<PAGE> 1
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 [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
INCOME OPPORTUNITY REALTY INVESTORS, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) 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):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] 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.
(1) Amount Previously Paid:
- - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- - --------------------------------------------------------------------------------
(3) Filing Party:
- - --------------------------------------------------------------------------------
(4) Date Filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY STATEMENT FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
INCOME OPPORTUNITY REALTY INVESTORS, INC.
10670 North Central Expressway
Suite 300
Dallas, Texas 75231
(214) 692-4700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Income Opportunity Realty Investors, Inc.:
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of Income
Opportunity Realty Investors, Inc. (the "Company") will be held at 9:00 a.m.,
Central time, on Tuesday, April 22, 1997, at 10670 North Central Expressway,
Suite 600, Dallas, Texas 75231, to consider and vote on the following matters:
(1) the election of four Directors of the Company;
(2) the renewal of the Company's current advisory agreement with Basic
Capital Management, Inc.; and
(3) the transaction of such other business as may properly come before
the annual meeting or any adjournments thereof.
Only Stockholders of record at the close of business on March 11, 1997 will
be entitled to vote at the Annual Meeting. Stockholders are cordially invited to
attend the Annual Meeting in person.
Regardless of whether you plan to be present at the Annual Meeting, please
promptly date, mark, sign, and mail the enclosed proxy ballot card to American
Stock Transfer and Trust Company in the envelope provided. Any Stockholder who
executes and delivers the enclosed proxy may revoke the authority granted
thereunder at any time prior to its use by giving written notice of such
revocation to American Stock Transfer and Trust Company, 40 Wall Street, 46th
Floor, New York, New York 10005, or by executing and delivering a proxy bearing
a later date. A Stockholder may also revoke a proxy by attending and voting at
the Annual Meeting. Your vote is important, regardless of the number of Shares
you own.
The Annual Report to Stockholders for the year ended December 31, 1995, has
been mailed to all Stockholders under separate cover.
Dated: March 12, 1997
BY ORDER OF THE BOARD OF DIRECTORS OF
INCOME OPPORTUNITY REALTY INVESTORS, INC.
THOMAS A. HOLLAND
--------------------------------------------
Thomas A. Holland
Secretary
IMPORTANT
YOU CAN HELP THE COMPANY AVOID THE NECESSITY AND EXPENSE OF SENDING
FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY
BALLOT CARD. IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, PLEASE MARK, DATE,
SIGN AND RETURN THE ENCLOSED PROXY BALLOT CARD SO THAT THE NECESSARY QUORUM MAY
BE REPRESENTED AT THE ANNUAL MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
FAILURE TO VOTE MAY SUBJECT THE COMPANY TO FURTHER EXPENSE
IF YOUR SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, NOMINEE OR OTHER
INSTITUTION, ONLY IT CAN VOTE YOUR SHARES. PLEASE CONTACT PROMPTLY THE PERSON
RESPONSIBLE FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS FOR YOUR SHARES TO BE VOTED.
<PAGE> 3
PRELIMINARY STATEMENT FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
INCOME OPPORTUNITY REALTY INVESTORS, INC.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 22, 1997
GENERAL STOCKHOLDER INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Income Opportunity Realty Investors, Inc. (the
"Company") of proxies to be used at the Annual Meeting of Stockholders for
consideration of and voting upon (1) the election of four Directors, (2) the
renewal of the Company's current advisory agreement with Basic Capital
Management, Inc. ("BCM" or the "Advisor"), and (3) the transaction of such other
business as may properly come before the meeting or any adjournments thereof.
The Annual Meeting will be held at 9:00 a.m., Central time, on Tuesday,
April 22, 1997, at 10670 North Central Expressway, Suite 600, Dallas, Texas
75231. The Company's financial statements for the year ended December 31, 1995
were audited by BDO Seidman. A representative from BDO Seidman is expected to be
present at the Annual Meeting to respond to appropriate questions, and such
representative will have an opportunity to make a statement if such
representative desires to do so. This Proxy Statement and the accompanying proxy
are first being mailed to Stockholders on or about March 12, 1997.
STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding shares of common stock of
the Company (the "Shares") at the close of business on Tuesday, March 11, 1997
(the "Record Date"), are entitled to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on March , 1997, there were
1,519,466 Shares outstanding. Each holder is entitled to one vote for each Share
held on the Record Date.
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted thereon. As to the election of the four nominees as Directors
(Proposal One), Stockholders may choose to vote for all of the nominees,
withhold authority for voting for all of the nominees or withhold authority for
voting for any individual nominee. As to the renewal of the Company's current
advisory agreement with BCM (Proposal Two), Stockholders may choose to vote for,
against or abstain from voting on the proposal in its entirety.
In the absence of other instructions, the Shares represented by a properly
executed and submitted proxy will be voted in favor of the four nominees for
election to the Board of Directors and in favor of Proposal Two. The Board of
Directors does not know of any other business to be brought before the Annual
Meeting. If, however, any other matters properly come before the Annual Meeting,
it is the intention of the persons named in the enclosed proxy to vote such
proxy in accordance with their judgment on such matters.
<PAGE> 4
EFFECTS OF AND REASONS FOR PROPOSAL TWO
In considering Proposal Two for the renewal of the Company's current
advisory agreement with BCM, Stockholders should be aware that BCM will be
entitled to receive payments of certain fees from the Company for the services
it will perform. In addition, BCM serves as advisor to other entities engaged in
real estate investment activities that are similar to those of the Company and
which may compete with the Company in selling, leasing and financing real estate
and related investments.
BCM has been providing advisory services to the Company since March 1989.
The current advisory agreement was executed as of March 15, 1996 and was
approved by the Stockholders at the Annual Meeting of Stockholders held on May
31, 1996. The Articles of Incorporation of the Company do not require
Stockholder approval of the renewal of the advisory agreement. However, the
Board of Directors has chosen to submit the proposal to renew the advisory
agreement to the Stockholders and allow them to vote on the renewal.
The Board of Directors believes that the terms of the advisory agreement
with BCM are at least as favorable to the Company as those that would be
obtained from unaffiliated third parties.
VOTE REQUIRED FOR ELECTION OR APPROVAL
Pursuant to Section 2.6 of the Bylaws of the Company, a majority of the
issued and outstanding Shares entitled to vote at a meeting of stockholders,
represented in person or by proxy, shall constitute a quorum at such meeting.
Section 2.7 also provides that election of any Director requires the affirmative
vote of a majority of the votes cast at a meeting of Stockholders by holders of
Shares entitled to vote thereon. The renewal of the Company's advisory agreement
with BCM (Proposal Two) also requires the affirmative vote of a majority of the
votes cast at the Annual Meeting.
Abstentions will be included in vote totals and, as such, will have the
same effect on each proposal as a negative vote. Broker non-votes, if any, will
not be included in vote totals and, as such, will have no effect on any
proposal.
As of March , 1997, management and affiliates held 841,652 Shares
representing approximately 55.4% of the Shares outstanding. Such parties intend
to vote 40% of the Shares outstanding for each of the proposals in accordance
with the recommendation of the Board of Directors. The remaining 15.4% shall be
voted in proportion to the votes cast by all non-affiliated Stockholders.
REVOCATION OF PROXIES
A proxy is enclosed herewith. Any Stockholder who executes and delivers the
proxy may revoke the authority granted thereunder at any time prior to its use
by giving written notice of such revocation to American Stock Transfer and Trust
Company, 40 Wall Street, 46th Floor, New York, New York 10005, or by executing
and delivering a proxy bearing a later date. A STOCKHOLDER MAY ALSO REVOKE A
PROXY BY ATTENDING AND VOTING AT THE ANNUAL MEETING.
FUTURE PROPOSALS OF STOCKHOLDERS (1996)
Any proposal intended to be presented by a Stockholder at the 1996 Annual
Meeting of Stockholders of the Company must be received at the principal office
of the Company not later than May 31, 1997, in order to be considered for
inclusion in the Company's proxy statement and form of proxy (as the case may
be) for that meeting.
2
<PAGE> 5
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
The following persons have been nominated to serve as Directors of the
Company: Ted P. Stokely, Edward L. Tixier, Martin L. White and Edward G. Zampa.
Each of the four nominees is currently a Director of the Company. Each of
the four nominees has been nominated by the Board of Directors to serve for an
additional term until the next Annual Meeting of Stockholders or until his
successor shall have been duly elected and qualified. Each nominee has consented
to being named in this Proxy Statement as a nominee and has agreed to serve as a
Director if elected. When a proxy is properly executed and returned, the Shares
represented thereby will be voted in favor of the election of each of the
nominees, unless authority to vote for any such nominee is specifically
withheld. There will be no cumulative voting for the election of Directors. If
any nominee is unable to serve or will not serve (an event which is not
anticipated), then the person acting pursuant to the authority granted under the
proxy will cast votes for the remaining nominees and, unless the Board of
Directors takes action to reduce the number of Directors, for such other
person(s) as he or she may select in place of such nominee(s).
The four nominees are listed below, together with their ages, terms of
service, all positions and offices with the Company or the Company's advisor,
BCM, other principal occupations, business experience and directorships with
other companies during the last five years or more. The designation
"Affiliated", when used below with respect to a Director, means that the
Director is an officer, director or employee of the Advisor or an officer of the
Company. The designation "Independent", when used below with respect to a
Director, means the Director is neither an officer of the Company nor a
director, officer or employee of the Advisor, although the Company may have
certain business or professional relationships with such Director as discussed
below under "Certain Business Relationships and Related Transactions".
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
------------------------------------- ---
<S> <C>
TED P. STOKELY:Director (Independent) (since April 1990) and 63
Chairman of the Board (since January 1995).
General Manager (since January 1995) of ECF Senior Housing
Corporation, a nonprofit corporation; General Manager
(since January 1993) of Housing Assistance Foundation,
Inc., a nonprofit corporation; Part-time unpaid consultant
(since January 1993) and paid Consultant (April 1992 to
December 1992) of Eldercare Housing Foundation, a
nonprofit corporation engaged in the acquisition of low
income and elderly housing; President (April 1992 to April
1994) of PSA Group (real estate management and
consulting); Executive Vice President (1987 to 1991) of
Key Companies, Inc., a publicly traded company that
develops, acquires and sells water and minerals; Director
(since April 1990) and Chairman of the Board (since
January 1995) of Transcontinental Realty Investors, Inc.
