UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange of 1934 (Amendment No. )
Filed
by the Registrant ☒
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)). |
| ☒ | Definitive
Proxy Statement. |
| ☐ | Definitive
Additional Materials. |
| ☐ | Soliciting
Material Pursuant to Section 240.14a-12. |
INCOME
OPPORTUNITY REALTY INVESTORS, INC.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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of each class of securities to which transaction applies: |
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| 2) | Aggregate
number of securities to which transaction applies: |
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| 3) | Per
unit price or other underlying value of transaction computed pursuant to Exchange Act
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was determined): |
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maximum aggregate value of transaction: |
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paid previously with preliminary materials. |
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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. |
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INCOME
OPPORTUNITY REALTY INVESTORS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 7, 2022
Income
Opportunity Realty Investors, Inc. will hold its Annual Meeting of Stockholders on Wednesday, December 7, 2022, at 11:00 a.m.,
local Dallas, Texas time, at 1603 LBJ Freeway, Suite 800, Dallas, Texas 75234. The purpose of the meeting is to consider and act
upon:
● Election
of a Board of four directors to serve until the next Annual Meeting of Stockholders and until their successors are duly
elected and qualified.
● Ratification
of the selection of Swalm & Associates, P.C. as the independent registered public accounting firm.
● Such
other matters as may properly be presented at the Annual Meeting.
Only
Stockholders of record at the close of business on Thursday, November 3, 2022, will be entitled to vote at the meeting.
Your
vote is important. Whether or not you plan to attend the meeting, please complete, sign, date and return the enclosed proxy card
in the accompanying envelope provided. Your completed proxy will not prevent you from attending the meeting and voting in person,
should you choose.
Dated:
November 7, 2022
| |
By order
of the Board of Directors, |
| |
|
| |
Louis J. Corna |
| |
Executive Vice President,
General Counsel, Tax |
| |
Counsel and Secretary |
This
Proxy Statement is available at www.incomeopp-realty.com.
Among
other things, the Proxy Statement contains information regarding:
●
The date, time and location of the meeting
●
A list of the matters being submitted to Stockholders
●
Information concerning voting in person
INCOME
OPPORTUNITY REALTY INVESTORS, INC.
PROXY
STATEMENT
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD DECEMBER 7, 2022
The
Board of Directors of Income Opportunity Realty Investors, Inc. (the “Company”or “we” or “us”)
is soliciting proxies to be used at the Annual Meeting of Stockholders following the fiscal year ended December 31, 2021 (the
“Annual Meeting”). Distribution of this Proxy Statement and a Proxy Form is scheduled to begin on November 10, 2022.
The mailing address of the Company’s principal executive offices is 1603 LBJ Freeway, Suite 800, Dallas, Texas 75234.
About
the Meeting
Who
Can Vote
Record
holders of Common Stock of the Company at the close of business on Thursday, November 3, 2022 (the “Record Date”),
may vote at the Annual Meeting. On that date, 4,168,214 shares of Common Stock were outstanding. Each share is entitled to cast
one vote.
How
Can You Vote
If
you return your signed proxy before the Annual Meeting, we will vote your shares as you direct. You can specify whether your shares
should be voted for all, some or none of the nominees for director. You can also specify whether you approve, disapprove or abstain
from the other proposal to ratify the selection of auditors.
If
a proxy is executed and returned but no instructions are given, the shares will be voted according to the recommendations of the
Board of Directors. The Board of Directors recommends a vote FOR Proposals 1 and 2.
Revocation
of Proxies
You
may revoke your proxy at any time before it is exercised by (a) delivering a written notice of revocation to the Corporate Secretary,
(b) delivering another proxy that is dated later than the original proxy, or (c) casting your vote in person at the Annual Meeting.
Your last vote will be the vote that is counted.
Vote
Required
The
holders of a majority of the shares entitled to vote who are either present in person or represented by a proxy at the Annual
Meeting will constitute a quorum for the transaction of business at the Annual Meeting. As of November 3, 2022, there were 4,168,214
shares of Common Stock issued and outstanding. The presence, in person or by proxy, of stockholders entitled to cast at least
2,084,108 votes constitutes a quorum for adopting the proposals at the Annual Meeting. If you have properly signed and returned
your proxy card by mail, you will be considered part of the quorum, and the persons named on the proxy card will vote your shares
as you have instructed. If the broker holding your shares in “street” name
indicates to us on a proxy card that the
broker lacks discretionary authority to vote your shares, we will not consider your shares as present or entitled to vote for
any purpose.
A
plurality of the votes cast is required for the election of directors. This means that the director nominee with the most votes
for a particular slot is elected to that slot. A proxy that has properly withheld authority with respect to the election of one
or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum.
For
the other proposals, the affirmative vote of the holders of a majority of the shares represented in person or by proxy entitled
to vote on the proposal will be required for approval. An abstention with respect to such proposal will not be voted, although
it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a
negative vote.
As
of the Record Date, one affiliate held 3,386,570 shares representing approximately 81.12% of the shares outstanding. The affiliate
has advised the Company that it currently intends to vote all of the shares it holds in favor of the approval of proposals 1 and
2.
If
you received multiple proxy cards, this indicates that your shares are held in more than one account, such as two brokerage accounts,
and are registered in different names. You should vote each proxy card to ensure that all your shares are voted.
Other
Matters to be Acted Upon at the Annual Meeting
We
do not know of any other matters to be validly presented or acted upon at the Annual Meeting. Under our Bylaws, no business besides
that stated in the Annual Meeting Notice may be transacted at any meeting of stockholders. If any other matter is presented at
the Annual Meeting on which a vote may be properly taken, the shares represented by proxies will be voted in accordance with the
judgment of the person or persons voting those shares.
Expenses
of Solicitation
The
Company is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing
these proxy materials and soliciting votes. Some of our directors, officers and employees may solicit proxies personally, without
any additional compensation, by telephone or mail. Proxy materials will also be furnished without cost to brokers and other nominees
to forward to the beneficial owners of shares held in their names.
Available
Information
Our
internet website address is www.incomeopp-realty.com. We make available free of charge through our website our most
recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports
as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission
(the “SEC”). In addition, we have posted the Charters of our Audit Committee, Compensation Committee, and Governance
and Nominating Committee, as well as our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Corporate
Governance Guidelines and Corporate Governance Guidelines on Director Independence, all under separate headings. These charters
and principles are not incorporated in this instrument by reference. We will also provide a copy of these documents free of charge
to stockholders upon written request. The Company issues Annual Reports containing audited financial statements to its common
stockholders.
