<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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] 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.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
INCOME OPPORTUNITY REALTY INVESTORS, INC.
DALLAS, TEXAS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 12, 1999
The 1999 Annual Meeting of Stockholders of Income Opportunity Realty
Investors, Inc. will be held on Tuesday, October 12, 1999, at 9:00 a.m. at 10670
North Central Expressway, Suite 600, Dallas, Texas. The purposes of the Annual
Meeting are:
(1) to elect directors;
(2) to approve the renewal of our current advisory agreement with Basic
Capital Management, Inc.; and
(3) to transact any other business that may properly come before the
meeting.
You must be a stockholder of record at the close of business on August 23,
1999, to vote at the Annual Meeting.
Whether you plan to attend or not, please sign, date, and return the
enclosed proxy card in the envelope provided. You may also attend and vote at
the Annual Meeting.
Dated: August 27, 1999
By Order of the Board of Directors
/s/ ROBERT A. WALDMAN
Robert A. Waldman
Secretary
<PAGE> 3
INCOME OPPORTUNITY REALTY INVESTORS, INC.
DALLAS, TEXAS
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 12, 1999
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 1999 Annual Meeting of Stockholders (the
"Annual Meeting") for a vote upon (1) the election of seven directors, (2) the
renewal of the Company's current advisory agreement (the "Advisory Agreement")
with Basic Capital Management, Inc. ("BCM" or the "Advisor"), and (3) the
transaction of any 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,
October 12, 1999, at 10670 North Central Expressway, Suite 600, Dallas, Texas.
The Company's financial statements for the year ended December 31, 1998 were
audited by BDO Seidman, LLP. A representative from BDO Seidman is expected to be
present at the Annual Meeting to respond to appropriate questions, and the
representative will have an opportunity to make a statement if such
representative desires to do so. This Proxy Statement and the form of proxy are
first being mailed to stockholders on or about August 27, 1999.
The Annual Report for the year ended December 31, 1998, was previously
mailed to all stockholders under separate cover.
STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding shares of the Company's
common stock (the "Common Stock") at the close of business on Monday, August 23,
1999 (the "Record Date"), are entitled to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on August 23, 1999, there were
1,526,819 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 on the proxy. As to the election of the seven directors
(Proposal One), stockholders may choose to vote for all of the nominees or
withhold authority for voting for any one or all of the nominees. As to the
renewal of the Advisory Agreement with BCM (Proposal Two), stockholders may
choose to vote for, against or abstain from voting on the proposal.
In the absence of other instructions, the shares represented by a properly
executed and submitted proxy will be voted in favor of each of the 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 the proxy
in accordance with their judgment on such matters.
EFFECTS OF AND REASONS FOR PROPOSAL TWO
In considering Proposal Two for the renewal of the 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 purchasing, selling, leasing and financing real estate and
related investments.
BCM has been providing advisory services to the Company since March 1989.
The Advisory Agreement was executed effective October 15, 1998. The Articles of
Incorporation of the Company do not require stockholder approval of the Advisory
Agreement or the renewal of the Advisory Agreement. However, the
1
<PAGE> 4
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 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 August 23, 1999, management and affiliates held 930,128 shares
representing approximately 60.9% of the shares outstanding. Such parties intend
to vote all of such shares for the election of directors and for the renewal of
the Advisory Agreement.
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
Any proposal intended to be presented by a stockholder at the 2000 Annual
Meeting of Stockholders of the Company must be received at the principal office
of the Company not later than May 31, 2000, 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.
PROPOSAL ONE:
ELECTION OF DIRECTORS
The following persons have been nominated to serve as directors of the
Company: Ted P. Stokely, Richard W. Douglas, Larry E. Harley, R. Douglas
Leonhard, Murray Shaw, Martin L. White and Edward G. Zampa.
Each of the nominees is currently a director of the Company. Each of the
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 proxy
holder will cast votes for such other person(s) as he or she may select in place
of such nominee(s).
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The nominees for directors are listed below, together with their age, terms
of service, all positions and offices with the Company or the Company's advisor,
BCM, other principal occupations, 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
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<S> <C> <C>
TED P. STOKELY Director (Independent)(since April 1990) and Chairman of the 65
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) of Eldercare Housing
Foundation ("Eldercare"), a nonprofit corporation; President (April 1992 to April 1994) of PSA
Group; 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
(April 1990 to August 1994) of National Income Realty Trust ("NIRT").