("TCI"); Trustee (since April 1990) and Chairman of the
Board (since January 1995) of Continental Mortgage and
Equity Trust ("CMET"); and Trustee (from April 1990 to
August 1994) of National Income Realty Trust ("NIRT").
EDWARD L. TIXIER:Director (Independent) (since July 1996). 67
Director (since 1995) of Ryokachi Corporation, a Japanese
company; Cattle Rancher (since 1988); President (1988 to
1994) of Tixier, Inc., an Austin, Texas based corporation;
Senior Executive Advisor (1988 to 1994) to the President
of Regency International Trading Company, a Japanese
company; Commander (1984 to 1988) of U.S. Forces, Japan
and Commander, 5th Air Force; Retired (1988) Lt. General,
United States Air Force; Director (since July 1996) of
TCI; and Trustee (since July 1996) of CMET.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
------------------------------------- ---
<S> <C>
MARTIN L. WHITE:Director (Independent) (since January 1995). 57
Chairman and Chief Executive Officer (since 1993) of North
American Trading Company, Ltd.; President and Chief
Operating Officer (since 1992) of Community Based
Developers, Inc.; Development Officer and Loan Manager
(1986 to 1992) of the City of San Jose, California; Vice
President and Director of Programs (1967 to 1986) of
Arpact, Inc., a government contractor for small business
development and trade; Director (since January 1995) of
TCI; and Trustee (since January 1995) of CMET.
EDWARD G. ZAMPA:Director (Independent) (since January 1995). 62
General Partner (since 1976) of Edward G. Zampa and
Company; Director (since January 1995) of TCI; and Trustee
(since January 1995) of CMET.
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES NAMED ABOVE.
BOARD COMMITTEES
The Company's Board of Directors held thirteen meetings during 1995 and
thirteen meetings in 1996. For each such year, no incumbent Director attended
fewer than 75% of the aggregate of (i) the total number of meetings held by the
Board during the period for which he had been a Director and (ii) the total
number of meetings held by all committees of the Board on which he served during
the periods that he served.
The Board of Directors has an Audit Committee, the function of which is to
review the Company's operating and accounting procedures. The current members of
the Audit Committee, all of whom are Independent Directors, are Messrs. Stokely,
Tixier and White. The Audit Committee met twice during 1995 and twice during
1996.
The Board of Directors of the Company has a Relationship with Advisor
Committee and a Board Development Committee. The current members of the
Relationship with Advisor Committee are Messrs. Stokely and Zampa. The
Relationship with Advisor Committee reviews and reports to the Company's Board
of Directors on the services provided to the Company by the Advisor and its
affiliates and terms of any engagement or compensation of the Advisor or its
affiliates. The relationship with the Advisor Committee met one time in 1995 and
twice during 1996.
The Board Development Committee reviews and reports to the Company's Board
of Directors on the membership, compensation and functions of the Board of
Directors. The current member of the Board Development Committee is Mr. White.
The Board Development Committee held no meetings in 1995 and two meetings in
1996.
The Company's Board of Directors does not have Nominating or Compensation
Committees.
OLIVE LITIGATION
In February 1990, the Company, together with CMET, NIRT and TCI, three real
estate entities with, at the time, the same officers, directors or trustees and
advisor as the Company, entered into a settlement of a class and derivative
action entitled Olive et al. v. National Income Realty Trust et al. relating to
the operation and management of each of the entities. On April 23, 1990, the
court granted final approval of the terms of the settlement.
On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Modification") which settled subsequent
claims of breaches of the settlement which were asserted by the plaintiffs and
modified certain provisions of the April 1990 settlement. The Modification was
preliminarily approved by the court on July 1, 1994 and final court approval of
the Modification was entered on December 12, 1994. The effective date of the
Modification was January 11, 1995.
4
<PAGE> 7
The Modification, among other things, provided for the addition of new
unaffiliated members to the Company's Board of Directors and set forth new
requirements for the approval of certain transactions with affiliates until
April 28, 1999. In addition, BCM, the Company's advisor, Gene E. Phillips and
William S. Friedman, who served as President and Director of the Company until
February 24, 1994, President of BCM until May 1, 1993 and director of BCM until
December 22, 1989, agreed to pay a total of $1.2 million to the Company, CMET,
NIRT and TCI, of which the Company's share was $150,000.
Under the Modification, the Company, CMET, NIRT, TCI and their shareholders
released the defendants from any claims relating to the plaintiffs' allegations.
The Company, CMET, NIRT and TCI also agreed to waive any demand requirement for
the plaintiffs to pursue claims on behalf of each of them against certain
persons or entities. The Modification also requires that any shares of the
Company held by Messrs. Phillips, Friedman or their affiliates shall be (i)
voted in favor of the reelection of all current Board members that stand for
reelection during the two calendar years following the effective date of the
Modification and (ii) voted in favor of all new Board members appointed pursuant
to the terms of the Modification that stand for reelection during the three
calendar years following the effective date of the Modification.
Pursuant to the terms of the Modification, certain related party
transactions which the Company may enter into prior to April 28, 1999, require
the unanimous approval of the Company's Board of Directors. In addition, such
related party transactions are to be discouraged and may only be entered into in
exceptional circumstances and after a determination by the Company's Board of
Directors that the transaction is in the best interests of the Company and that
no other opportunity exists that is as good as the opportunity presented by such
transaction.
For purposes of the Modification requirements, the term "related party
transaction" means and includes (i) any transaction between or among the Company
or CMET, NIRT or TCI or any of their affiliates or subsidiaries; (ii) any
transaction between or among the Company, its affiliates or subsidiaries and the
Advisor, Mr. Phillips, Mr. Friedman or any of their affiliates; and (iii) any
transaction between or among the Company or any of its affiliates or
subsidiaries and a third party with whom the Advisor, Mr. Phillips, Mr. Friedman
or any of their affiliates has an ongoing or contemplated business or financial
transaction or relationship of any kind, whether direct or indirect, or has had
such a transaction or relationship in the preceding one year.
The Modification requirements for related party transactions do not apply
to direct contractual agreements for services between the Company and the
Advisor or one of its affiliates, (including the Advisory Agreement, the
Brokerage Agreement and the property management contracts). These agreements,
pursuant to the specific terms of the Modification, require the prior approval
by two-thirds of the Directors of the Company, and if required, approval by a
majority of the stockholders. The Modification requirement for related party
transactions also do not apply to joint ventures between or among the Company
and CMET, NIRT or TCI or any of their affiliates or subsidiaries and a third
party having no prior or intended future business or financial relationship with
Mr. Phillips, Mr. Friedman, the Advisor, or any affiliate of such parties. Such
joint ventures may be entered into on the affirmative vote of a majority of the
Directors of the Company.
The Modification also terminated a number of the provisions of the
settlement, including the requirement that the Company, CMET, NIRT and TCI
maintain a Related Party Transaction Committee and a Litigation Committee of
their respective Boards. The Court retained jurisdiction to enforce the
Modification, and during August and September 1996, the Court held evidentiary
hearings to assess compliance with the terms of the Modification by various
parties. The Court issued no ruling or order with respect to the matters
addressed at the hearings.
Separately, in 1996, legal counsel for the plaintiffs notified the
Company's Board of Directors that he intends to assert that certain actions
taken by the Board of Directors breached the terms of the Modification. On
January 27, 1997, the parties entered into an Amendment to the Modification of
Stipulation of Settlement, effective January 9, 1997 (the "Amendment"), which
was submitted to the Court for approval on January 29, 1997. The Amendment
provides for the settlement of all matters raised at the evidentiary hearings
and by plaintiffs' counsel in his notices to the Board of Directors. As of March
, 1997, the Court had taken no action on the Amendment.
5
<PAGE> 8
The Amendment provides for the addition of three new unaffiliated members
to the Company's Board of Directors and sets forth new requirements for the
approval of any transactions with certain affiliates until April 28, 1999. In
addition, the Company, TCI, CMET and their shareholders released the defendants
from any claims relating to the plaintiffs' allegations and matters which were
the subject of the evidentiary hearings. The plaintiffs' allegations of any
breaches of the Modification shall be settled by mutual agreement of the parties
or, lacking such agreement, by an arbitration proceeding.
Under the Amendment, all shares of the Company owned by Gene E. Phillips or
any of his affiliates shall be voted at all stockholders' meetings held until
April 28, 1999 in favor of all new Board members added under the Amendment. The
Amendment also requires that, until April 28, 1999, all shares of the Company
owned by Gene E. Phillips or his affiliates in excess of forty percent (40%) of
the Company's outstanding shares shall be voted in proportion to the votes cast
by all non-affiliated stockholders of the Company.
EXECUTIVE OFFICERS
The following persons currently serve as executive officers of the Company:
Randall M. Paulson, President; Thomas A. Holland, Executive Vice President and
Chief Financial Officer; and Bruce A. Endendyk, Executive Vice President. Their
positions with the Company are not subject to a vote of stockholders. The age,
terms of service, all positions and offices with the Company or BCM, other
principal occupations, business experience and directorships with other
companies during the last five years or more of each executive officer are set
forth below.
<TABLE>
<CAPTION>
AGE
---
<S> <C>
RANDALL M. PAULSON: President (since August 1995) and 50
Executive Vice President (January 1995 to August 1995).
President (since August 1995) and Executive Vice President
(January 1995 to August 1995) of CMET, TCI and Syntek
Asset Management, Inc. ("SAMI") and (October 1994 to
August 1995) of BCM; Director (since August 1995) of SAMI;
Executive Vice President (since January 1995) of American
Realty Trust, Inc. ("ART"); Vice President (1993 to 1994)
of GSSW, LP, a joint venture of Great Southern Life and
Southwestern Life; Vice President (1990 to 1993) of
Property Company of America Realty, Inc.; President (1990)
of Paulson Realty Group; President (1983 to 1989) of
Johnstown Management Company; and Vice President (1979 to
1982) of Lexton-Ancira.
BRUCE A. ENDENDYK: Executive Vice President (since January 48
1995).
President (since January 1995) of Carmel Realty, Inc.
(Carmel Realty), a company owned by Syntek West, Inc.
("SWI"); Executive Vice President (since January 1995) of
BCM, SAMI, ART, CMET and TCI; Management Consultant
(November 1990 to December 1994); Executive Vice President
(January 1989 to November 1990) of Southmark Corporation
("Southmark"); President and Chief Executive Officer
(March 1988 to January 1989) of Southmark Equities
Corporation; and Vice President/Resident Manager (December
1975 to March 1988) of Coldwell Banker Commercial/Real
Estate Services in Houston, Texas.