Multiple
Stockholders Sharing the Same Address
SEC
rules allow for the delivery of a single copy of an annual report and proxy statement to any household at which two or more stockholders
reside, if it is believed the stockholders are members of the same family. Duplicate account mailings will be eliminated by allowing
stockholders to consent to such elimination, or through implied consent if a stockholder does not request continuation of duplicate
mailings. Depending upon the practices of your broker, bank or other nominee, you may need to contact them directly to continue
duplicate mailings to your household. If you wish to revoke your consent to house holding, you must contact your broker, bank
or other nominee.
If
you hold shares of common stock in your own name as a holder of record, house holding will not apply to your shares.
If
you wish to request extra copies free of charge of any annual report, proxy statement or information statement, please send your
request to Income Opportunity Realty Investors, Inc., Attention: Investor Relations, 1603 LBJ Freeway, Suite 800, Dallas, Texas
75234 or call (800) 400-6407.
Questions
You
may call our Investor Relations Department at 800-400-6407 if you have any questions.
PLEASE
VOTE - YOUR VOTE IS IMPORTANT
Corporate
Governance and Board Matters
The
affairs of the Company are managed by the Board of Directors. The Directors are elected at the annual meeting of stockholders
each year or appointed by the incumbent Board of Directors and serve until the next annual meeting of stockholders or until a
successor has been elected or approved.
During
the past several years, a number of changes occurred in the membership of the Board of Directors and the controlling stock ownership
of the Company. On July 17, 2009, Transcontinental Realty Investors, Inc., a Nevada corporation (“TCI”) which has
its Common Stock listed and traded on the New York Stock Exchange (“NYSE”) acquired from Syntek West, Inc., a Nevada
corporation (“SWI”) in a privately negotiated purchase, 2,518,934 Shares of Common Stock of the Company as a single
block, which Shares acquired then constituted approximately 60.4% of the reported outstanding Shares of Common Stock of the Company.
TCI had owned an additional 1,037,184 Shares of Common Stock of the Company (approximately 25% of the outstanding) for a number
of years. The acquisition by TCI of the additional shares brought its then aggregate ownership to approximately 81% of the shares
of Common Stock of the Company outstanding and resulted in a Change in Control of the Company. On February 8, 2011, the Board
selected Henry A. Butler as director and as Vice President of the Company. Effective the close of business on October 31, 2011,
Martha C. Stephens (a director since February 23, 2007, and chairperson of the Board since May 7, 2009) resigned. On October 25,
2011, the Board of Directors elected Sharon Hunt as a director; she resigned due to health reasons on May 3, 2016, and passed
away on June 5, 2016. On June 2, 2016, the Board of Directors elected Raymond D. Roberts, Sr. as a director to replace Ms. Hunt.
Current
members of the Board
The
members of the Board of Directors on the date of this proxy statement, and the committees of the Board on which they serve, are
identified below:
Director |
Audit
Committee |
Compensation
Committee |
Governance
and
Nominating
Committee |
| |
|
|
|
| Henry
A. Butler |
|
|
|
| |
|
|
|
| Robert
A. Jakuszewski |
✓ |
✓ |
Chair |
| |
|
|
|
| Ted
R. Munselle |
Chair |
✓ |
✓ |
| |
|
|
|
| Raymond
D. Roberts, Sr |
✓ |
Chair |
✓ |
Role
of the Board’s Committees
The
Board of Directors has standing Audit, Compensation and Governance and Nominating Committees.
Audit
Committee. The functions of the Audit Committee are described below under the heading “Report of the Audit Committee.”
The Audit Committee is an “audit committee” for purposes of Section 3(a)(58) of the Securities Exchange Act of 1934,
as amended. The charter of the Audit Committee was adopted on February 19, 2004, and is available on the Company’s Investor
Relations website (www.incomeopp-realty.com). The Audit Committee was initially formed on February 20, 2004. All
of the members of the Audit Committee are independent within the meaning of the SEC regulations, the listing
standards of the
NYSE American and the Company’s Corporate Governance Guidelines. Mr. Munselle, a member and Chair of the Audit Committee,
is qualified as an “audit committee financial expert” within the meaning of SEC regulations and the Board has determined
that he has accounting and related financial management expertise within the meaning of the listing standards of the NYSE American.
All of the members of the Audit Committee meet the independence and experience requirements of the listing standards of the NYSE
American. The Audit Committee met five times in 2021.
Governance
and Nominating Committee. The Governance and Nominating Committee is responsible for developing and implementing policies
and practices relating to corporate governance, including reviewing and monitoring implementation of the Company’s Corporate
Governance Guidelines. In addition, the Governance and Nominating Committee develops and reviews background information on
candidates for the Board and makes recommendations to the Board regarding such candidates. The Governance and Nominating Committee
also prepares and supervises the Board’s annual review of director independence and the Board’s performance of self-evaluation.
The charter of the Governance and Nominating Committee was adopted on March 22, 2004, and is available on the Company’s
Investor Relations website (www.incomeopp-realty.com). The Governance and Nominating Committee was initially formed
on March 22, 2004. All of the members of the Governance and Nominating Committee are independent within the meaning of the listing
standards of the NYSE American and the Company's Corporate Governance Guidelines. The Governance and Nominating Committee
met two times in 2021.
Compensation
Committee. The Compensation Committee is responsible for overseeing the policies of the Company relating to compensation
to be paid by the Company to the Company’s principal executive officer and any other officers designated by the Board and
make recommendations to the Board with respect to such policies, produce necessary reports on executive compensation for inclusion
in the Company’s proxy statement in accordance with applicable rules and regulations and to monitor the development and
implementation of succession plans for the principal executive officer and other key executives and make recommendations to the
Board with respect to such plans. The charter of the Compensation Committee was adopted on March 22, 2004, and is available on
the Company’s Investor Relations website (www.incomeopp-realty.com). The Compensation Committee was initially
formed on March 22, 2004. All of the members of the Compensation Committee are independent within the meaning of the listing standards
of the NYSE American and the Company’s Corporate Governance Guidelines. The Compensation Committee is to be comprised
of at least three directors who are independent of management and the Company. The Compensation Committee met two times in 2021.
Presiding
Director
In
March 2004, the Board created a new position of Presiding Director, whose primary responsibility is to preside over periodic executive
sessions of the Board in which management directors and other members of management do not participate. The Presiding Director
also advises the Chairman of the Board and, as appropriate, Committee chairs with respect to agendas and information needs relating
to Board and Committee meetings, provides advice with respect to the selection of Committee chairs and performs other duties that
the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities.
In
December 2021, the nonmanagement members of the Board designated Ted R. Munselle to serve in this position until the Company’s
Annual Meeting of Stockholders, to be held following the fiscal year ended December 31, 2021 (i.e., this meeting).