RICHARD W. DOUGLAS Director (Independent) (since January 1998). 52
Executive Vice President (since February 1999) of the Staubach Company; President (1991 to
1999) of Dallas Chamber of Commerce; President (1988 to 1991) of North Texas Commission;
President (1978 to 1981) of Las Colinas Corporation and Southland Investment Properties, both
affiliates of Southland Financial Corporation; Trustee (since January 1998) of CMET; and
Director (since January 1998) of TCI.
LARRY E. HARLEY Director (Independent) (since January 1998). 58
President (1993 to 1997) and Executive Vice President (1992 to 1993) of U.S. Operations,
Executive Vice President (1989 to 1992) and Senior Vice President (1986 to 1989) of
Distribution Operations, Director of Marketing (1984 to 1986), and Manager of North Central
Distribution Center (1974 to 1984) of Mary Kay Cosmetics; Trustee (since January 1998) of CMET;
and Director (since January 1998) of TCI.
R. DOUGLAS LEONHARD Director (Independent) (since January 1998). 63
Director (since November 1998) of OpTel, Inc.; Senior Vice President (1986 to 1997) of
LaCantera Development Company, a wholly-owned subsidiary of USAA; Senior Vice President (1980
to 1985) of the Woodlands Development Corporation; Vice President and Houston Projects Manager
(1973 to 1979) of Friendswood Development Company; Manager in various capacities (1960 to 1973)
of Exxon Corp.; Trustee (since January 1998) of CMET; and Director (since January 1998) of TCI.
MURRAY SHAW Director (Independent) (since February 1998). 67
Chairman of the Board of Regents (since 1997) of Stephen F. Austin University; Vice President
(1967 to 1996) of Tracor, Inc.; Trustee (since February 1998) of CMET; and Director (since
February 1998) of TCI.
MARTIN L. WHITE Director (Independent) (since January 1995). 59
Chief Executive Officer (since 1995) of Builders Emporium, Inc.; 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.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
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<S> <C> <C>
EDWARD G. ZAMPA Director (Independent) (since January 1995) 64
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
THE NOMINEES NAMED ABOVE.
BOARD COMMITTEES
The Company's Board of Directors held six meetings in 1998. For 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,
Leonhard and White. The Audit Committee met twice during 1998.
The Company's Board of Directors 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 did not meet in 1998.
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 did not meet in 1998.
The Company's Board of Directors does not have Nominating or Compensation
Committees.
OLIVE LITIGATION
In February 1990, the Company together with CMET, TCI and NIRT, 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 (the "Olive Litigation").
On April 23, 1990, the court granted final approval of the terms of the
settlement.
On January 27, 1997, the parties entered into an amendment to the
settlement, effective January 9, 1997 (the "Amendment"). The Amendment provided
for the settlement of additional matters raised by plaintiffs' counsel in 1997.
The court issued an order approving the Amendment on July 3, 1997.
The Amendment provided for the addition of four new unaffiliated members to
the Company's Board of Directors and set 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.
Under the Amendment, all shares of the Company owned by any affiliates were
required to 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
required that, until April 28, 1999, all shares of the Company owned by any
affiliates in excess of forty percent (40%) of the Company's outstanding shares
were to be voted in proportion to the votes cast by all non-affiliated
stockholders of the Company.
The provisions of the settlement and the Amendment terminated on April 28,
1999.
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EXECUTIVE OFFICERS
The following persons currently serve as executive officers of the Company:
Karl L. Blaha, Executive Vice President -- Commercial Asset Management; Bruce A.
Endendyk, Executive Vice President; Thomas A. Holland, Executive Vice President
and Chief Financial Officer; and Steven K. Johnson, Executive Vice
President -- Residential Asset Management. 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> <C>
KARL L. BLAHA: Executive Vice President -- Commercial Asset Management 51
(since July 1997).