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
AGE
---
<S> <C>
THOMAS A. HOLLAND: Executive Vice President and Chief 54
Financial Officer (since August 1995); Secretary (since
February 1997) and Senior Vice President and Chief
Accounting Officer (July 1990 to August 1995).
Executive Vice President and Chief Financial Officer (since
August 1995) and Senior Vice President and Chief
Accounting Officer (July 1990 to August 1995) of SAMI,
BCM, ART, CMET and TCI; Secretary (since February 1997) of
CMET and TCI; Senior Vice President and Chief Accounting
Officer (July 1990 to February 1994) of NIRT and Vinland
Property Trust ("VPT"); Vice President and Controller of
Southmark (December 1986 to June 1990); Vice
President -- Finance of Diamond Shamrock Chemical Company
(January 1986 to December 1986); Assistant Controller of
Maxus Energy Corporation (formerly Diamond Shamrock
Corporation) (May 1976 to January 1986); Trustee of
Arlington Realty Investors (August 1989 to June 1990); and
Certified Public Accountant (since 1970).
</TABLE>
OFFICERS
Although not executive officers of the Company, the following persons
currently serve as officers of the Company: Mark W. Branigan, Senior Vice
President -- Residential Asset Management; Lynn W. Humphries, Senior Vice
President -- Commercial Asset Management; Robert A. Waldman, Senior Vice
President and General Counsel; and Drew D. Potera, Vice President and Treasurer.
Their positions with the Company are not subject to a vote of stockholders.
Their ages, terms of service, all positions and offices with the Company or BCM,
other principal occupations, business experience and directorships with other
companies during the last five years or more are set forth below.
<TABLE>
<CAPTION>
AGE
---
<S> <C>
MARK W. BRANIGAN: Senior Vice President -- Residential Asset 42
Management (since December 1996) and Vice President
(February 1994 to December 1996).
Senior Vice President -- Residential Asset Management (since
December 1996) and Vice President (February 1994 to
December 1996) of SAMI, ART, CMET, and TCI; Real Estate
Analyst (January 1992 to May 1994); Vice President (May
1994 to May 1995) and Executive Vice President (since May
1995) of BCM; Executive Vice President (1984 to 1991) of
Byron Investments, Inc.; Director (May 1989 to August
1990) and Manager (May 1981 to 1983) of Treasury Services
of Southmark; and Director (1977 to April 1981) of
Investor Relations for Syntek Corp.
LYNN W. HUMPHRIES: Senior Vice President -- Commercial Asset 46
Management (since May 1996).
Senior Vice President -- Commercial Asset Management (since
May 1996) of BCM, ART, CMET, TCI and SAMI; Vice President
(January 1994 to May 1996) of the Amend Group; Vice
President (1980 to 1993) of Equitable Real Estate
Investment Management, Inc.; and Senior Vice President
(1975 to 1980) of Sanders Campbell & Company.
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
AGE
---
<S> <C>
ROBERT A. WALDMAN: Senior Vice President and General Counsel 44
(since January 1995), Vice President (December 1990 to
January 1995) and Secretary (December 1993 to February
1997).
Senior Vice President and General Counsel (since January
1995), Vice President (December 1990 to January 1995) and
Secretary (December 1993 to February 1997) of CMET and
TCI; Vice President (December 1990 to February 1994) and
Secretary (December 1993 to February 1994) of NIRT and
VPT; Senior Vice President and General Counsel (since
January 1995), Vice President (January 1993 to January
1995) and Secretary (since December 1989) of ART; Senior
Vice President and General Counsel (since November 1994),
Vice President and Corporate Counsel (November 1989 to
November 1994) and Secretary (since November 1989) of BCM;
Senior Vice President and General Counsel (since January
1995), Vice President (April 1990 to January 1995) and
Secretary (since December 1990) of SAMI; and Director
(February 1987 to October 1989) and General Counsel and
Secretary (1985 to October 1989) of Red Eagle Resources
Corporation (oil and gas).
DREW D. POTERA:Vice President (since December 1996) and 37
Treasurer (since December 1990).
Vice President (since December 1996) and Treasurer (since
December 1990) of CMET and TCI; Treasurer (December 1990
to February 1994) of NIRT and VPT; Vice President (since
December 1996), Treasurer (since August 1991) and
Assistant Treasurer (December 1990 to August 1991) of ART;
Vice President, Treasurer and Securities Manager (since
July 1990) of BCM; Vice President and Treasurer (since
February 1992) of SAMI; and Financial Consultant with
Merrill Lynch, Pierce, Fenner & Smith Incorporated (June
1985 to June 1990).
</TABLE>
In addition to the foregoing officers, the Company has several vice
presidents and assistant secretaries who are not listed herein.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's shares of common stock are required to report their ownership of the
Company's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to report any failure to file
by these dates during 1995. All of these filing requirements were satisfied by
its Directors and executive officers and ten percent holders. In making these
statements, the Company has relied on the written representations of its
incumbent Directors and executive officers and its ten percent holders and
copies of the reports that they have filed with the Commission.
THE ADVISOR
Although the Board of Directors is directly responsible for managing the
affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by a contractual advisor
under the supervision of the Board of Directors. The stated duties of the
advisor include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities
and financing and refinancing sources to the Company. The advisor also serves as
a consultant to the Board of Directors in connection with the business plan for
the Company.
BCM has served as the Company's Advisor since March 1989. BCM is a
corporation of which Messrs. Paulson, Endendyk and Holland serve as executive
officers. BCM is owned by a trust for the benefit of the children of Gene E.
Phillips. Prior to December 22, 1989, Mr. Phillips served as a director of BCM,
and until September 1, 1992, Mr. Phillips served as Chief Executive Officer of
BCM. Mr. Phillips serves as a
8
<PAGE> 11
representative of his children's trust which owns BCM and, in such capacity, has
substantial contact with the management of BCM and input with respect to its
performance of advisory services to the Company.
At the Company's special meeting of stockholders held on March 15, 1996,
the Company's stockholders approved a proposal to convert the Company's
predecessor, Income Opportunity Realty Trust, from a California business trust
to a Nevada corporation by merging into the Company. Following the merger, the
Company entered into the current advisory agreement with BCM. Stockholder
approval of the advisory agreement is not required. However, the Board of
Directors submitted the proposal to approve the advisory agreement to the
stockholders at the Annual Meeting of Stockholders held on May 31, 1996, at
which the Stockholders approved the advisory agreement.
See "The Advisory Agreement" below for a detailed discussion of the
advisory fees payable to BCM by the Company.
PROPERTY MANAGEMENT
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently Carmel Realty Services, Ltd. ("Carmel, Ltd.")
provides such property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under its management. Carmel,
Ltd. subcontracts with other entities for the provision of the property-level
management services to the Company at various rates. The general partner of
Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) SWI, of which
Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and, (iii) a trust for
the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management and leasing of one of the Company's office buildings
and the commercial properties owned by a real estate partnership in which the
Company and TCI are partners to Carmel Realty which is a company owned by SWI.
Carmel Realty is entitled to receive property and construction management fees
and leasing commissions in accordance with its property-level management
agreement with Carmel, Ltd.
REAL ESTATE BROKERAGE
Effective December 1, 1992, the Company's Board of Directors approved the
non-exclusive engagement of Carmel Realty to perform brokerage services for the
Company in connection with property sales. On March 15, 1996, the Company
entered into the current Brokerage Agreement with Carmel Realty which also
provides for brokerage services in connection with property acquisitions.
Carmel Realty is entitled to receive a real estate commission for property
acquisitions and sales by the Company in accordance with the following sliding
scale of total fees to be paid by the Company: (i) maximum fee of 5% on the
first $2.0 million of any purchase or sales transaction of which no more than 4%
would be paid to Carmel Realty or affiliates; (ii) maximum fee of 4% on
transaction amounts between $2.0 million to $5.0 million of which no more than
3% would be paid to Carmel Realty or affiliates; (iii) maximum fee of 3% on
transaction amounts between $5.0 million to $10.0 million of which no more than
2% would be paid to Carmel Realty or affiliates; and (iv) maximum fee of 2% on
transaction amounts in excess of $10.0 million of which no more than 1 1/2%
would be paid to Carmel Realty or affiliates.
EXECUTIVE COMPENSATION
The Company has no employees, payroll or benefit plans and pays no
compensation to the executive officers of the Company. The executive officers of
the Company who are also officers or employees of BCM, the Company's Advisor,
are compensated by the Advisor. Such executive officers of the Company perform a
variety of services for the Advisor and the amount of their compensation is
determined solely by the Advisor. BCM does not allocate the cash compensation of
its officers among the various entities for which it serves as advisor.
The only remuneration paid by the Company is to the Directors who are not
officers or directors of BCM or its affiliated companies. The Independent
Directors (i) review the business plan of the Company to determine that it is in
the best interest of the Company's stockholders, (ii) review the Company's
contract
9
<PAGE> 12
with the advisor, (iii) supervise the performance of the Company's advisor and
review the reasonableness of the compensation which the Company pays to its
advisor in terms of the nature and quality of services performed, (iv) review
the reasonableness of the total fees and expenses of the Company and (v) select,
when necessary, a qualified independent real estate appraiser to appraise
properties acquired by the Company.
Each Independent Director receives compensation in the amount of $15,000
per year, plus reimbursement for expenses, and the Chairman of the Board
receives an additional fee of $1,500 per year for serving in such position. In
addition, each Independent Director shall receive $1,000 per day for any special
services rendered by him to the Company outside of his ordinary duties as
Director, plus reimbursement of expenses.
