $9.68 million in total compensation since 2012, and Ken Grossman received $616,000, which the investor deems excessive.
• The company has reportedly spent $2.0 million in shareholder expenses and over $4.0 million in legal fees over the past five years to counter activist efforts.
• The Reporting Persons have no current intent to engage in a control transaction but are now free to purchase additional shares of Common Stock following the agreement's termination.
• An open letter to shareholders was issued, urging like-minded shareholders to support the activist's efforts to replace current management and board members.

Sentiment

Score: 2

Explanation: The sentiment is strongly negative, reflecting the activist investor's deep dissatisfaction with the company's performance, management, and board actions. The investor explicitly states being 'mad as hell' and intends to remove current management.

Positives

• The termination of the cooperation agreement frees the Reporting Persons to pursue more aggressive strategies, including purchasing additional shares and launching a proxy contest, which they believe will unlock shareholder value.
• The investor's stated goal is to redirect future cash flows to non-Kinzler/Grossman shareholders and build BRN's businesses for share price appreciation.
• The investor claims that Directors Doug Woodrum and Laurance Narbut are aligned with his efforts to cut excessive expenses and grow BRN's cash flow.

Negatives

• BRN's share price has declined by approximately 44% since May 2012, from $2.92 to $1.65 as of January 17, 2025.
• The company's market capitalization has decreased from approximately $24 million in 2012 to $16 million as of January 17, 2025.
• The investor alleges excessive compensation paid to Mort Kinzler ($3.408 million), Alex Kinzler ($6.272 million), and Ken Grossman ($616,000), totaling over $10 million, which the investor believes consumed company profits.
• The company has spent $2.0 million on shareholder expenses and over $4.0 million on legal fees over the past five years to defend against activist efforts, which the investor deems wasteful.
• The investor claims that the 'Special Committee' of the Board (Mr. Grossman and Mr. Horowitz) acted without proper authority and materially breached the cooperation agreement.
• The investor believes that Alex Kinzler, Ken Grossman, and Josh Horowitz are focused on their own remuneration and have stymied efforts to build value for all shareholders.

Risks

• The company faces a potential costly proxy fight, which could further drain its cash resources and divert management attention.
• Continued poor management and governance, as alleged by the activist investor, could lead to further decline in share price and company value.
• The dispute could create uncertainty for the company's operations and strategic direction.
• The investor's efforts to replace management and board members may not be successful, leading to continued dissatisfaction among a significant shareholder base.

Future Outlook

The Reporting Persons intend to make a filing with the SEC for a proxy statement and accompanying proxy card to solicit votes for the election of director nominees at the next annual meeting of shareholders. They affirm no current intent for a control transaction but are now free to purchase additional shares. If successful in installing their slate of directors, they plan to terminate Alex Kinzler, Ken Grossman, and their associates from their positions and implement concrete plans to improve and grow BRN, which will be revealed in the near future.

Management Comments

• The 'Special Committee of the Board' (Mr. Grossman and Mr. Horowitz) was appointed and initially communicated that it was ad hoc in nature and had no executive authority, but later asserted power by rejecting proposals from the Reporting Persons.
• Management (Alex Kinzler and Ken Grossman) are perceived by the Reporting Persons as being focused on 'excessive remuneration to themselves'.
• Josh Horowitz is seen as 'loyal to Ken because Joshs investment fund has benefited from some of Kens other investment ideas and ventures'.

Industry Context

This announcement reflects a common scenario in corporate governance where activist investors, holding significant stakes, challenge incumbent management and board decisions, particularly concerning executive compensation, strategic direction, and shareholder returns. It highlights the ongoing tension between long-term shareholders seeking value creation and management perceived as entrenched or self-serving. The use of proxy fights and public letters to shareholders is a standard tactic in such activist campaigns.

Comparison to Industry Standards

• The document does not provide specific comparable companies, projects, or industry benchmarks to assess Barnwell Industries' results against global standards. The analysis is primarily a comparison of the company's current performance and executive compensation against its own historical data and the investor's expectations for shareholder value creation.

Corporate Governance

Legal Proceedings

• The company has spent over $4.0 million in legal fees over the past five years to counter activist efforts, including crafting poison pills and countering proxy efforts.
• The Reporting Persons sent a books and records request under Section 220 of the Delaware General Corporation Law.
• The Reporting Persons intend to make a filing with the SEC of a proxy statement and accompanying proxy card to solicit votes for the election of director nominees, indicating an upcoming proxy contest.

Related Party Transactions

• Mort Kinzler, Alex Kinzler, and Ken Grossman received significant compensation totaling over $10 million, which the investor views as excessive and benefiting the Kinzler family and their allies.
• Ken Grossman's brother, Richard Grossman, works at Skadden, Arps, which has received legal fees from the company, suggesting a potential conflict of interest and benefiting the Grossman family.

Stakeholder Impact

• Shareholders (especially non-Kinzler family shareholders) are directly impacted by the declining share price and alleged excessive executive compensation, with the activist aiming to improve their returns.
• Current management (Alex Kinzler, Ken Grossman, Josh Horowitz) face potential removal and loss of their positions and compensation.
• The Board of Directors is under scrutiny, with some members aligned with the activist and others accused of stymying efforts for change.
• The company's financial resources are being consumed by legal fees and shareholder expenses related to the ongoing dispute, potentially impacting operational investments.

Next Steps

• The Reporting Persons will make a filing with the SEC of a proxy statement and accompanying proxy card to solicit votes for the election of director nominees at the next annual meeting of shareholders.
• The Reporting Persons intend to terminate Alex Kinzler, Ken Grossman, and their associates from their lucrative lifetime employment or directorships at BRN if their slate of directors is successful.
• The Reporting Persons have concrete plans to improve and grow BRN, which they will reveal in the near future.
• The Reporting Persons sent a books and records request under Section 220 of the Delaware General Corporation Law.

Key Dates

Keywords

Activist Investor, Proxy Fight, Corporate Governance, Shareholder Activism, SEC Filing, Schedule 13D, Executive Compensation, Board of Directors, Shareholder Value, Barnwell Industries, BRN, Ned L. Sherwood