Executive Vice President -- Commercial Asset Management (since July 1997) and Executive Vice
President and Director of Commercial Management (April 1992 to August 1995) of CMET, TCI and
Syntek Asset Management, Inc. ("SAMI"); President (since August 1999), Executive Vice
President -- Commercial Asset Management (July 1997 to August 1999) and Executive Vice
President and Director of Commercial Management (April 1992 to August 1995) of BCM; Director
(since June 1996), President (since October 1993) and Executive Vice President and Director of
Commercial Management (April 1992 to October 1993) of American Realty Trust, Inc. ("ART");
Executive Vice President (October 1992 to July 1997) of Carmel Realty, Inc. ("Carmel Realty"),
a company owned by First Equity Properties, Inc. ("First Equity"), which is 50% owned by BCM;
President and Director (since 1996) of First Equity; Director (since November 1998) and
President (since August 1999) of SAMI; Director (since October 1998) and President (since July
1998) of Garden National Realty, Inc.; Director (since December 1998), President (since August
1999) and Executive Vice President -- Commercial Asset Management (January 1998 to August 1999)
of NRLP Management Corp. ("NMC"), the general partner of National Realty, L.P. ("NRLP") and
National Operating, L.P. ("NOLP") and a wholly-owned subsidiary of ART; and Executive Vice
President and Director of Commercial Management (April 1992 to February 1994) of NIRT and
Vinland Property Trust ("VPT").
BRUCE A. ENDENDYK: Executive Vice President 51
(since January 1995).
President (since January 1995) of Carmel Realty; Executive Vice President (since January 1995)
of BCM, SAMI, ART, CMET and TCI, and (since January 1998) of NMC; and Management Consultant
(November 1990 to December 1994).
THOMAS A. HOLLAND: Executive Vice President and Chief Financial Officer (since 56
August 1995); Secretary (February 1997 to June 1999) 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, TCI and
CMET; Executive Vice President and Chief Financial Officer (since January 1998) of NMC;
Secretary (February 1997 to June 1999) of TCI and CMET; and Senior Vice President and Chief
Accounting Officer (July 1990 to February 1994) of NIRT and VPT.
STEVEN K. JOHNSON: Executive Vice President -- Residential Asset Manager 42
(since August 1998).
Executive Vice President -- Residential Asset Management (since August 1998) and Vice President
(August 1990 to August 1991) of BCM, SAMI, ART, CMET and TCI; Executive Vice President --
Residential Asset Management (since August 1998) of NMC; Chief Operating Officer (January 1993
to August 1998) of Garden Capital, Inc.; and Executive Vice President (December 1994 to August
1998) of Garden Capital Management, Inc.
</TABLE>
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OFFICERS
Although not executive officers of the Company, the following persons
currently serve as officers of the Company: Robert A. Waldman, Senior Vice
President, Secretary 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> <C>
ROBERT A. WALDMAN: Senior Vice President and General Counsel (since January 47
1995); Vice President (December 1990 to January 1995) and
Secretary (December 1993 to February 1997 and since June
1999).
Senior Vice President and General Counsel (since January 1995), Vice President (December 1990
to January 1995) and Secretary (December 1993 to February 1997 and since June 1999) of TCI and
CMET; 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 Senior Vice President, Secretary and General
Counsel (since January 1998) of NMC.
DREW D. POTERA: Vice President (since December 1996) and Treasurer 40
(since December 1990).
Vice President (since December 1996) and Treasurer (since December 1990) of TCI and CMET; Vice
President (since December 1996) and Assistant Treasurer (December 1990 to August 1991) and
Treasurer (since August 1991) of ART; Vice President, Treasurer and Securities Manager (since
July 1990) of BCM; Vice President and Treasurer (since February 1992) of SAMI; Vice President
and Treasurer (since January 1998) of NMC; and Treasurer (December 1990 to February 1994) of
NIRT and VPT.
</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 10 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 1998. All of these filing requirements were satisfied by
its directors and executive officers and 10 percent holders. In making these
statements, the Company has relied on the written representations of its
incumbent directors and executive officers and its 10 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 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 and
investment policy decisions.
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BCM has served as the Company's Advisor since March 1989. BCM is a
corporation of which Messrs. Blaha, Endendyk, Holland and Johnson serve as
executive officers. BCM is a company owned by a trust for the benefit of the
children of Gene E. Phillips. Mr. Phillips served as a director of BCM until
December 22, 1989, and as Chief Executive Officer of BCM until September 1,
1992. 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.
At the Company's Annual Meeting of Stockholders held on December 29, 1998,
the Company's stockholders approved the renewal of the Advisory Agreement with
BCM.
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 (1) First Equity
Properties, Inc. ("First Equity"), which is 50% owned by BCM, (2) Gene E.
Phillips and, (3) a trust for the benefit of the children of Mr. Phillips.