Selection
of Nominees for the Board
The
Governance and Nominating Committee will consider candidates for Board membership suggested by its members and other Board members,
as well as management and stockholders. The Governance and Nominating Committee may also retain a third party executive search
firm to identify candidates upon request of the Governance and Nominating Committee from time to time. A stockholder who wishes
to recommend a prospective nominee for the Board should notify the Company's Corporate Secretary or any member of the Governance
and Nominating Committee in writing with whatever supporting material the stockholder considers appropriate. The Governance and
Nominating Committee will also consider whether to nominate any person nominated by a stockholder pursuant to the provisions of
the Company's bylaws relating to stockholder nominations.
Once
the Governance and Nominating Committee has identified a prospective nominee, the Governance and Nominating Committee will make
an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination will be based
on whatever information is provided to the Governance and Nominating Committee with the recommendation of the prospective candidate,
as well as the Governance and Nominating Committee's own knowledge of the prospective candidate, which may be supplemented by
inquiries to the person making the recommendation or others. The preliminary determination will be based primarily on the need
for additional Board members to fill vacancies or expand the size of the Board and the likelihood that the prospective nominee
can satisfy the evaluation factors described below. If the Governance and Nominating Committee determines, in consultation with
the Chairman of the Board and other Board members as appropriate, that additional consideration is warranted, it may request the
third party search firm to gather additional information about the prospective nominee's background and experience and to report
its findings to the Governance and Nominating Committee. The Governance and Nominating Committee will then evaluate the prospective
nominee against the standards and qualifications set out in the Company's Corporate Governance Guidelines, including:
● the
ability of the prospective nominee to represent the interests of the stockholders of the Company;
● the
prospective nominee's standards of integrity, commitment and independence of thought and judgment;
● the
prospective nominee's ability to dedicate sufficient time, energy and, attention to the diligent performance of his or her
duties, including the prospective nominee's service on other public company boards, as specifically set out in the Company's Corporate
Governance Guidelines;
● the
extent to which the prospective nominee contributes to the range of talent, skill and expertise appropriate for the
Board;
● the
extent to which the prospective nominee helps the Board reflect the diversity of the Company's stockholders, employees,
customers, guests and communities; and
● the
willingness of the prospective nominee to meet any minimum equity interest holding guideline.
The
Governance and Nominating Committee also considers such other relevant factors as it deems appropriate, including the current
composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the
evaluations of other prospective nominees. In connection with this evaluation, the Governance and Nominating Committee determines
whether to interview
the prospective nominee, and if warranted, one or more members of the Governance and Nominating Committee,
and others as appropriate, interview prospective nominees in person or by telephone. After completing this evaluation and interview,
the Governance and Nominating Committee makes a recommendation to the full Board as to the persons who should be nominated by
the Board, and the Board determines the nominees after considering the recommendation and report of the Governance and Nominating
Committee.
The
Bylaws of the Company provide that any stockholder entitled to vote in the election of directors generally may nominate one or
more persons for election as directors at a meeting only if written notice of such stockholders’ intention to make such
nomination has been delivered personally to, or has been mailed to and received by the Secretary at the principal office of the
Company not later than 35 nor more than 60 days prior to the date of the meeting. If a stockholder has a suggestion for candidates
for election, the stockholder should follow this procedure. Each notice from a stockholder must set forth (i) the name and address
of the stockholder who intends to make the nomination and the name of the person to be nominated, (ii) the class and number of
shares of stock held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the
meeting and as of the date of such notice, (iii) a representation that the stockholder intends to appear in person or by proxy
at the meeting to nominate the person specified in the notice, (iv) a description of all arrangements or understandings between
such stockholder and each nominee and any other person (naming those persons) pursuant to which the nomination is to be made by
such stockholder, (v) such other information regarding each nominee proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules, and (vi) the consent of each nominee to serve as a director of the Company
if so elected. The chairman of the Annual Meeting may refuse to acknowledge the nomination of any person not made in compliance
with this procedure.
Determinations
of Director Independence
In
February 2004, the Board enhanced its Corporate Governance Guidelines. The Guidelines adopted by the Board meet
or exceed the new listing standards adopted during the year by the American Stock Exchange. The full text of the Guidelines
can be found in the Investor Relations section of the Company's website (www.incomeopp-realty.com). A copy may
also be obtained upon request from the Company's Corporate Secretary.
Pursuant
to the Guidelines, the Board undertook its annual review of director independence in March 2022. During this review, the
Board considered transactions and relationships between each director or any member of his or her immediate family and the Company
and its subsidiaries and affiliates, including those reported under "Certain Relationships and Related Transactions”
below. The Board also examined transactions and relationships between directors or their affiliates and members of the Company's
senior management or their affiliates. As provided in the Guidelines, the purpose of this review was to determine whether
any such relationships or transactions were inconsistent with a determination that the director is independent.
As
a result of this review, the Board affirmatively determined that Directors Henry A. Butler, Ted R. Munselle, Robert A. Jakuszewski
and Raymond D. Roberts, Sr. are each independent of the Company and its management under the standards set forth in the Corporate
Governance Guidelines.
Board
Meetings During Fiscal 2021
The
Board met five times during fiscal 2021. Each director attended 75% or more of the meetings of the Board and Committees on which
he served. Under the Company’s Corporate Governance Guidelines, each Director is expected to dedicate sufficient
time, energy and attention to ensure the diligent performance
of his or her duties, including by attending meetings of the stockholders
of the Company, the Board and Committees of which he or she is a member. In addition, the independent directors met in executive
session four times during fiscal 2021.
Directors’
Compensation
Each
nonemployee director currently receives an annual retainer of $5,000 plus reimbursement for expenses. The Chairman of the Board
does not currently receive any additional fee per year. In addition, each independent director receives an additional fee of $1,000
per day for any special services rendered to the Company outside of his or her ordinary duties as a director plus reimbursement
of expenses. Effective January 4, 2010, the Board of Directors reduced their compensation to $5,000 per annum from $15,000 and
no Audit Committee fees, with the Chairman of the Audit Committee to receive a one time annual fee of $500. The Company also reimburses
directors for travel expenses incurred in connection with attending Board, committee and stockholder meetings and for other Company/business
related expenses. Directors who are also employees of the Company or its Advisor receive no additional compensation for service
as a director.
During
2021, $20,500 was paid to the nonemployee directors in total directors’ fees for all services, including the annual fee
for service during the period from January 1, 2021, through December 31, 2021. Those fees received by directors were Robert A.
Jakuszewski ($5,000), Ted R. Munselle ($5,500), Raymond D. Roberts, Sr. ($5,000) and Henry A. Butler ($5,000).