During 1995, $98,622 was paid to the Independent Directors in total
Directors' fees for all services, including the annual fee for service during
the period January 1, 1995 through December 31, 1995, and 1995 special service
fees, as follows: Geoffrey C. Etnire (a Director until March 1996), $13,187;
Harold Furst, Ph.D. (a Director until August 1995), $15,000; John P. Parsons (a
Director until October 1996), $16,275; Bennett B. Sims (a Director until
September 1996), $11,202; Ted P. Stokely, $12,625; Martin L. White, $15,333; and
Edward G. Zampa, $15,000.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return on the Company's shares of common stock with the Standard & Poor's 500
Stock Index ("S&P 500 Index") and the National Association of Real Estate
Investment Trusts, Inc. Hybrid REIT Total Return Index ("REIT Index"). The
comparison assumes that $100 was invested on December 31, 1990 in the Company's
shares of Common Stock and in each of the indices and further assumes the
reinvestment of all dividends. Past performance is not necessarily an indicator
of future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE COM- S&P 500 IN-
(FISCAL YEAR COVERED) PANY DEX REIT INDEX
<S> <C> <C> <C>
1990 100 100 100
1991 248 131 139
1992 281 141 162
1993 708 155 197
1994 949 157 204
1995 978 215 251
</TABLE>
10
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's shares of common stock, both beneficially
and of record, both individually and in the aggregate, for those persons or
entities known by the Company to be beneficial owners of more than 5% of its
shares of common stock as of the close of business on March , 1997.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS(1)
------------------- ----------------------- ----------
<S> <C> <C>
American Realty Trust, Inc. 450,102 29.6%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Transcontinental Realty Investors, Inc. 341,500 22.5%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
</TABLE>
- - ---------------
(1) Percentage is based upon 1,519,466 shares of common stock outstanding at
February , 1997.
Security Ownership of Management. The following table sets forth the
ownership of the Company's shares of common stock, both beneficially and of
record, both individually and in the aggregate for the Directors and executive
officers of the Company as of the close of business on February , 1997.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS(1)
---------------- ----------------------- ----------
<S> <C> <C>
All Directors and Executive Officers 841,652(2) 55.4%
as a group (7 individuals)
</TABLE>
- - ---------------
(1) Percentages are based upon 1,519,466 shares of common stock issued and
outstanding at March , 1997.
(2) Includes 341,500 shares owned by TCI of which the Directors may be deemed to
be beneficial owners by virtue of the their positions as directors of TCI
and 450,102 shares owned by ART and 50,050 shares owned by BCM, of which the
executive officers of the Company may be deemed to be beneficial owners by
virtue of their positions as executive officers or directors of ART and BCM.
The Directors and executive officers of the Company disclaim beneficial
ownership of such shares.
On December 5, 1989, the Company's Board of Directors approved a share
repurchase program. The Company's Board of Directors has authorized the Company
to repurchase a total of 200,000 of its shares of common stock pursuant to such
program. Through March 1, 1996, the Company has repurchased 187,704 shares
pursuant to such program at a cost to the Company of $1.6 million. The Company
purchased none of its shares in 1995.
On March 24, 1989, the Company distributed one share purchase right for
each outstanding share of common stock of the Company. On December 10, 1991, the
Company's Board of Directors voted to redeem the rights having determined that
they were no longer necessary to protect the Company from coercive tender
offers. On February 10, 1992, the rights were redeemed, the stockholders
receiving $.04 for each Right. In connection with such redemption, Messrs.
Phillips and Friedman and their affiliates, who owned approximately 12% of the
Company's outstanding shares of common stock at the time, agreed not to acquire
more than 40% of the Company's outstanding shares of common stock without the
prior action of the Company's Board of Directors to the effect that they do not
object to such increased ownership.
In August 1994, Mr. Phillips and his affiliates, primarily ART and TCI,
owned approximately 39.8% of the Company's outstanding shares of common stock.
This stockholder group desired to purchase additional shares of the Company and
requested that the Company's Board of Directors consider the elimination of the
limitations on the percentage of shares which may be acquired by the stockholder
group. The Board of Directors reviewed the limitation and determined that, due
to the fact that Mr. Friedman is no longer affiliated
11
<PAGE> 14
with the stockholder group, and had disposed of any shares of the Company which
he or his affiliates may have owned, the limitation should no longer apply to
Mr. Friedman or his affiliates. The Board of Directors also determined that
there was no reason to object to the purchase of additional shares of the
Company by the stockholder group and on August 23, 1994, the Company's Board of
Directors adopted a resolution to the effect that they do not object to the
acquisition of up to 49% of the Company's outstanding shares of common stock by
Mr. Phillips and his affiliates. In determining total ownership, shares of
common stock of the Company owned by, if any, Mr. Friedman and his affiliates
are no longer to be included. Pursuant to this action, Mr. Phillips and his
affiliates could not acquire more than 49% of the Company's outstanding shares
of common stock without the prior action of the Company's Board of Directors to
the effect that they do not object to such increased ownership.
On March 21, 1996, the Board of Directors reconsidered the share ownership
limitation and determined that there was no reason to object to the purchase by
the shareholder group of additional shares in excess of 49% of the Company's
outstanding shares. Accordingly, there is no longer any limitation on the
percentage of shares of the Company which may be acquired by the stockholder
group.
CERTAIN BUSINESS RELATIONSHIPS
In February 1989, the Company's Board of Directors voted to retain BCM as
the Company's advisor. BCM is a corporation of which Messrs. Paulson, Endendyk
and Holland serve as executive officers. Mr. Phillips served as a director of
BCM until December 22, 1989, and as Chief Executive Officer of BCM until
September 1, 1992. BCM is owned by a trust for the benefit of the children of
Mr. Phillips. Mr. Phillips serves as a representative of his children's trust
which owns BCM and, in such capacity, has substantial contact with the
management of BCM and input with respect to its performance of advisory services
to the Company.
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel, Ltd. provides such property
management services. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) SWI, of which Mr. Phillips is the sole
shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the children
of Mr. Phillips. Carmel, Ltd. subcontracts the property-level management and
leasing of one of the Company's office buildings and the commercial properties
owned by a real estate partnership in which the Company and TCI are partners to
Carmel Realty, which is a company owned by SWI.
Prior to December 1, 1992, affiliates of BCM provided brokerage services to
the Company and received brokerage commissions in accordance with the advisory
agreement. Since December 1, 1992, the Company has engaged, on a nonexclusive
basis, Carmel Realty to perform brokerage services to the Company. Carmel Realty
is a company owned by SWI.
The Directors and officers of the Company also serve as trustees or
directors and officers of CMET and TCI. The Directors owe fiduciary duties to
such entities as well as to the Company under applicable law. CMET and TCI have
the same relationship with BCM as the Company. Mr. Phillips is a general partner
of SAMLP, the general partner of NRLP and NOLP. BCM performs certain
administrative functions for NRLP and NOLP on a cost-reimbursement basis. BCM
also serves as advisor to ART. Mr. Phillips served as Chairman of the Board and
a director of ART until November 16, 1992. Messrs. Paulson, Endendyk and Holland
serve as executive officers of ART.
From April 1992 to December 31, 1992, Mr. Stokely was employed as a paid
Real Estate Consultant and since January 1993 as a part-time unpaid Consultant
for Eldercare, a nonprofit corporation engaged in the acquisition of low income
and elderly housing. Eldercare has a revolving loan commitment from BCM.
Eldercare filed for bankruptcy protection in July 1993 and was dismissed from
bankruptcy on October 12, 1994. Eldercare again filed for bankruptcy protection
in May 1995.
12
<PAGE> 15
RELATED PARTY TRANSACTIONS
Historically, the Company has engaged in and may continue to engage in
business transactions, including real estate partnerships, with related parties.
The Company's management believes that all of the related party transactions
represented the best investments available at the time and were at least as
advantageous to the Company as could have been obtained from unrelated third
parties.
The Company is a partner with TCI in the Tri-City Limited Partnership which
owns five properties.
In 1995, the Company paid BCM and its affiliates $316,000 in advisory fees,
$63,000 in mortgage brokerage and equity refinancing fees, and $156,000 in
property management and construction supervision fees (net of property
management fees paid to subcontractors, other than Carmel Realty). In addition,
as provided in the Advisory Agreement, BCM received cost reimbursements from the
Company of $140,000 in 1995. No brokerage commissions were paid to BCM or its
affiliates in 1995.
Restrictions on Related Party Transactions Article FOURTEENTH of the
Company's Articles of Incorporation provides that the Company shall not,
directly or indirectly, contract or engage in any transaction with (i) any
director, officer or employee of the Company, (ii) any director, officer or
employee of the advisor, (iii) the advisor or (iv) any affiliate or associate
(as such terms are defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended) of any of the aforementioned persons, unless (a) the material
facts as to the relationship among or financial interest of the relevant
individuals or persons and as to the contract or transaction are disclosed to or
are known by the Board of Directors or the appropriate committee thereof and (b)
the Board of Directors or committee thereof determines that such contract or
transaction is fair to the Company and simultaneously authorizes or ratifies
such contract or transaction by the affirmative vote of a majority of
independent directors of the Company entitled to vote thereon.
Article FOURTEENTH defines an "independent director" as one who is neither
an officer or employee of the Company nor a director, officer or employee of the
Company's advisor.
From 1990 until January 1995, all related party transactions that the
Company entered into were required to be reviewed by the Related Party
Transaction Committee to determine whether such transactions were (i) fair to
the Company and (ii) were permitted by the Company's governing documents. Each
of the members of the Related Party Transaction Committee was a Director who was
not an officer, director or employee of the Company's advisor, BCM, and was not
an officer or employee of the Company. The Related Party Transaction Committee
was terminated by the Board of Directors on January 11, 1995.
Pursuant to the terms of the Modification of Stipulation of Settlement in
the Olive Litigation (the "Modification"), which became effective on January 11,
1995, certain related party transactions which the Company may enter into prior
to April 28, 1999, require the unanimous approval of the Board of Directors. In
addition, such related party transactions are to be discouraged and may only be
entered into in exceptional circumstances and after a determination by the Board
of Directors that the transaction is in the best interests of the Company and
that no other opportunity exists that is as good as the opportunity presented by
such transaction.
The Modification requirements for related party transactions do not apply
to direct contractual agreements for services between the Company and the
Advisor or one of its affiliates (including the Advisory Agreement, the
Brokerage Agreement and the property management contracts). These agreements,
pursuant to the specific terms of the Modification, require the prior approval
by two-thirds of the Directors of the Company, and if required, approval by a
majority of the Company's stockholders. The Modification requirements for
related party transactions also do not apply to joint ventures between or among
the Company and CMET, NIRT or TCI or any of their affiliates or subsidiaries and
a third party having no prior or intended future business or financial
relationship with Mr. Phillips, Mr. Friedman, the Advisor, or any affiliate of
such parties. Such joint ventures may be entered into on the affirmative vote of
a majority of the Directors of the Company.
13
<PAGE> 16
PROPOSAL TWO:
THE RENEWAL OF THE ADVISORY AGREEMENT
The Board of Directors recommends that Stockholders approve the renewal
through the next annual meeting of Stockholders of the current advisory
agreement described below between the Company and BCM. A copy of the Advisory
Agreement appears as Appendix A to this Proxy Statement and is described below
under "The Advisory Agreement". The affirmative vote of a majority of the votes
cast at the Annual Meeting is required to approve the Advisory Agreement.