Carmel, Ltd. subcontracts the property-level management and leasing of 10 office
buildings and the commercial properties owned by a real estate partnership in
which the Company and IORI are partners to Carmel Realty, which is a company
owned by First Equity. Carmel Realty is entitled to receive property and
construction management fees and leasing commissions in accordance with the
terms of its property-level management agreement with Carmel, Ltd.
REAL ESTATE BROKERAGE
Since December 1, 1992, Carmel Realty has been engaged, on a non-exclusive
basis, to provide brokerage services for the Company. Carmel Realty is entitled
to receive a real estate brokerage 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: (1) maximum fee of 5% on the first $2.0 million
of any purchase or sale transaction of which no more than 4% would be paid to
Carmel Realty or affiliates; (2) 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; (3) 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 (4) 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 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 (1) review the business plan of the Company to determine that it is in
the best interest of the stockholders, (2) review the advisory contract, (3)
supervise the performance of the Company's advisor and review the reasonableness
of the compensation paid to the advisor in terms of the nature and quality of
services performed, (4) review the reasonableness of the total fees and expenses
of the Company and (5) select, when necessary, a qualified independent real
estate appraiser to appraise properties acquired.
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<PAGE> 10
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 receives $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 1998, $112,000 was paid to the independent directors in total
directors' fees for all services, including the annual fee for service, during
the period January 1, 1998, through December 31, 1998, and 1998 special service
fees as follows: Richard W. Douglas, $15,000; Larry E. Harley, $15,000; R.
Douglas Leonhard, $15,000; Murray Shaw, $13,750; Ted P. Stokely, $16,500; Edward
L. Tixier, $3,750; Martin L. White, $15,000; and Edward G. Zampa, $18,000.
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, 1993 in the Company's
shares of Common Stock and in each of the indices and further assumes the
reinvestment of all distributions. Past performance is not necessarily an
indicator of future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
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1993 1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C> <C>
The Company 100.00 134.28 138.72 161.67 174.49 106.99
- ---------------------------------------------------------------------------------
S&P 500 Index 100.00 101.31 139.22 171.19 228.29 293.54
- ---------------------------------------------------------------------------------
REIT Index 100.00 104.00 127.91 165.45 183.24 120.88
- ---------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
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 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 August 23, 1999.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNER CLASS (1)
------------------------------------ ---------- ----------
<S> <C> <C>
American Realty Trust, Inc. ................................ 464,663 30.4%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Transcontinental Realty..................................... 345,728 22.6%
Investors, Inc.
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Basic Capital Management, Inc............................... 118,737 7.8%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
</TABLE>
- ---------------
(1) Percentage is based upon 1,526,819 shares of Common Stock outstanding at
August 23, 1999.
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 August 23, 1999.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNER CLASS (1)
------------------------ ---------- ----------
<S> <C> <C>
All Directors and Executive
Officers as a group (11 individuals)...................... 930,128(2)(3) 60.9%
</TABLE>
- ---------------
(1) Percentages are based upon 1,526,819 shares of Common Stock outstanding at
August 23, 1999.
(2) Includes 345,728 shares owned by TCI of which the directors may be deemed to
be beneficial owners by virtue of their positions as directors of TCI and
464,663 shares owned by ART and 118,737 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 or ART and BCM.
The directors and executive officers of the Company disclaim beneficial
ownership of such shares.
(3) Includes 1,000 shares owned by Richard W. Douglas.
On December 5, 1989, the Board of Directors approved a share repurchase
program. The Board of Directors authorized the repurchase of a total of 200,000
shares of the Company's Common Stock pursuant to such program. Through December
31, 1998, a total of 198,904 shares had been repurchased at a total cost to the
Company of $1.8 million. No shares were repurchased in 1998.
CERTAIN BUSINESS RELATIONSHIPS
In February 1989, the Board of Directors voted to retain BCM as the
Company's advisor. BCM is a corporation of which Messrs. Blaha, Endendyk,
Holland and Johnson serve as executive officers. Mr. Phillips served as a
director of BCM until December 22, 1989 and as Chief Executive Officer of BCM
until
9
<PAGE> 12
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 BCM's performance of advisory
services to the Company.
Since February 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 (1) First Equity, (2) Gene E. Phillips and (3) a
trust for the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts
the property-level management and leasing of 10 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 First Equity.
Prior to December 1, 1992, affiliates of BCM provided brokerage services
for the Company and received brokerage commissions in accordance with the
advisory agreement. Since December 1, 1992, the Company has engaged, on a
non-exclusive basis, Carmel Realty to perform brokerage services. Carmel Realty
is a company owned by First Equity.