Stockholders’
Communication with the Board
Stockholders
and other parties interested in communicating directly with the presiding director or with the nonmanagement directors as a group
may do so by writing to Ted R. Munselle, Director, P.O. Box 830163, Richardson, Texas 75083-0163. Effective March 22, 2004, the
Governance and Nominating Committee of the Board also approved a process for handling letters received by the Company and addressed
to members of the Board but received at the Company. Under that process, the Corporate Secretary of the Company reviews all such
correspondence and regularly forwards to the Board a summary of all such correspondence and copies of all correspondence that,
in the opinion of the Corporate Secretary, deals with the functions of the Board or committees thereof or that he otherwise determines
requires their attention. Directors may at any time review a log of all correspondence received by the Company that is addressed
to members of the Board and received by the Company and request copies of any such correspondence. Concerns relating to accounting,
internal controls or auditing matters are immediately brought to the attention of the Chairman of the Audit Committee and handled
in accordance with procedures established by the Audit Committee with respect to such matters.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics, which applies to all directors, officers and employees (including those
of the contractual advisor). In addition, on February 19, 2004, the Company adopted a code of ethics entitled “Code of Ethics
for Senior Financial Officers” that applies to the principal executive officer, president, principal financial officer,
chief financial officer, the principal accounting officer and controller. The text of both documents is available on the Company's
Investor Relations website (www.incomeopp-realty.com). The Company intends to post amendments to or waivers from
its Code of Ethics for Senior Financial Officers (to the extent applicable to the Company's chief executive officer, principal
financial officer or principal accounting officer) at this location on its website.
Compliance
With Section 16(a) of Reporting Requirements
Section
16(a) under the Securities Exchange Act of 1934 requires the Company’s directors, executive officers and any persons holding
10% or more of the Company’s shares of Common Stock to report their ownership of the Company’s shares of Common Stock
and any changes in that ownership to the SEC on specified report forms. Specific due dates for these reports have been established,
and the Company is required to report any failure to file by these dates during each fiscal year. All of these filing requirements
were satisfied by the Company’s directors and executive officers and holders of more than 10% of the Company’s Common
Stock during the fiscal year ended December 31, 2020. In making these statements, the Company has relied upon the written representations
of its directors and executive officers and the holders of 10% or more of the Company’s Common Stock and copies of the reports
that each has filed with the SEC.
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 the beneficial owners of more than 5% of its outstanding
Common Stock as of the close of business on November 3, 2022.
| Name
and Address of Beneficial Owner |
|
Amount
and Nature of
Beneficial Ownership* |
|
Approximate
Percent
of Class** |
| |
|
|
|
|
Transcontinental
Realty Investors, Inc.(a)
1603
LBJ Freeway, Suite 800
Dallas,
Texas 75234 |
|
3,386,570 |
|
81.12% |
| |
|
|
|
|
Realty
Advisors, Inc.(a)
1603
LBJ Freeway, Suite 800
Dallas,
Texas 75234 |
|
269,311 |
|
6.46%
|
(a) TCI
is one of the “Reporting Persons” in Amendment No. 29 to Schedule 13D, filed with the SEC. The other three
entities, Arcadian Energy, Inc. (owns 170,984 Shares or 4.10%), Realty Advisors, Inc. (owns 32,452 Shares or 0.78%) and
Realty Advisors LLC (owns 65,875 Shares or 1.58%), collectively own approximately 6.46%. Arcadian Energy, Inc. and Realty
Advisors LLC are each wholly owned by Realty Advisors, Inc.
Security
Ownership of Management
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 the directors and executive officers of the Company, and for certain deemed beneficial owners, as of
the close of business on November 3, 2022:
| Name
and Address of Beneficial Owner |
|
Amount
and Nature
of Beneficial Ownership* |
|
Approximate
Percent
of Class** |
| |
|
|
|
|
| Henry
A. Butler |
|
3,386,570(1) |
|
81.12% |
| |
|
|
|
|
| Louis
J. Corna |
|
3,386,570(1) |
|
81.12% |
| |
|
|
|
|
| Robert
A. Jakuszewski |
|
3,386,570(1) |
|
81.12% |
| |
|
|
|
|
| Erik
L. Johnson |
|
3,386,570(1) |
|
81.12% |
| |
|
|
|
|
| Ted
R. Munselle |
|
3,386,570(1) |
|
81.12% |
| |
|
|
|
|
| Bradley
J. Muth |
|
3,386,570(1) |
|
81.12% |
| |
|
|
|
|
| Raymond
Roberts, Sr. |
|
3,386,570(1) |
|
81.12% |
| |
|
|
|
|
| All
directors and executive officers as a group (7
people) |
|
3,386,570(1) |
|
81.12% |
* “Beneficial
Ownership” means the sole or shared power to vote, or to direct the voting of, a security or investment power with
respect to a security, or any combination thereof.
** Percentages
are based upon 4,168,214 shares of Common Stock outstanding at November 3, 2022.
(1) Includes 3,386,570 shares owned by TCI, of which the six directors and executive officers of TCI may be deemed to be the
beneficial owners by virtue of their positions as directors and executive officers. Each of the six current directors of TCI,
four of which are also four of the directors of IOR (Messrs. Butler, Jakuszewski, Munselle and Roberts), and the executive
officers (Messrs. Muth, Corna and Johnson) of TCI disclaim beneficial ownership of such shares.
PROPOSAL
1
ELECTION
OF DIRECTORS
Four
directors are to be elected at the Annual Meeting. Each director elected will hold office until the Annual Meeting following the
fiscal year ending December 31, 2022. All of the nominees for director were previously elected at the last Annual Meeting and
are now serving as directors. Each of the nominees has consented to being named in this proxy statement as a nominee and has agreed
to serve as a director if elected. The persons named on the proxy card will vote for all of the nominees for director listed unless
you withhold authority to vote for one or more of the nominees. The nominees receiving a plurality of votes cast at the Annual
Meeting will be elected as directors. Abstentions and broker non-votes will not be treated as a vote for or against any particular
nominee and will not affect the outcome of the election of directors. Cumulative voting for the election of directors is not permitted.
If any director is unable to stand for reelection, the Board will designate a substitute. If a substitute nominee is named, the
persons named on the proxy card will vote for the election of the substitute director.
The
nominees for directors are listed below, together with their ages, terms of service, all positions and offices with the Company
or the Company’s contractual advisor, Pillar Income Asset Management, Inc. (“Pillar”), 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 Company or the contractual
advisor.
Henry
A. Butler, 72
Retired
Broker-Land Sales (April 30, 2011 to April 30, 2019) for Pillar and (from July 2003 to April 30, 2011) Prime Income Asset Management,
LLC (“Prime”) and (1992 to June 2003) for Basic Capital Management, Inc. (“BCM”); Director (since July
2003) and Chairman of the Board (since May 2009) of American Realty Investors, Inc. (“ARL”), Director (since November
2005) and Chairman of the Board (since May 2009) of TCI and Director since February 8, 2001 of the Company; Owner/Operator (1989-1991)
of Butler Interests, Inc.; Vice President (January 21, 1994 to April 30, 2019) of ARL and (February 1, 2011 to April 30, 2019)
of TCI and (February 8, 2011 to April 30, 2019) of the Company.
