SHARE-BASED PAYMENTS

12 Months Ended

Sep. 30, 2011

SHARE-BASED PAYMENTS

SHARE-BASED PAYMENTS

2.         SHARE-BASED PAYMENTS

The Company’s share-based compensation expense and related income tax provision for the years ended September 30, 2011 and 2010 are as follows:

	Year ended September 30,
	2011		2010
Share-based compensation expense	$	404,000	$	72,000
Income tax effect	$	-	$	-

Share-based compensation expense recognized in (loss) earnings for the years ended September 30, 2011 and 2010 are reflected in “General and administrative” expenses in the Consolidated Statements of Operations.  There was no impact on income taxes for the years ended September 30, 2011 and 2010 due to a full valuation allowance on the related deferred tax asset.

Description of Share-Based Payment Arrangements

The Company’s stock option plans are administered by the Compensation Committee of the Board of Directors.

1998 Stock Option Plan: Under the stockholder-approved 1998 Stock Option Plan (the “1998 Plan”), Barnwell was authorized to grant up to 780,000 shares of common stock to employees.  A total of 774,000 share options were granted under this plan; as the 1998 Plan has reached its tenth anniversary, option shares are no longer available for grant.  Stock options grants include qualified options that have an exercise price equal to the closing market price of Barnwell’s stock on the date preceding the date of grant (110% of the closing market price on the date preceding the date of grant for options granted to affiliates), vest annually over four years of continuous service, and expire ten years from the date of grant (five years from date of grant for options granted to affiliates).

Non-qualified stock options: In December 2004, Barnwell granted non-qualified options with an exercise price equal to the closing market price of Barnwell’s stock on the date of grant, that vest annually over five years of continuous service, and that expire ten years from the date of grant.  The non-qualified options have stock appreciation rights features that permit the holder to receive stock, cash or a combination thereof equal to the amount by which the fair market value, at the time of exercise of the option, exceeds the option price.

2008 Equity Incentive Plan: The stockholder-approved 2008 Equity Incentive Plan (the “2008 Plan”) provides for the issuance of incentive stock options, nonstatutory stock options, stock options with stock appreciation rights, restricted stock, restricted stock units and performance units, qualified performance-based awards, and stock grants to employees, consultants and non-employee members of the Board of Directors.  800,000 shares of Barnwell common stock have been reserved for issuance and at September 30, 2011, a total of 677,500 share options have been granted under this plan.  Stock options grants include nonqualified stock options that have exercise prices equal to Barnwell’s stock price on the date of grant, vest annually over a service period of four years commencing one year from the date of grant and expire ten years from the date of grant.  The options have stock appreciation rights that permit the holder to receive stock, cash or a combination thereof equal to the amount by which the fair market value, at the time of exercise of the option, exceeds the option price.

Barnwell currently has a policy of issuing new shares to satisfy share option exercises under both the qualified plans and non-qualified plans when the optionee requests shares.

Equity-classified Awards

Compensation cost for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period.

A summary of the activity in Barnwell’s equity-classified share options as of the beginning and end of the year ended September 30, 2011 is presented below:

					Weighted-
		Weighted-			Average
		Average			Remaining		Aggregate
		Exercise			Contractual		Intrinsic
Options	Shares	Price			Term		Value
Outstanding at October 1, 2010	60,000		$	8.62
Granted	-
Exercised	-
Expired	-
Forfeited	-
Outstanding at September 30, 2011	60,000		$	8.62		3.2		$	-
Exercisable at September 30, 2011	60,000		$	8.62		3.2		$	-

There was no share-based compensation expense for equity-classified awards in the years ended September 30, 2011 and 2010.

No equity options were exercised during the year ended September 30, 2011.  The total intrinsic value of equity options exercised during the year ended September 30, 2010 was $115,000.

Liability-classified Awards

Compensation cost for liability-classified awards is remeasured at each period-end using a closed-form valuation model based on current values and is recognized as an expense over the requisite service period.

No stock options were granted during fiscal 2011.  Barnwell granted stock options to acquire a total of 337,500 shares of Barnwell’s common stock under non-qualified plans during fiscal 2010.

As of September 30, 2011, there was $181,000 of total unrecognized compensation cost related to nonvested liability-classified share options.  That cost is expected to be recognized over 2.0 years.

The following assumptions were used in estimating fair value for all liability-classified share options outstanding during the years ended September 30, 2011 and 2010:

	Year ended September 30,
	2011	2010
Expected volatility range	56.5% to 71.0%	48.4% to 64.3%
Weighted-average volatility	63.1%	52.8%
Expected dividends	0.0%	0.0%
Expected term (in years)	3.2 to 8.2	4.2 to 9.2
Risk-free interest rate	0.4% to 1.7%	1.0% to 2.5%
Expected forfeitures	None	None

The application of alternative assumptions could produce significantly different estimates of the fair value of share-based compensation, and consequently, the related costs reported in the Consolidated Statements of Operations.

A summary of the activity in Barnwell’s liability-classified share options as of the beginning and end of the year ended September 30, 2011 is presented below:

						Weighted-
			Weighted-			Average
			Average			Remaining		Aggregate
			Exercise			Contractual		Intrinsic
Options	Shares		Price			Term		Value
Outstanding at October 1, 2010	798,500			$	8.18
Granted	-
Exercised	(43,125	)		$	4.32
Expired	-
Forfeited	-
Outstanding at September 30, 2011	755,375			$	8.40		6.4		$	-
Exercisable at September 30, 2011	431,000			$	10.09		5.4		$	-

Total share-based compensation expense for liability-classified awards for the years ended September 30, 2011 and 2010 was $404,000 and $72,000, respectively.  Included in share-based compensation for liability-classified awards for fiscal 2011 and 2010 was $253,000 and $288,000, respectively, of compensation expense related to shares that vested during each respective period and a $151,000 expense and a $216,000 benefit, respectively, primarily due to the impact of fluctuations in Barnwell’s stock price on previously vested shares in each respective period.

During the year ended September 30, 2011, the cash feature of 43,125 shares of non-qualified options was exercised.  The total intrinsic value of the liability-classified options exercised during fiscal 2011 was $130,000.  No liability-classified options were exercised during the year ended September 30, 2010.  There is no estimated tax benefit related to the options exercised during the year ended September 30, 2011 due to a full valuation allowance on the related deferred tax asset.