The directors and officers of the Company also serve as trustees 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. BCM also serves as advisor to ART. Messrs.
Blaha, Endendyk, Holland and Johnson are executive officers of ART and NMC. NMC,
a wholly-owned subsidiary of ART, is the general partner of NRLP and NOLP. BCM
performs certain administrative functions for NRLP and NOLP on a
cost-reimbursement basis.
From April 1992 to December 31, 1992, Mr. Stokely was employed as a paid
Consultant and since January 1, 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 Syntek West,
Inc. of which Mr. Phillips is the sole shareholder. Eldercare filed for
bankruptcy protection in May 1995 and was reorganized in bankruptcy in February
1996, and has since paid all debts as directed by the court.
RELATED PARTY TRANSACTIONS
Historically the Company has engaged in and may continue to engage in
business transactions, including real estate partnerships, with related parties.
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 three properties and in Nakash Income Associates which holds a mortgage
note receivable.
In 1998, the Company paid BCM and its affiliates $329,000 in advisory fees,
$80,000 in mortgage brokerage and equity refinancing fees, and $634,000 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 of
$228,000 in 1998.
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 (1) any
director, officer or employee of the Company, (2) any director, officer or
employee of the advisor, (3) the advisor or (4) 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.
10
<PAGE> 13
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 renewal of the Advisory
Agreement.
If stockholders approve this Proposal Two, the Advisory Agreement will have
a term extending through the next Annual Meeting, 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 October 15, 1998.
Under the Advisory Agreement, the Advisor is required to formulate and
submit annually for approval by the Board of Directors a budget and business
plan containing a 12-month forecast of operations and cash flow, a general plan
for asset sales and purchases, borrowing activity, and other investments. The
Advisor is required to report quarterly to the Board of Directors on the
Company's performance against the business plan. In addition, all transactions
shall require prior approval by the 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 Board of Directors.
The Advisory Agreement also requires prior approval of the 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,
contains a broad standard governing the Advisor's liability for losses by the
Company, and contains guidelines for the Advisor's allocation of investment
opportunities as among itself, to Company and other entities it advises.
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 (total assets less allowance for amortization, depreciation or
depletion and valuation reserves) and an annual net income fee equal to 7.5% 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: (1) 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), (2) capital improvements made to such
assets during the period owned, and (3) 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 net
investment including capital improvements, calculated over the holding period
before depreciation and inclusive of operating income and sales consideration
and (b) the aggregate net operating income from all real estate owned 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 equal to the lesser of (1) up to 1%
of the cost of acquisition, inclusive of commissions, if any, paid to
nonaffiliated brokers or (2) 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; 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.
11
<PAGE> 14
The Advisory Agreement requires BCM or any affiliate of BCM to pay to 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 (1) 2% of the amount of the loan commitment or
(2) 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 purchase of any
existing mortgage loan equal to the lesser of (1) 1% of the amount of the loan
purchased or (2) 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 of any mortgage loan by the Company.
Under the Advisory Agreement, BCM or an affiliate of BCM is also to receive
a mortgage brokerage and equity refinancing fee for obtaining loans or
refinancing on properties equal to the lesser of (1) 1% of the amount of the
loan or the amount refinanced or (2) 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 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 if the Operating Expenses of the Company (as
defined in the 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 the limitation was to require
that BCM refund $336,000 of the 1998 annual advisory fee.
Additionally, if management were to request that BCM render services other
than those required by the Advisory Agreement, BCM or an affiliate of BCM
separately compensated for such additional services on terms to be agreed upon
from time to time. The Company has hired Carmel Realty Services, Ltd. ("Carmel,
Ltd."), an affiliate of BCM, to provide management for the Company's properties
and the Company has engaged, on a non-exclusive basis, Carmel Realty, Inc.
("Carmel Realty"), also an affiliate of BCM, to perform brokerage services for
the Company.
BCM may only assign the Advisory Agreement with the prior consent of the
Company.
The directors and principal officers of BCM are set forth below.