Robert
A. Jakuszewski, 60
Territory
Manager for Artesa Labs (since April 2015). He was a medical specialist (from January 2014 to April 2015) for VAYA Pharma, Inc.;
Senior Medical Liaison for Vein Clinics of America (January 2013 to July 2013); Vice President of Sales and Marketing (September
1998 to December 2012) for New Horizons Communications, Inc.; Consultant (01/1998-09/1998) for New Horizon Communications, Inc.;
Regional Sales Manager (1996-1998) for Continental Funding; Territory Manager (1992-1996) for Sigvaris, Inc.; Senior Sales Representative
(1988-1992) for Mead Johnson Nutritional Division, USPNG; and Sales Representative (1986-1987) for Muro Pharmaceutical, Inc. Mr.
Jakuszewski was elected a director of the Company on March 16, 2004 and has been a director of ARL and TCI since November 22,
2005.
Ted.
R. Munselle, 67
Vice
President and Chief Financial Officer (since October 1998) of Landmark Nurseries, Inc.; President (December 2004 to August 2007)
of Applied Educational Opportunities, LLC, an educational organization which had two career training schools located in Texas;
Director (since February 2004) of ARL and TCI; Certified Public Accountant (since 1980) who was employed as an Audit Partner in
two Dallas, Texas based CPA firms (1986 to 1998), as an Audit Manager at Grant Thornton LLP (1983 to 1986) and as Audit Staff
to Audit Supervisor at Laventhal & Horwath (1977 to 1983). Mr. Munselle was elected a director of the Company on May 21, 2009.
Mr. Munselle is also a director (since February 17, 2012) of Spindletop Oil & Gas Company, a publicly held Texas corporation
whose stock is traded in the Over-The-Counter (“OTC”) market.
Raymond
D. Roberts, Sr., 90
Retired
since December 31, 2014; for more than five years prior thereto, he was Director of Aviation of Stellar Aviation, Inc., a privately
held Nevada corporation, engaged in the business of aircraft (Boeing 737) and logistical management. Mr. Roberts is also a Director
of ARL and TCI (each, since June 2, 2016) and New Concept Energy, Inc. (since June 17, 2015), a publicly held Nevada corporation,
whose stock is listed and traded on the NYSE American.
The
Board of Directors unanimously recommends a vote FOR
the election of all of the Nominees named above.
PROPOSAL
2
RATIFICATION
OF APPOINTMENT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The
Audit Committee has appointed Swalm & Associates, P.C. as the independent registered public accounting firm for Income Opportunity
Realty Investors, Inc. for the 2022 fiscal year and to conduct quarterly reviews through September 30, 2023. The Company’s
Bylaws do not require that stockholders ratify the appointment of Swalm & Associates, P.C. as the Company’s independent
registered public accounting firm. Swalm & Associates, P.C. has served as the Company’s independent registered public
accounting firm for each of the fiscal years ended December 31, 2004 through 2021. The Audit Committee will consider the outcome
of this vote in its decision to appoint an independent registered public accounting firm next year, however, it is not bound by
the stockholders’ decision. Even if the selection is ratified, the Audit Committee, in its sole discretion, may change the
appointment at any time during the year if it determines that such a change would be in the best interest of the Company and its
stockholders.
A
representative of Swalm & Associates, P.C. will attend the Annual Meeting. The representative will have an opportunity to
make a statement if he or she desires to do so and will be available to respond to appropriate questions from the stockholders.
The
Board of Directors recommends a vote FOR the ratification of the
appointment of Swalm & Associates, P.C. as the Company’s
independent registered public accounting firm.
Fiscal
Years 2020 and 2021 Audit Firm Fee Summary
The
following table sets forth the aggregate fees for professional services rendered to or for the Company for the years 2020 and
2021 by the Company’s principal accounting firm, Swalm & Associates, P.C.:
| Type of Fees | |
2020 | | |
2021 | |
| Audit Fees | |
$ | 42,250 | | |
$ | 45,135 | |
| Audit Related Fees | |
| - | | |
| - | |
| Tax Fees | |
| - | | |
| - | |
| All Other Fees | |
| - | | |
| - | |
| Total Fees: | |
$ | 42,250 | | |
$ | 45,135 | |
All
services rendered by the principal auditors are permissible under applicable laws and regulations and were pre-approved by either
the Board of Directors or the Audit Committee, as required by law. The fees paid the principal auditors for services as described
in the above table fall under the categories listed below:
Audit
Fees. These are fees for professional services performed by the principal auditor for the audit of the Company’s annual
financial statements and review of financial statements included in the Company’s 10-Q filings and services that are normally
provided in connection with statutory and regulatory filing or engagements.
Audit
Related Fees. These are fees for assurance and related services performed by the principal auditor that are reasonably related
to the performance of the audit or review of the Company’s financial statements. These services include attestations by
the principal auditor that are not required by statute or regulation and consulting on financial accounting/reporting standards.
Tax
Fees. These are fees for professional services performed by the principal auditor with respect to tax compliance, tax planning,
tax consultation, returns preparation and review of returns. The review of tax returns includes the Company and its consolidated
subsidiaries.
All
Other Fees. These are fees for other permissible work performed by the principal auditor that do not meet the above category
descriptions.
These
services are actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate
objectivity and independence in the principal auditor’s core work, which is the audit of the Company’s consolidated
financial statements.
Report
of the Audit Committee
Of the Board of Directors
The
Audit Committee of the Board of Directors is composed of three directors, each of whom satisfies the requirements of independence,
experience and financial literacy under the requirements of the NYSE American and the SEC. The Audit Committee has directed the
preparation of this report and has approved its content and submission to the stockholders.
The
Audit Committee is responsible for, among other things:
● retaining
and overseeing the independent registered public accounting firm that serves as our independent auditor and evaluating their
performance and independence;
● reviewing
the annual audit plan with management and the independent registered public accounting firm;
● pre-approving
any permitted non-audit services provided by our independent registered public accounting firm;
● approving
the fees to be paid to our independent registered public accounting firm;
● reviewing
the adequacy and effectiveness of our internal controls with management, internal auditors and the independent registered
public accounting firm;
● reviewing
and discussing the annual audited financial statements and the interim unaudited financial statements with management and the
registered public accounting firm; and
● approving
our internal audit plan and reviewing reports of our internal auditors.