If Stockholders approve this Proposal Two, the Advisory Agreement will have
a term extending through the next annual meeting of Stockholders, and any
renewal of the Advisory Agreement thereafter will be subject to approval of the
Board of Directors in accordance with the provisions of the Articles of
Incorporation.
THE ADVISORY AGREEMENT
BCM has served as advisor to the Company since March 28, 1989. The current
Advisory Agreement was entered into effective March 15, 1996 and was approved by
the Stockholders at the Annual Meeting of Stockholders held on May 31, 1996.
Under the Advisory Agreement, the Advisor is required to formulate and
submit annually for approval by the Company's Board of Directors a budget and
business plan for the Company containing a twelve-month forecast of operations
and cash flow, a general plan for asset sales or acquisitions, lending,
foreclosure and borrowing activity, and other investments and the Advisor is
required to report quarterly to the Company's Board of Directors on the
Company's performance against the business plan. In addition, all transactions
and investments by the Company shall require prior approval by the Company's
Board of Directors unless they are explicitly provided for in the approved
business plan or are made pursuant to authority expressly delegated to the
Advisor by the Company's Board of Directors.
The Advisory Agreement also requires prior approval of the Company's Board
of Directors for the retention of all consultants and third party professionals,
other than legal counsel. The Advisory Agreement provides that the Advisor shall
be deemed to be in a fiduciary relationship to the Company's stockholders and
contains a broad standard governing the Advisor's liability for losses by the
Trust.
The Advisory Agreement provides for BCM to be responsible for the
day-to-day operations of the Company and to receive an advisory fee comprised of
a gross asset fee of .0625% per month (.75% per annum) of the average of the
gross asset value of the Company (total assets less allowance for amortization,
depreciation or depletion and valuation reserves) and an annual net income fee
equal to 7.5% per annum of the Company's net income.
The Advisory Agreement also provides for BCM to receive an annual incentive
sales fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all real estate sold by the Company during such fiscal year
exceeds the sum of: (i) the cost of each such property as originally recorded in
the Company's books for tax purposes (without deduction for depreciation,
amortization or reserve for losses), (ii) capital improvements made to such
assets during the period owned by the Company, and (iii) all closing costs,
(including real estate commissions) incurred in the sale of such property;
provided, however, no incentive fee shall be paid unless (a) such real estate
sold in such fiscal year, in the aggregate, has produced an 8% simple annual
return on the Company's net investment including capital improvements,
calculated over the Company's holding period before depreciation and inclusive
of operating income and sales consideration and (b) the aggregate net operating
income from all real estate owned by the Company for each of the prior and
current fiscal years shall be at least 5% higher in the current fiscal year than
in the prior fiscal year.
Additionally, pursuant to the Advisory Agreement BCM or an affiliate of BCM
is to receive an acquisition commission for supervising the acquisition,
purchase or long term lease of real estate for the Company equal to the lesser
of (i) up to 1% of the cost of acquisition, inclusive of commissions, if any,
paid to nonaffiliated brokers or (ii) the compensation customarily charged in
arms-length transactions by others rendering similar property acquisition
services as a ongoing public activity in the same geographical location
14
<PAGE> 17
and for comparable property; provided that the aggregate purchase price of each
property (including acquisition commissions and all real estate brokerage fees)
may not exceed such property's appraised value at acquisition.
The Advisory Agreement requires BCM or any affiliate of BCM to pay the
Company one-half of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by the Company;
provided, however, that the compensation retained by BCM or any affiliate of BCM
shall not exceed the lesser of (i) 2% of the amount of the loan committed by the
Company or (ii) a loan brokerage and commitment fee which is reasonable and fair
under the circumstances.
The Advisory Agreement also provides that BCM or an affiliate of BCM is to
receive a mortgage or loan acquisition fee with respect to the acquisition or
purchase of any existing mortgage loan by the Company equal to or lesser of (i)
1% of the amount of the loan purchased or (ii) a loan brokerage or commitment
fee which is reasonable and fair under the circumstances. Such fee will not be
paid in connection with the origination or funding by the Company of any
mortgage loan.
Under the Advisory Agreement, BCM or an affiliate of BCM is also to receive
a mortgage brokerage and equity refinancing fee for obtaining loans to the
Company or refinancing on Company properties equal to the lesser of (i) 1% of
the amount of the loan or the amount refinanced or (ii) a brokerage or
refinancing fee which is reasonable and fair under the circumstances; provided,
however, that no such fee shall be paid on loans from BCM or an affiliate of BCM
without the approval of the Company's Board of Directors. No fee shall be paid
on loan extensions.
Under the Advisory Agreement, BCM is to receive reimbursement of certain
expenses incurred by it, in the performance of advisory services to the Company.
Under the Advisory Agreement all or a portion of the annual advisory fee
must be refunded by the Advisor to the Company if the Operating Expenses of the
Company (as defined in the Company's Advisory Agreement) exceed certain limits
specified in the Advisory Agreement based on the book value, net asset value and
net income of the Company during such fiscal year. The effect of this limitation
was to require that BCM refund $44,000 and $6,000 of the 1995 and 1994 annual
advisory fee, respectively. No refund was required in 1993.
Additionally, if the Company were to request that BCM render services to
the Company other than those required by the Advisory Agreement, BCM or an
affiliate of BCM will be separately compensated for such additional services on
terms to be agreed upon from time to time. The Company has hired Carmel, Ltd.,
an affiliate of BCM, to provide property management for the Company's properties
and, the Company has engaged Carmel Realty, also an affiliate of BCM, on a
nonexclusive basis, to provide brokerage services for the Company.
BCM may only assign the Advisory Agreement with the prior consent of the
Company.
15
<PAGE> 18
The directors and principal officers of BCM are set forth below.
<TABLE>
<S> <C>
MICKEY N. PHILLIPS: Director
RYAN T. PHILLIPS: Director
RANDALL M. PAULSON: President
MARK W. BRANIGAN: Executive Vice President -- Residential Asset
Management
BRUCE A. ENDENDYK: Executive Vice President
THOMAS A. HOLLAND: Executive Vice President and Chief Financial
Officer
COOPER B. STUART: Executive Vice President
CLIFFORD C. TOWNS, JR: Executive Vice President -- Finance
DAN S. ALLRED: Senior Vice President -- Land Development
ROBERT A. WALDMAN: Senior Vice President, Secretary and General
Counsel
LYNN W. HUMPHRIES: Senior Vice President -- Commercial Asset
Management
DREW D. POTERA: Vice President, Treasurer and Securities Manager
</TABLE>
Mickey N. Phillips is Gene E. Phillips' brother and Ryan T. Phillips is
Gene E. Phillips' son. Gene E. Phillips serves as a representative of the trust
established for the benefit of his children which owns BCM and, in such
capacity, Mr. Phillips has substantial contact with the management of BCM and
input with respect to its performance of advisory services to the Company.
The Board of Directors recommends that Stockholders approve the renewal of
the Company's current Advisory Agreement with BCM because the terms of such
agreement are, in its view, as favorable to the Company as those that would be
obtained from unaffiliated third parties for the performance of similar
services, while at the same time the Advisory Agreement gives BCM adequate
incentive to improve the performance of the Company's properties and mortgages.
SELECTION OF AUDITORS FOR 1996
The Board of Directors has selected BDO Seidman to serve as the auditors
for the Company for the 1996 fiscal year. The Company's auditors for the 1995
fiscal year were BDO Seidman. A representative of BDO Seidman is expected to
attend the annual meeting.
OTHER MATTERS
Management knows of no other matters that may properly be, or that are
likely to be, brought before the meeting. However, if any other matters are
properly brought before the meeting, the persons named in the enclosed proxy or
their substitutes will vote in accordance with their best judgment on such
matters.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED ON
As described herein, the executive officers of the Company also serve as
executive officers of, and are employed by, BCM. Such executive officers could
therefore be deemed to benefit financially from stockholder approval of the
Company's Advisory Agreement with BCM pursuant to Proposal Two.
FINANCIAL STATEMENTS
The audited financial statements of the Company, in comparative form for
the years ended December 31, 1995, 1994 and 1993 are contained in the 1995
Annual Report to Stockholders. However, such report and the financial statements
contained therein are not to be considered part of this solicitation.
16
<PAGE> 19
SOLICITATION OF PROXIES
THIS PROXY STATEMENT IS FURNISHED TO STOCKHOLDERS TO SOLICIT PROXIES ON
BEHALF OF THE DIRECTORS OF THE COMPANY. The cost of soliciting proxies will be
borne by the Company. Directors and officers of the Company may, without
additional compensation, solicit by mail, in person or by telecommunication. In
addition, the Company has retained Shareholder Communications Corporation
("SCC") to assist in the solicitation of proxies. An agreement with SCC provides
that it will distribute materials relating to the solicitation of proxies,
contact Stockholders to confirm receipt of materials and answer questions
relating thereto. SCC is to be paid a base fee of $2,000 plus out-of-pocket
expenses and is to be indemnified against certain liability incurred as a result
of the provision of such services.
---------------------
COPIES OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995 TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K ARE AVAILABLE TO
STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INCOME OPPORTUNITY REALTY
INVESTORS, INC., 10670 NORTH CENTRAL EXPRESSWAY, SUITE 300, DALLAS, TEXAS 75231,
ATTENTION: DIRECTOR OF INVESTOR RELATIONS.
By Order of the Board of Directors
Randall M. Paulson
President
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR ALL FOUR
OF THE NOMINEES AND THAT YOU VOTE FOR THE RENEWAL OF THE CURRENT ADVISORY
AGREEMENT BY VOTING FOR PROPOSAL TWO ON THE ENCLOSED PROXY. REGARDLESS OF HOW
YOU WISH TO VOTE YOUR SHARES, YOUR BOARD OF DIRECTORS URGES YOU TO PROMPTLY
SIGN, DATE AND MAIL THE ENCLOSED PROXY.
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APPENDIX A
ADVISORY AGREEMENT
BETWEEN
INCOME OPPORTUNITY REALTY INVESTORS, INC.
AND
BASIC CAPITAL MANAGEMENT, INC.
THIS AGREEMENT dated as of March 15, 1996, between Income Opportunity
Realty Investors, Inc., a Nevada corporation (the "Company"), and Basic Capital
Management, Inc. (the "Advisor"), a Nevada corporation.