<TABLE>
<S> <C>
Mickey N. Phillips............ Director
Ryan T. Phillips.............. Director
Karl L. Blaha................. President
Bruce A. Endendyk............. Executive Vice President
Thomas A. Holland............. Executive Vice President and Chief Financial Officer
Steven K. Johnson............. Executive Vice President -- Residential Asset
Management
Cooper B. Stuart.............. Executive Vice President
Clifford C. Towns, Jr......... Executive Vice President -- Finance
Dan S. Allred................. Senior Vice President -- Land Development
James D. Canon, III........... Senior Vice President -- Portfolio Management
Robert A. Waldman............. Senior Vice President, Secretary and General Counsel
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,
12
<PAGE> 15
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 1999
The Board of Directors has selected BDO Seidman, LLP to serve as the
auditors for the Company for the 1999 fiscal year. The Company's auditors for
the 1998 fiscal year were BDO Seidman, LLP. A representative of BDO Seidman, LLP
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
renewal 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, 1998, 1997 and 1996, are contained in the 1998
Annual Report to Stockholders. However, such report and the financial statements
contained therein are not to be considered part of this solicitation.
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 Georgeson Shareholder Communications ("GSC")
to assist in the solicitation of proxies. An agreement with GSC provides that it
will distribute materials relating to the solicitation of proxies, contact
stockholders to confirm receipt of materials and answer questions relating
thereto. GSC 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.
13
<PAGE> 16
COPIES OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998, 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
/s/ THOMAS A. HOLLAND
Thomas A. Holland
Executive Vice President
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THE SEVEN
NOMINEES AND THAT YOU VOTE FOR THE APPROVAL OF 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.
14
<PAGE> 17
APPENDIX A
ADVISORY AGREEMENT
BETWEEN
INCOME OPPORTUNITY REALTY INVESTORS, INC.
AND
BASIC CAPITAL MANAGEMENT, INC.
THIS AGREEMENT dated as of October 15, 1998, between Income Opportunity
Realty Investors, Inc., a Nevada corporation (the "Company"), and Basic Capital
Management, Inc. (the "Advisor"), a Nevada corporation.
W I T N E S S E T H:
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 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;
A-1
<PAGE> 18
(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 public accountants, and such other information with regard
to the Company's affairs as the Advisor may from time to time reasonably
request.
A-2
<PAGE> 19
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.
(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.
A-3
<PAGE> 20
(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
(iii) the Advisor's overhead directly related to performance of its
functions under this Agreement.
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(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
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the period owned by the Company, and (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
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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;
(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 and, without limiting the generality of the foregoing, it
is specifically agreed that the following expenses of the Company shall be paid
by the Company and shall not be paid by the Advisor:
(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;
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(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;
(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.
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<PAGE> 25
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 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.
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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 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.
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<PAGE> 27
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
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<PAGE> 28
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 12, 1999
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, October 12, 1999, 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:
1. ELECTION OF DIRECTORS:
Ted P. Stokely
Richard W. Douglas
Larry E. Harley
R. Douglas Leonhard
Murray Shaw
Martin L. White
Edward G. Zampa
FOR all nominees WITHHOLD AUTHORITY TO
(except as marked to the vote for all nominees
contrary below) [ ] listed below [ ]
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 persons(s) as he or she may
select in place of such nominees.
-----------------------------------------------------
2. APPROVAL OF THE RENEWAL OF THE CURRENT ADVISORY AGREEMENT BETWEEN THE
COMPANY AND BASIC CAPITAL MANAGEMENT, INC.:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. OTHER BUSINESS:
I AUTHORIZE the aforementioned
proxies in their discretion
FOR [ ] AGAINST [ ] ABSTAIN [ ]
to vote upon such other business as may properly come before the Annual
Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS OF INCOME OPPORTUNITY REALTY INVESTORS, INC. RECOMMENDS A
VOTE FOR THE SEVEN NOMINEES AND FOR THE APPROVAL OF THE RENEWAL OF THE CURRENT
ADVISORY AGREEMENT.
YOUR PROXY IS IMPORTANT. PLEASE INDICATE YOUR SUPPORT FOR THE BOARD OF DIRECTORS
BY MARKING THE BOXES FOR ELECTION OF THE SEVEN DIRECTORS AND FOR THE APPROVAL OF
THE RENEWAL OF THE CURRENT 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 THE SEVEN NOMINEES AND FOR THE APPROVAL OF THE
RENEWAL OF THE CURRENT ADVISORY AGREEMENT. THIS PROXY REVOKES ALL PREVIOUS
PROXIES.
(continued and to be signed and dated on the other side)
<PAGE> 29
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY
[reverse]
(continued from other side)
Dated: , 1999
---------------
x
------------------------------
Signature
x
------------------------------
Signature (if held jointly)
x
------------------------------
Title
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.