The
Audit Committee operates under a written charter adopted by the Board of Directors. The Committee’s responsibilities are
set forth in this charter which is available on our website at www.incomeopprealty-invest.com.
The
Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s
financial statements, the adequacy of the Company’s system of internal controls, the Company’s risk management, the
Company’s compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence,
and the performance of the Company’s independent auditors. The Audit Committee has sole authority over the selection of
the Company’s independent auditors and manages the Company’s relationship with its independent auditors. The Audit
Committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee
deems necessary to carry out its duties and receive appropriate funding, as determined by the Audit Committee, from the Company
for such advice and assistance.
The
Audit Committee met five times during 2021. The Audit Committee schedules its meetings with a view to ensuring that it devotes
appropriate attention to all of its tasks. The Audit Committee’s meetings include private sessions with the Company’s
independent auditors without the presence of the Company’s management, as well as executive sessions consisting of only
Audit Committee members. The Audit Committee also meets senior management from time to time.
Management
has the primary responsibility for the Company’s financial reporting process, including its system of internal control over
financial reporting and for the preparation of consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America. The Company’s independent auditors are responsible for auditing those financial
statements in accordance with professional standards and expressing an opinion as to their material conformity with U.S. generally
accepted accounting principles and for auditing management’s assessment of, and the effective operation of, internal control
over financial reporting. The Audit Committee’s responsibility is to monitor and review the Company’s financial reporting
process and discuss management’s report on the Company’s internal control over financial reporting. It is not the
Audit Committee’s duty or responsibility to conduct audits or accounting reviews or procedures. The Audit Committee has
relied, without independent verification, on management’s representation that the financial statements have been prepared
with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America
and on the opinion of the independent registered public accountants included in their report on the Audit Committee’s financial
statements.
As
part of its oversight of the Company’s financial statements, the Audit Committee reviews and discusses with both management
and the Company’s independent registered public accountants all annual and quarterly financial statements prior to their
issuance. During 2021, management advised the Audit Committee that each set of financial statements reviewed had been prepared
in accordance with accounting principles generally accepted in the United States of America, and reviewed significant accounting
and disclosure issues with the Audit Committee. These reviews include discussions with the independent accountants of the matters
required to be discussed pursuant to Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards),
including the quality (not merely the acceptability) of the Company’s accounting principles, the reasonableness of significant
judgments, the clarity of disclosures in the financial statements and disclosures related to critical accounting practices. The
Audit Committee has also discussed with Swalm & Associates, P.C. matters relating to its independence, including a review
of audit and non-audit fees, and written disclosures from Swalm & Associates, P.C. to the Company pursuant to Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit Committee also considered whether
non-audit services, provided by the independent accountants are compatible with the independent accountant’s independence.
The Company also received regular updates on the amount of fees and scope of audit, audit related and tax services provided.
In
addition, the Audit Committee reviewed key initiatives and programs aimed at strengthening the effectiveness of the Company’s
internal and disclosure control structure. As part of this process, the Audit
Committee continued to monitor the scope and adequacy
of the Company’s internal controls, reviewed staffing levels and steps taken to implement recommended improvements in any
internal procedures and controls.
Based
on the Audit Committee’s discussion with management and the independent accountants and the Audit Committee’s review
of the representation of management and the report of the independent accountants to the Board of Directors, the Audit Committee
recommended to the Board of Directors, and the Board of Directors has approved, that the audited consolidated financial statements
be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC. The Audit
Committee and the Board of Directors have also selected Swalm & Associates, P.C. as the Company’s independent registered
public accountants and auditors for the fiscal year ending December 31, 2022.
AUDIT
COMMITTEE
| Raymond
D. Roberts, Sr. |
Ted
R. Munselle |
Robert
A. Jakuszewski |
The
members of the Audit Committee discussed the fact that Ted Munselle serves as the Chairman of the Audit Committee and the qualified
Audit Committee financial expert within the meaning of SEC Regulations and that he has the accounting and related financial management
expertise within the meaning of the listing standards of the NYSE with respect to this corporation, as well as two other corporations
which are part of a consolidated group for financial statement purposes, and that he serves in a similar capacity for an unrelated
corporation involved in another industry, the Common Stock of which is available for trading in the Over-the-Counter (“OTC”)
Market, thus making four entities for which he serves in a similar capacity. The Audit Committee has determined, after discussion,
that the fact that three entities are part of a consolidated group requires Mr. Munselle to be familiar with the financial reporting
requirements and standards of each of those entities due to the fact of consolidation and does not create an additional burden
upon Mr. Munselle but, in fact, confers a benefit on each of the entities, as it may well save on Mr. Munselle’s time and
responsibility. While this entity and the other two consolidated entities have no specific policy or prohibition upon Mr. Munselle
or any other person’s service to other publicly held entities, the members of this Committee periodically review other relationships
among Committee and Board members with other independent entities to ensure that no conflict exists and, in fact, have confirmed
that service to other entities in other industries benefits the expertise of the individuals involved.
Pre-Approval
Policy for Audit and Non-Audit Services
Under
the Sarbanes-Oxley Act of 2002 (the “SO Act”), and the rules of the SEC, the Audit Committee of the Board of Directors
is responsible for the appointment, compensation and oversight of the work of the independent auditor. The purpose of the provisions
of the SO Act and the SEC rules for the Audit Committee role in retaining the independent auditor is twofold. First, the authority
and responsibility for the appointment, compensation and oversight of the auditors should be with directors who are independent
of management. Second, any non-audit work performed by the auditors should be reviewed and approved by these same independent
directors to ensure that any non-audit services performed by the auditor do not impair the independence of the independent auditor.
To implement the provisions of the SO Act, the SEC issued rules specifying the types of services that an independent auditor may
not provide to its audit client, and governing the Audit Committee’s administration of the engagement of the independent
auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed
by the independent auditor in order to assure that they do not impair the auditor’s independence. Accordingly, the Audit
Committee adopted on March 22, 2004 a written pre-approval policy of audit and non-audit services (the “Policy”),
which sets forth the procedures and conditions pursuant to which services to be performed by the independent auditor are to be
pre-approved. Consistent with the SEC rules
establishing two different approaches to approving non-prohibited services, the policy
of the Audit Committee covers pre-approval of audit services, audit related services, international administration tax services,
non-U.S. income tax compliance services, pension and benefit plan consulting and compliance services, and U.S. tax compliance
and planning. At the beginning of each fiscal year, the Audit Committee will evaluate other known potential engagements of the
independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service,
taking into account whether services are permissible under applicable law and the possible impact of each non-audit service on
the independent auditor’s independence from management. Typically, in addition to the generally pre-approved services, other
services would include due diligence for an acquisition that may or may not have been known at the beginning of the year. The
Audit Committee has also delegated to any member of the Audit Committee designated by the Board or the financial expert member
of the Audit Committee responsibilities to pre-approve services to be performed by the independent auditor not exceeding $25,000
in value or cost per engagement of audit and non-audit services, and such authority may only be exercised when the Audit Committee
is not in session.