WITNESSETH:
1. The Company owns a portfolio of real estate and mortgages.
2. The Advisor and its employees have extensive experience in the
administration of real estate assets and the origination, structuring and
evaluation of real estate and mortgage investments.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties agree as follows:
1. Duties of the Advisor. Subject to the supervision of the Board of
Directors, the Advisor will be responsible for the day-to-day operations of the
Company and, subject to Section 17 hereof, shall provide such services and
activities relating to the assets, operations and business plan of the Company
as may be appropriate, including:
(a) preparing and submitting an annual budget and business plan for
approval by the Board of the Company (the "Business Plan");
(b) using its best efforts to present to the Company a continuing and
suitable investment program consistent with the investment policies and
objectives of the Company as set forth in the Business Plan;
(c) using its best efforts to present to the Company investment
opportunities consistent with the Business Plan and such investment program
as the Directors may adopt from time to time;
(d) furnishing or obtaining and supervising the performance of the
ministerial functions in connection with the administration of the
day-to-day operations of the Company including the investment of reserve
funds and surplus cash in short-term money market investments;
(e) serving as the Company's investment and financial advisor and
providing research, economic, and statistical data in connection with the
Company's investments and investment and financial policies;
(f) on behalf of the Company, investigating, selecting and conducting
relations with borrowers, lenders, mortgagors, brokers, investors,
builders, developers and others; provided however, that the Advisor shall
not retain on the Company's behalf any consultants or third party
professionals, other than legal counsel, without prior Board approval;
(g) consulting with the Directors and furnishing the Directors with
advice and recommendations with respect to the making, acquiring (by
purchase, investment, exchange or otherwise), holding and disposition
(through sale, exchange, or otherwise) of investments consistent with the
Business Plan of the Company;
(h) obtaining for the Directors such services as may be required in
acquiring and disposing of investments, disbursing and collecting the funds
of the Company, paying the debts and fulfilling the
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obligations of the Company, and handling, prosecuting, and settling any
claims of the Company, including foreclosing and otherwise enforcing
mortgage and other liens securing investments;
(i) obtaining for and at the expense of the Company such services as
may be required for property management, loan disbursements, and other
activities relating to the investments of the Company, provided, however,
the compensation for such services shall be agreed to by the Company and
the service provider;
(j) advising the Company in connection with public or private sales of
shares or other securities of the Company, or loans to the Company, but in
no event in such a way that the Advisor could be deemed to be acting as a
broker dealer or underwriter;
(k) quarterly and at any time requested by the Directors, making
reports to the Directors regarding the Company's performance to date in
relation to the Company's approved Business Plan and its various
components, as well as the Advisor's performance of the foregoing services;
(l) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Company;
(m) assisting in preparation of reports and other documents necessary
to satisfy the reporting and other requirements of any governmental bodies
or agencies and to maintain effective communications with stockholders of
the Company; and
(n) doing all things necessary to ensure its ability to render the
services contemplated herein, including providing office space and office
furnishings and personnel necessary for the performance of the foregoing
services as Advisor, all at its own expense, except as otherwise expressly
provided for herein.
2. No Partnership or Joint Venture. The Company and the Advisor are not
partners or joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.
3. Records. At all times, the Advisor shall keep proper books of account
and records of the Company's affairs which shall be accessible for inspection by
the Company at any time during ordinary business hours.
4. Additional Obligations of the Advisor. The Advisor shall refrain from
any action (including, without limitation, furnishing or rendering services to
tenants of property or managing or operating real property) that would (a)
adversely affect the status of the Company as a real estate investment trust, as
defined and limited in Sections 856-860 of the Internal Revenue Code, (b)
violate any law, rule, regulation, or statement of policy of any governmental
body or agency having jurisdiction over the Company or over its securities, (c)
cause the Company to be required to register as an investment company under the
Investment Company Act of 1940, or (d) otherwise not be permitted by the
Articles of Incorporation of the Company.
5. Bank Accounts. The Advisor may establish and maintain one or more bank
accounts in its own name, and may collect and deposit into any such account or
accounts, and disburse from any such account or accounts, any money on behalf of
the Company, under such terms and conditions as the Directors may approve,
provided that no funds in any such account shall be commingled with funds of the
Advisor; and the Advisor shall from time to time render appropriate accounting
of such collections and payments to the Directors and to the auditors of the
Company.
6. Bond. The Advisor shall maintain a fidelity bond with a responsible
surety company in such amount as may be required by the Directors from time to
time, covering all directors, officers, employees, and agents of the Advisor
handling funds of the Company and any investment documents or records pertaining
to investments of the Company. Such bond shall inure to the benefit of the
Company in respect to losses of any such property from acts of such directors,
officers, employees, and agents through theft, embezzlement, fraud, negligence,
error, or omission or otherwise, the premium for said bond to be at the expense
of the Company.
7. Information Furnished Advisor. The Directors shall have the right to
change the Business Plan at any time, effective upon receipt by the Advisor of
notice of such change. The Company shall furnish the Advisor with a certified
copy of all financial statements, a signed copy of each report prepared by
independent certified
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public accountants, and such other information with regard to the Company's
affairs as the Advisor may from time to time reasonably request.
8. Consultation and Advice. In addition to the services described above,
the Advisor shall consult with the Directors, and shall, at the request of the
Directors or the officers of the Company, furnish advice and recommendations
with respect to any aspect of the business and affairs of the Company, including
any factors that in the Advisor's best judgment should influence the policies of
the Company.
9. Annual Business Plan and Budget. No later than January 15th of each
year, the Advisor shall submit to the Directors a written Business Plan for the
current Fiscal Year of the Company. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Company. To the
extent possible, the Business Plan shall set forth the Advisor's recommendations
and the basis therefor with respect to all material investments of the Company.
Upon approval by the Board of Directors, the Advisor shall be authorized to
conduct the business of the Company in accordance with the explicit provisions
of the Business Plan, specifically including the borrowing, leasing,
maintenance, capital improvements, renovations and sale of investments set forth
in the Business Plan. Any transaction or investment not explicitly provided for
in the approved Business Plan shall require the prior approval of the Board of
Directors unless made pursuant to authority expressly delegated to the Advisor.
Within sixty (60) days of the end of each calendar quarter, the Advisor shall
provide the Board of Directors with a report comparing the Company's actual
performance for such quarter against the Business Plan.
10. Definitions. As used herein, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean, as to any Person, any other Person who
owns beneficially, directly, or indirectly, 1% or more of the outstanding
capital stock, shares or equity interests of such Person or of any other
Person which controls, is controlled by, or is under common control with
such Person or is an officer, retired officer, director, employee, partner,
or trustee (excluding noninterested trustees not otherwise affiliated with
the entity) of such Person or of any other Person which controls, is
controlled by, or is under common control with, such Person.
(b) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified appraiser who is
a member in good standing of the American Institute of Real Estate
Appraisers and is duly licensed to perform such services in accordance with
the applicable state law, or, when pertaining to Mortgage Loans, the value
of the underlying property as determined by the Advisor.
(c) "Book Value" of an asset or assets shall mean the value of such
asset or assets on the books of the Company, before provision for
amortization, depreciation, depletion or valuation reserves and before
deducting any indebtedness or other liability in respect thereof, except
that no asset shall be valued at more than its fair market value as
determined by the Directors.
(d) "Book Value of Invested Assets" shall mean the Book Value of the
Company's total assets (without deduction of any liabilities), but
excluding (i) goodwill and other intangible assets, (ii) cash, and (iii)
cash equivalent investments with terms which mature in one year or less.
(e) "Business Plan" shall mean the Company's investment policies and
objectives and the capital and operating budget based thereon, approved by
the Board as thereafter modified or amended.
(f) "Fiscal Year" shall mean any period for which an income tax return
is submitted to the Internal Revenue Service and which is treated by the
Internal Revenue Service as a reporting period.
(g) "Gross Asset Value" shall mean the total assets of the Company
after deduction of allowance for amortization, depreciation or depletion
and valuation reserves.
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(h) "Mortgage Loans" shall mean notes, debentures, bonds, and other
evidences of indebtedness or obligations, whether negotiable or
non-negotiable, and which are secured or collateralized by mortgages,
including first, wraparound, construction and development, and junior
mortgages.
(i) "Net Asset Value" shall mean the Book Value of all the assets of
the Company minus all the liabilities of the Company.
(j) "Net Income" for any period shall mean the Net Income of the
Company for such period computed in accordance with generally accepted
accounting principles after deduction of the Gross Asset Fee, but before
deduction of the Net Income Fee, as set forth in Sections 11(a) and 11(b),
respectively, herein, and inclusive of gain or loss of the sale of assets.
(k) "Net Operating Income" shall mean rental income less property
operating expenses.
(l) "Operating Expenses" shall mean the aggregate annual expenses
regarded as operating expenses in accordance with generally accepted
accounting principles as determined by the independent auditors selected by
the Directors and including the Gross Asset Fee payable to the Advisor and
fees and expenses paid to the Directors who are not employees or Affiliates
of the Advisor.
(m) The operating expenses shall exclude, however, the following:
(i) the cost of money borrowed by the Company;
(ii) income taxes, taxes and assessments on real property and all
other taxes applicable to the Company;
(iii) expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of the
Company's securities (including legal, auditing, accounting,
underwriting, brokerage, printing, engraving and other fees);
(iv) fees and expenses paid to independent mortgage servicers,
contractors, consultants, managers and other agents retained by or on
behalf of the Company;
(v) expenses directly connected with the purchase, origination,
ownership and disposition of Real Properties or Mortgage Loans
(including the costs of foreclosure, insurance, legal, protective,
brokerage, maintenance, repair and property improvement services) other
than expenses with respect thereto of employees of the Advisor, except
legal, internal auditing, foreclosure and transfer agent services
performed by employees of the Advisor;
(vi) expenses of maintaining and managing real estate equity
interests and processing and servicing mortgage and other loans;
(vii) expenses connected with payments of dividends, interest or
distributions by the Company to shareholders;
(viii) expenses connected with communications to shareholders and
bookkeeping and clerical expenses for maintaining shareholder relations,
including the cost of printing and mailing share certificates, proxy
solicitation materials and reports;
(ix) transfer agent's, registrar's and indenture trustee's fees and
charges; and
(x) the cost of any accounting, statistical, bookkeeping or
computer equipment necessary for the maintenance of books and records of
the Company.