Executive
Compensation
The
Company has no employees, payroll or benefit plans and pays no compensation to its executive officers. The executive officers
of the Company who are also officers or employees of Pillar are compensated by Pillar. Such executive officers perform a variety
of services for Pillar, and the amount of their compensation is determined solely by Pillar. Pillar does not allocate the cash
compensation of its officers among the various entities for which it serves as advisor. See “The Advisor” for a discussion
of the compensation payable to Pillar under the Advisory Agreement.
Compensation
Committee Report
The
Compensation Committee of the Board of Directors is comprised of at least two directors who are independent of management and
the Company. Each member of the Compensation Committee must be determined to be independent by the Board under the Corporate Governance
Guidelines on Director Independence adopted by the Board and under the NYSE American standards for nonemployee directors and Rule
16b-3(b)(3)(i) of the rules and regulations promulgated under the Securities Exchange Act of 1934 and the requirements for “outside
directors” set forth in Treasury Regulations, Section 27(e)(3). Each member of the Compensation Committee is to be free
of any relationship that in the judgment of the Board from time to time may interfere with the exercise of his or her independent
judgment. Each Compensation Committee member is appointed annually subject to removal at any time by the Board and serves until
his or her Compensation Committee appointment is terminated by the Board. The Compensation Committee is composed of three directors,
each of whom meets the standards described above.
The
purposes of the Compensation Committee are to oversee the policies of the Company relating to compensation to be paid by the Company
to the Company’s principal executive officer (“CEO”) and any other officers designated by the Board and make
recommendations to the Board with respect to such policies, produce necessary reports and executive compensation for inclusion
in the Company’s proxy statement, in accordance with applicable rules and regulations, and monitor the development and implementation
of succession plans for the CEO and other key executives and make recommendations to the Board with respect to such plans.
The
Company has no employees, payroll, or benefit plans and pays no compensation to its executive officers. The executive officers
of the Company, who are also officers or employees of Pillar are compensated by Pillar. Such executive officers perform a variety
of services for Pillar, and the amount of
their compensation is determined solely by Pillar. Pillar does not allocate the cash
compensation of its officers among the various entities for which it may serve as advisor or sub-advisor.
The
only remuneration paid by the Company is to directors who are not officers or directors of Pillar or the Advisor. These independent
directors (i) review the business plan of the Company to determine that it is the best interest of the stockholders, (ii) review
the advisory contract and recommend any appropriate changes thereto, (iii) supervise the performance of the Company’s contractual
advisor, and review the reasonableness of the compensation paid to the contractual advisor in terms of the nature and quality
of services performed, (iv) review the reasonableness of the total fees and expenses of the Company, and (v) select, when necessary,
a qualified, independent real estate appraiser to appraise properties acquired. See the sub caption “Directors’ Compensation”
in the Proxy Statement for a description of the compensation paid.
The
charter of the Compensation Committee was adopted on March 22, 2004, and the members of the Compensation Committee, all of whom
are independent within the meaning of the listing standards of the NYSE American and the Company’s Corporate Governance
Guidelines, are listed below. Since its formation on March 22, 2004, the Compensation Committee has annually reviewed its existing
charter and regularly performed the tasks described above relating to the business plan, advisory contract, reasonableness of
compensation paid to the advisor, and the reasonableness of the total fees and expenses of the Company.
COMPENSATION
COMMITTEE
| Ted R. Munselle |
Raymond
D. Roberts, Sr. |
Robert
A. Jakuszewski |
Compensation
Committee Interlocks and Insider Participation
The
Company’s Compensation Committee is made up of nonemployee directors who have never served as officers of, or been employed
by the Company. None of the Company’s executive officers serve on a board of directors of any entity that has a director
or officer serving on this Compensation Committee.
Executive
Officers
Executive
officers of the Company are listed below, all of whom are employed by Pillar. None of the executive officers receive any direct
remuneration from the Company, nor do any hold any options granted by the Company. Their positions with the Company are not subject
to a vote of stockholders. The ages, terms of service and all positions and offices with the Company, Pillar, and other affiliated
entities, other principal occupations, business experience and directorships with other publicly held companies during the last
five years or more are set forth below.
Bradley
J. Muth, 62
President
and Chief Executive Officer (since December 16, 2021) of the Company, ARL and TCI; President and Chief Executive Officer (since
November 2021) of Pillar. Prior thereto, from July 2019 to September 2021, Senior Managing Director, Capital Markets and Development
of ValueRock Realty Partners, an Irvine, California based national real estate investment services firm, focusing on value-ad
commercial real estate throughout California, Hawaii and Arizona; prior thereto, from December 2014 to June 2019, Senior Managing
Director, Portfolio and Asset Management of Madison Marquette, a leading commercial real estate investment manager, service provider,
developer and operator of real property based in San Francisco, California and Washington, D. C. From 2012 to 2014, Chief Investment
Officer of Buckingham Companies, a real estate investment firm engaged in the multifamily sector; from 1994 to 2012,
Managing
Principal or Senior Managing Partner of ING/Concert Realty Partners, a real estate investment and operations firm; Certified Public
Accountant (1984).
Louis
J. Corna, 75
Executive
Vice President, General Counsel, Tax Counsel and Secretary (since January 31, 2004) of the Company, TCI and ARL; Executive Vice
President and Chief Financial Officer (June 2001 to October 2001) and Senior Vice President–Tax (April 2001 to June 2001)
of ARL and (prior to July 2003) of BCM; Executive Vice President, General Counsel/Tax Counsel and Secretary (February 2004 to
June 2011) of Prime Income Asset Management, Inc. (“PIAMI”); Private Attorney (January 2000 to December 2000); Vice
President–Taxes and Assistant Treasurer (March 1998 to January 2000) of IMC Global, Inc.; Vice President–Taxes (July
1991 to February 1998) of Whitman Corporation; Executive Vice President-General Counsel/Tax Counsel (since March 31, 2011) and
Secretary (since December 17, 2010) of Pillar.
Erik
L. Johnson, 54
Executive
Vice President and Chief Financial Officer (since December 16, 2021) of the Company and (since August 17, 2020) of ARL and TCI;
Chief Financial Officer (since July 1, 2020) of Pillar. Mr. Johnson, a Certified Public Accountant, was Vice President of Financial
Reporting of The Macerich Company (NYSE: MAC) in Santa Monica, California, a position he held for more than the prior five years,
from 2005 through June 2020. Mr. Johnson was, from 2001-2005, Controller/Chief Accounting Officer of North American Scientific,
Inc. (NASDAQ: NASI), based in Los Angeles, California, and from 2000-2001, he was the Controller of Launch Media, Inc. (NASDAQ:
LAUN) in Santa Monica, California.