Additionally, the following expenses of the Advisor shall be excluded:
(i) employment expenses of the Advisor's personnel (including
Directors, officers and employees of the Company who are directors,
officers or employees of the Advisor or its Affiliates), other than the
expenses of those employee services listed at (v) above.
(ii) rent, telephone, utilities and office furnishings and other
office expenses of the Advisor (except those relating to a separate
office, if any, maintained by the Company); and
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(iii) the Advisor's overhead directly related to performance of its
functions under this Agreement.
(n) "Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies,
land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof.
(o) "Real Property" shall mean and include land, rights in land,
leasehold interests (including but not limited to interests of a lessor or
lessee therein), and any buildings, structures, improvements, fixtures, and
equipment located on or used in connection with land, leasehold interests,
and rights in land or interests therein.
All calculations made pursuant to this Agreement shall be based on
statements (which may be unaudited, except as provided herein) prepared on an
accrual basis consistent with generally accepted accounting principles,
regardless of whether the Company may also prepare statements on a different
basis. All other terms shall have the same meaning as set forth in the Company's
Articles of Incorporation and Bylaws.
11. Advisory Compensation.
(a) Gross Asset Fee. On or before the twenty-eighth day of each month
during the term hereof, the Company shall pay to the Advisor, as compensation
for the basic management and advisory services rendered to the Company
hereunder, a fee at the rate of .0625% per month of the average of the Gross
Asset Value of the Company at the beginning and at the end of the next preceding
calendar month. Without negating the provisions of Sections 18, 19, 22 and 23
hereof, the annual rate of the Gross Asset Fee shall be .75% per annum.
(b) Net Income Fee. As an incentive for successful investment and
management of the Company's assets, the Advisor will be entitled to receive a
fee equal to 7.5% per annum of the Company's Net Income for each Fiscal Year or
portion thereof for which the Advisor provides services. To the extent the
Company has Net Income in a quarter, the 7.5% Net Income fee is to be paid
quarterly on or after the third business day following the filing of the report
on Form 10-Q with the Securities and Exchange Commission, except for the payment
for the fourth quarter, ended December 31, which is to be paid on or after the
third business day following the filing of the report on Form 10-K with the
Securities and Exchange Commission.
The 7.5% Net Income Fee is to be cumulative within any Fiscal Year, such
that if the Company has a loss in any quarter during the Fiscal Year, each
subsequent quarter's payment during such Fiscal Year shall be adjusted to
maintain the 7.5% per annum rate, with final settlement being made with the
fourth quarter payment and in accordance with audited results for the Fiscal
Year. The 7.5% Net Income Fee is not cumulative from year to year.
(c) Acquisition Commission. For supervising the acquisition, purchase or
long term lease of Real Property for the Company, the Advisor is to receive an
Acquisition Commission equal to the lesser of (i) up to 1% of the cost of
acquisition, inclusive of commissions, if any, paid to nonaffiliated brokers; or
(ii) the compensation customarily charged in arm's-length transactions by others
rendering similar property acquisition services as an ongoing public activity in
the same geographical location and for comparable property. The aggregate of
each purchase price of each property (including the Acquisition Commissions and
all real estate brokerage fees) may not exceed such property's Appraised Value
at acquisition.
(d) Incentive Sales Compensation. To encourage periodic sales of
appreciated Real Property at optimum value and to reward the Advisor for
improved performance of the Company's Real Property, the Company shall pay to
the Advisor, on or before the 45th day after the close of each Fiscal Year, an
incentive fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all Real Property sold by the Company during such Fiscal Year
exceeds the sum of: (i) the cost of each such Real Property as originally
recorded in the Company's books for tax purposes (without deduction for
depreciation, amortization or reserve for losses), (ii) capital improvements
made to such assets during the period owned by the Company, and
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(iii) all closing costs, (including real estate commissions) incurred in the
sale of such Real Property; provided however, no incentive fee shall be paid
unless (a) such Real Property sold in such Fiscal Year, in the aggregate, has
produced an 8% simple annual return on the Company's net investment, including
capital improvements, calculated over the Company's holding period before
depreciation and inclusive of operating income and sales consideration and (b)
the aggregate Net Operating Income from all Real Property owned by the Company
for all of the prior Fiscal Year and the current Fiscal Year shall be at least
5% higher in the current Fiscal Year than in the prior Fiscal Year.
(e) Mortgage or Loan Acquisition Fees. For the acquisition or purchase from
an unaffiliated party of any existing mortgage or loan by the Company, the
Advisor or an Affiliate is to receive a Mortgage or Loan Acquisition Fee equal
to the lesser of (a) 1% of the amount of the mortgage or loan purchased by the
Company or (b) a brokerage or commitment fee which is reasonable and fair under
the circumstances. Such fee will not be paid in connection with the origination
or funding by the Company of any mortgage loan.
(f) Mortgage Brokerage and Equity Refinancing Fees. For obtaining loans to
the Company or refinancing on Company properties, the Advisor or an Affiliate is
to receive a Mortgage Brokerage and Equity Refinancing Fee equal to the lesser
of (a) 1% of the amount of the loan or the amount refinanced or (b) a brokerage
or refinancing fee which is reasonable and fair under the circumstances;
provided, however that no such fee shall be paid on loans from the Advisor or an
Affiliate without the approval of the Board of Directors. No fee shall be paid
on loan extensions.
12. Limitation on Third Party Mortgage Placement Fees. The Advisor or any
of its Affiliates shall pay to the Company, one-half of any compensation
received by the Advisor or any such Affiliate from third parties with respect to
the origination, placement or brokerage of any loan made by the Company,
provided, however, the compensation retained by the Advisor or Affiliate shall
not exceed the lesser of (a) 2% of the amount of the loan committed by the
Company or (b) a loan brokerage and commitment fee which is reasonable and fair
under the circumstances.
13. Statements. The Advisor shall furnish to the Company not later than the
tenth day of each calendar month, beginning with the second calendar month of
the term of this Agreement, a statement showing the computation of the fees, if
any, payable in respect to the next preceding calendar month (or, in the case of
incentive compensation, for the preceding Fiscal Year, as appropriate) under the
Agreement. The final settlement of incentive compensation for each Fiscal Year
shall be subject to adjustment in accordance with, and upon completion of, the
annual audit of the Company's financial statements; any payment by the Company
or repayment by the Advisor that shall be indicated to be necessary in
accordance therewith shall be made promptly after the completion of such audit
and shall be reflected in the audited statements to be published by the Company.
14. Compensation for Additional Services. If and to the extent that the
Company shall request the Advisor or any director, officer, partner, or employee
of the Advisor to render services for the Company other than those required to
be rendered by the Advisor hereunder, such additional services, if performed,
will be compensated separately on terms to be agreed upon between such party and
the Company from time to time. In particular, but without limitation, if the
Company shall request that the Advisor perform property management, leasing,
loan disbursement or similar functions, the Company and the Advisor shall enter
into a separate agreement specifying the obligations of the parties and
providing for reasonable additional compensation to the Advisor for performing
such services.
15. Expenses of the Advisor. Without regard to the amount of compensation
or reimbursement received hereunder by the Advisor, the Advisor shall bear the
following expenses:
(a) employment expenses of the personnel employed by the Advisor
(including Directors, officers, and employees of the Company who are
directors, officers, or employees of the Advisor or of any company that
controls, is controlled by, or is under common control with the Advisor),
including, but not limited to, fees, salaries, wages, payroll taxes, travel
expenses, and the cost of employee benefit plans and temporary help
expenses except for those personnel expenses described in Sections 16(e)
and (p);
(b) advertising and promotional expenses incurred in seeking
investments for the Company;
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(c) rent, telephone, utilities, office furniture and furnishings, and
other office expenses of the Advisor and the Company, except as any of such
expenses relates to an office maintained by the Company separate from the
office of the Advisor; and
(d) miscellaneous administrative expenses relating to performance by
the Advisor of its functions hereunder.
16. Expenses of the Company. The Company shall pay all of its expenses not
assumed by the Advisor, including without limitation, the following expenses:
(a) the cost of money borrowed by the Company;
(b) income taxes, taxes and assessments on real property, and all
other taxes applicable to the Company;
(c) legal, auditing, accounting, underwriting, brokerage, listing,
registration and other fees, printing, and engraving and other expenses,
and taxes incurred in connection with the issuance, distribution, transfer,
registration, and stock exchange listing of the Company's securities:
(d) fees, salaries, and expenses paid to officers, and employees of
the Company who are not directors, officers or employees of the Advisor, or
of any company that controls, is controlled by, or is under common control
with the Advisor;
(e) expenses directly connected with the origination or purchase of
Mortgage Loans and with the acquisition, disposition and ownership of real
estate equity interests or other property (including the costs of
foreclosure, insurance, legal, protective, brokerage, maintenance, repair,
and property improvement services) and including all compensation,
traveling expenses, and other direct costs associated with the Advisor's
employees or other personnel engaged in (i) real estate transaction legal
services, (ii) internal auditing, (iii) foreclosure and other mortgage
finance services, (iv) sale or solicitation for sale of mortgages, (v)
engineering and appraisal services, and (vi) transfer agent services.
(f) expenses of maintaining and managing real estate equity interests;
(g) insurance, as required by the Directors (including Directors'
liability insurance);
(h) the expenses of organizing, revising, amending, converting,
modifying, or terminating the Company;
(i) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by the
Directors to holders of securities of the Company;
(j) all expenses connected with communications to holders of
securities of the Company and the other bookkeeping and clerical work
necessary in maintaining relations with holders of securities, including
the cost of printing and mailing certificates for securities and proxy
solicitation materials and reports to holders of the Company's securities;
(k) the cost of any accounting, statistical, bookkeeping or computer
equipment or computer time necessary for maintaining the books and records
of the Company and for preparing and filing Federal, State and Local tax
returns;
(l) transfer agent's, registrar's, and indenture trustee's fees and
charges;
(m) legal, accounting, investment banking, and auditing fees and
expenses charged by independent parties performing these services not
otherwise included in clauses (c) and (e) of this Section 16;
(n) expenses incurred by the Advisor, arising from the sales of
Company properties, including those expenses related to carrying out
foreclosure proceedings;
(o) commercially reasonable fees paid to the Advisor for efforts to
liquidate mortgages before maturity, such as the solicitation of offers and
negotiation of terms of sale;
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(p) costs and expenses connected with computer services, including but
not limited to employee or other personnel compensation, hardware and
software costs, and related development and installation costs associated
therewith;
(q) costs and expenses associated with risk management (i.e. insurance
relating to the Company's assets);
(r) loan refinancing compensation; and
(s) expenses associated with special services requested by the
Directors pursuant to Section 14 hereof.
17. Other Activities of Advisor. The Advisor, its officers, directors, or
employees or any of its Affiliates may engage in other business activities
related to real estate investments or act as advisor to any other person or
entity (including another real estate investment trust), including those with
investment policies similar to the Company, and the Advisor and its officers,
directors, or employees and any of its Affiliates shall be free from any
obligation to present to the Company any particular investment opportunity that
comes to the Advisor or such persons, regardless of whether such opportunity is
in accordance with the Company's Business Plan. However, to minimize any
possible conflict, the Advisor shall consider the respective investment
objectives of, and the appropriateness of a particular investment to each such
entity in determining to which entity a particular investment opportunity should
be presented. If appropriate to more than one entity, the Advisor shall present
the investment opportunity to the entity that has had sufficient uninvested
funds for the longest period of time.
18. Limitation on Operating Expenses. To the extent that the Operating
Expenses of the Company for any Fiscal Year exceed the lesser of (a) 1.5% of the
average of the Book Values of Invested Assets of the Company at the end of each
calendar month of such Fiscal Year, or (b) the greater of 1.5% of the average of
the Net Asset Value of the Company at the end of each calendar month of such
Fiscal Year or 25% of the Company's Net Income, the Advisor shall refund to the
Company from the fees paid to the Advisor the amount, if any, by which the
Operating Expenses so exceed the applicable amount, provided, however, that the
Advisor shall not be required to refund to the Company, with respect to any
Fiscal Year, any amount which exceeds the aggregate of the Gross Asset Fees paid
to the Advisor under this Agreement with respect to such Fiscal Year.
19. Term; Termination of Agreement. This Agreement shall continue in force
until the next Annual Meeting of Stockholders of the Company, and, thereafter,
it may be renewed from year to year, subject to any required approval of the
Stockholders of the Company and, if any Director is an Affiliate of the Advisor,
the approval of a majority of the Directors who are not so affiliated. Notice of
renewal shall be given in writing by the Directors to the Advisor not less than
60 days before the expiration of this Agreement or of any extension thereof.
This Agreement may be terminated for any reason without penalty upon 60 days'
written notice by the Company to the Advisor or 120 days' written notice by the
Advisor to the Company, in the former case by the vote of a majority of the
Directors who are not Affiliates of the Advisor or by the vote of holders of a
majority of the outstanding shares of the Company. Notwithstanding the
foregoing, however, in the event of any material change in the ownership,
control or management of the Advisor, the Company may terminate this Agreement
without penalty and without advance notice to the Advisor.
20. Amendments. This Agreement shall not be changed, modified, terminated
or discharged in whole or in part except by an instrument in writing signed by
both parties hereto, or their respective successors or assigns, or otherwise as
provided herein.
21. Assignment. This Agreement shall not be assigned by the Advisor without
the prior consent of the Company. The Company may terminate this Agreement in
the event of its assignment by the Advisor without the prior consent of the
Company. Such an assignment or any other assignment of this Agreement shall bind
the assignee hereunder in the same manner as the Advisor is bound hereunder.
This Agreement shall not be assignable by the Company without the consent of the
Advisor, except in the case of assignment by the Company to a corporation,
association, trust, or other organization that is a successor to the Company.
Such
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successor shall be bound hereunder and by the terms of said assignment in the
same manner as the Company is bound hereunder.
22. Default, Bankruptcy, etc. At the option solely of the Directors, this
Agreement shall be and become terminated immediately upon written notice of
termination from the Directors to the Advisor if any of the following events
shall occur:
(a) If the Advisor shall violate any provision of this Agreement, and
after notice of such violation shall not cure such default within 30 days;
or
(b) If the Advisor shall be adjudged bankrupt or insolvent by a court
of competent jurisdiction, or an order shall be made by a court of
competent jurisdiction for the appointment of a receiver, liquidator, or
trustee of the Advisor or of all or substantially all of its property by
reason of the foregoing, or approving any petition filed against the
Advisor for its reorganization, and such adjudication or order shall remain
in force or unstayed for a period of 30 days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization under the
Federal bankruptcy laws, or for relief under any law for the relief of
debtors, or shall consent to the appointment of a receiver of itself or of
all or substantially all its property, or shall make a general assignment
for the benefit of its creditors, or shall admit in writing its inability
to pay its debts generally, as they become due.
The Advisor agrees that if any of the events specified in subsections (b)
and (c) of this Section 22 shall occur, it will give written notice thereof to
the Directors within seven days after the occurrence of such event.
23. Action Upon Termination. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further services hereunder but
shall be paid all compensation accruing to the date of termination. The Advisor
shall forthwith upon such termination:
(a) pay over to the Company all monies collected and held for the
account of the Company pursuant to this Agreement;
(b) deliver to the Directors a full accounting, including a statement
showing all payments collected by it and a statement of any monies held by
it, covering the period following the date of the last accounting furnished
to the Directors; and
(c) deliver to the Directors all property and documents of the Company
then in the custody of the Advisor.
24. Miscellaneous. The Advisor shall be deemed to be in a fiduciary
relationship to the stockholders of the Company. The Advisor assumes no
responsibility under this Agreement other than to render the services called for
hereunder in good faith, and shall not be responsible for any action of the
Directors in following or declining to follow any advice or recommendations of
the Advisor. Neither the Advisor nor any of its shareholders, directors,
officers, or employees shall be liable to the Company, the Directors, the
holders of securities of the Company or to any successor or assign of the
Company for any losses arising from the operation of the Company if the Advisor
had determined, in good faith, that the course of conduct which caused the loss
or liability was in the best interests of the Company and the liability or loss
was not the result of negligence or misconduct by the Advisor. However, in no
event will the directors, officers or employees of the Advisor be personally
liable for any act or failure to act unless it was the result of such person's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
25. Notices. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report, or other communication is accepted
A-9
<PAGE> 29
by the party to whom it is given, and shall be given by being delivered at the
following addresses of the parties hereto:
The Directors and/or the Company:
Income Opportunity Realty Investors, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President
The Advisor:
Basic Capital Management, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Executive Vice President and
Chief Financial Officer
Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section 25.
26. Headings. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.
27. Governing Law. This Agreement has been prepared, negotiated and
executed in the State of Texas. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely in the State of
Texas.
28. Execution. This instrument is executed and made on behalf of the
Company by an officer of the Company, not individually but solely as an Officer,
and the obligations under this Agreement are not binding upon, nor shall resort
be had to the private property of, any of the Directors, stockholders, officers,
employees, or agents of the Company personally, but bind only the Company
property.
IN WITNESS WHEREOF, INCOME OPPORTUNITY REALTY INVESTORS, INC. and BASIC
CAPITAL MANAGEMENT, INC., by their duly authorized officers, have signed these
presents all as of the day and year first above written.
INCOME OPPORTUNITY REALTY INVESTORS, INC.
By: /s/ RANDALL M. PAULSON
-----------------------------------
Randall M. Paulson
President
BASIC CAPITAL MANAGEMENT, INC.
By: /s/ THOMAS A. HOLLAND
-----------------------------------
Thomas A. Holland
Executive Vice President
A-10
<PAGE> 30
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHOLD
all nominees (except AUTHORITY TO
as marked to the vote for all nominees
contrary below) listed below
1. Election of Directors: [ ] [ ]
Nominees: Ted P. Stokely
Edward L. Tixier
Martin L. White
Edward G. Zampa
For all nominees
(except as marked to the contrary below)
_____________________________________________
FOR AGAINST ABSTAIN
2. Renewal of the current advisory agreement [ ] [ ] [ ]
between the Company and Basic Capital
Management, Inc.
3. Other Business: I Authorize the aforementioned [ ] [ ] [ ]
proxies in their discretion to vote upon such
other business as may properly come before the
Annual Meeting and any adjournments thereof.
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below. When a proxy card is properly executed
and returned, the Shares represented thereby will be voted in favor of the
election for each of the nominees, unless authority to vote for any such
nominee is specifically withheld. There will be no cumulative voting for the
election of Directors. If any nominee is unable to serve or will not serve (an
event which is not anticipated), then the person acting pursuant to the
authority granted under the proxy will cast votes for the remaining nominees
and, unless the Board of Directors takes action to reduce the number of
Directors, for such other person(s) as he or she may select in place of such
nominees.
SIGNATURE _______________________________________________________ DATE _________
SIGNATURE (if held jointly) _____________________________________ DATE _________
NOTE: Please sign exactly as name appears herein. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. When signing for
corporation, please sign full corporate name by an authorized officer. When
signing for a partnership, please sign partnership name by an authorized
person. If shares are held in more than one capacity, this proxy shall be
deemed valid for all shares held in all capacities.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
INCOME OPPORTUNITY REALTY INVESTORS, INC.
The undersigned hereby appoints THOMAS A. HOLLAND and ROBERT A. WALDMAN,
and each of them, Proxies, with full power of substitution in each of them, in
the name, place and stead of the undersigned, to be at the Annual Meeting of
Stockholders of INCOME OPPORTUNITY REALTY INVESTORS, INC., to be held on
Tuesday, April 22, 1997, at 9:00 a.m., or at any adjournments thereof,
according to the number of votes that the undersigned would be entitled to vote
if personally present, upon the following matters:
THE BOARD OF DIRECTORS OF INCOME OPPORTUNITY REALTY INVESTORS, INC.
RECOMMENDS A VOTE FOR ALL FOUR NOMINEES AND FOR THE RENEWAL OF THE ADVISORY
AGREEMENT.
YOUR PROXY IS IMPORTANT. PLEASE INDICATE YOUR SUPPORT FOR THE BOARD OF
DIRECTORS BY MARKING THE BOXES FOR ELECTION OF DIRECTORS AND FOR THE RENEWAL OF
THE ADVISORY AGREEMENT. PLEASE SIGN, DATE AND MAIL THIS CARD TODAY IN THE
ENCLOSED ENVELOPE. IF NOT OTHERWISE MARKED ABOVE, YOUR PROXY WILL BE VOTED FOR
THE ELECTION OF ALL NOMINEES AND FOR THE RENEWAL OF THE ADVISORY AGREEMENT.
THIS PROXY REVOKES ALL PREVIOUS PROXIES.
(continued and to be signed and dated on the other side)