In
addition to the foregoing executive officers, the Company has several vice presidents and assistant secretaries who are not listed
herein.
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, day-to-day operations 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, as well as financing and refinancing sources. The advisor also serves as a consultant to the Board of
Directors in connection with the business plan and investment decisions made by the Board.
Pillar
is the contractual advisor to the Company. Pillar is a Nevada corporation, the sole shareholder of which is Realty Advisors, LLC,
a Nevada limited liability company (“RALLC”), the sole member of which is Realty Advisors, Inc., a Nevada corporation
(“RAI”), which is 100% owned by May Realty Holdings, Inc., a Nevada corporation (“MRHI”), the sole stockholder
of which is a Trust known as the May Trust. The Company and Pillar entered into an Advisory Agreement effective April 30, 2011
(the “Pillar Advisory Agreement”).
Under
the Pillar Advisory Agreement, Pillar is required to annually formulate and submit for Board approval a budget and business plan
containing a twelve-month forecast of operations and cash flow, a general plan for asset sales and purchases, borrowing activity
and other investments. Pillar is required to report quarterly to the Board on the Company’s performance against the business
plan. In addition, all transactions require prior Board approval, unless they are explicitly provided for in the approved plan
or were made pursuant to authority expressly delegated to Pillar by the Board.
The
Pillar Advisory Agreement also requires prior approval of the Board for the retention of all consultants and third party professionals,
other than legal counsel. The Pillar Advisory Agreement provides that Pillar is deemed to be in a fiduciary relationship to the
stockholders; contains a broad standard governing Pillar’s liability for losses by the Company; and contains guidelines
for Pillar’s allocation of investment opportunities as among itself, the Company and other entities it advises.
The
Pillar Advisory Agreement provides for Pillar 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 0.0625% per month (0.75% 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
Pillar Advisory Agreement also provides for Pillar 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 the fiscal year exceeds the sum of (1)
the cost of each 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 real estate. However, no incentive fee would 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 Pillar Advisory Agreement, Pillar, or an affiliate of Pillar, is to receive an acquisition commission for supervising
the acquisition, purchase or long term lease of real estate 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, provided that the aggregate purchase price of each property (including acquisition fees and real estate
brokerage commissions) could not exceed such property’s appraised value at acquisition.
The
Pillar Advisory Agreement requires Pillar, or any affiliate of Pillar, to pay the Company one half of any compensation received
from third parties with respect to the origination, placement or brokerage of any loan made by the Company. However, the compensation
retained by Pillar or any affiliate of Pillar may not exceed the lesser of (i) 2% of the amount of the loan commitment, or (ii) a
loan brokerage and commitment fee reasonable and fair under the circumstances.
The
Pillar Advisory Agreement also provides that Pillar, or an affiliate of Pillar, is to receive a mortgage or loan acquisition fee
with respect to the purchase of any existing mortgage loan equal to the lesser of (i) 1% of the amount of the loan purchased,
or (ii) a brokerage or commitment fee 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 Pillar Advisory Agreement, Pillar, or an affiliate of Pillar, also is to receive a mortgage brokerage and equity refinancing
fee for obtaining loans or refinancing on properties equal to the lesser of (i) 1% of the amount of the loan or the amount refinanced,
or (ii) a brokerage or refinancing fee which is reasonable and fair under the circumstances. However, no such fee is to be paid
on loans from Pillar, or an affiliate of Pillar, without the approval of the Board of Directors. No fee shall be paid on loan
extensions.
The
Pillar Advisory Agreement also provides for all activities in connection with or related to construction for the Company and its
subsidiaries. Pillar can receive a fee equal to 6% of the so-called “hard costs” only of any costs of construction
on a completed basis, based upon amounts set forth as approved on any architect certificate issued in connection with such construction,
which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. The phrase “hard
costs” means all actual costs of construction paid to contractors, subcontractors and third parties for materials or labor
performed as a part of the construction but does not include items generally regarded as “soft costs” which are consulting
fees, attorneys’ fees, architectural fees, permit fees and fees of other professionals.
Under
the Pillar Advisory Agreement, Pillar is to receive reimbursement of certain expenses incurred by it in the performance of advisory
services to the Company; provided, however, all or a portion of the annual advisory fee must be refunded by Pillar if the Operating
Expenses of the Company (as defined in the Pillar Advisory Agreement) exceed certain limits specified in the Pillar Advisory Agreement
based on the book value, net asset value and net income of the Company during the fiscal year. Pillar may assign the Pillar Advisory
Agreement only with the prior consent of the Company.
Additionally,
if management requests that Pillar render services other than those required by the Pillar Advisory Agreement, Pillar or an affiliate
of Pillar was to be separately compensated for such additional services on terms to be agreed upon from time to time. As discussed
below, under Property Management, the Company currently utilizes the services of Regis Realty Prime, LLC d/b/a Regis Property
Management, LLC, a Nevada limited liability company (“Regis”), for property management and real estate brokerage.
Pillar
also serves as a contractual advisor to TCI and ARL and the principal officers of Pillar are also the principal officers of the
Company. The Prime Advisory Agreement between the Company and Prime contained substantially the same terms as the current Pillar
Advisory Agreement.
Effective
April 30, 2011, the Company and Pillar entered into a Cash Management Agreement (the “Pillar CMA”) under which all
funds of the Company are delivered to Pillar which has a deposit liability to the Company and is responsible for payment of all
payables and investment of all excess funds which earn interest at the Wall Street Journal Prime Rate plus 1% per annum,
as set quarterly on the first day of each calendar quarter. Borrowings for the benefit of the Company bear the same interest rate.
The Pillar CMA may be terminated at any time without penalty for any reason upon sixty (60) days written notice by either party
to the other, but otherwise remains in full force and effect coterminous with that of the Pillar Advisory Agreement and automatically
renews from year to year unless terminated.
The
current managers and principal executive officers of Pillar are as set forth below:
| Name |
Office(s) |
| Bradley
J. Muth |
President
and Chief Executive Officer |
| Erik
L. Johnson |
Executive
Vice President and Chief Financial Officer |
| Gina
H. Kay |
Executive
Vice President and Chief Accounting Officer |
| Louis
J. Corna |
Executive
Vice President, General Counsel, Tax Counsel and Secretary |
| Gene
S. Bertcher |
Director |
Property
Management
Effective
January 1, 2011, Regis Realty Prime LLC d/b/a Regis Property Management LLC, a Nevada limited liability company (“Regis”),
the sole member of which is RALLC, has managed the
Company’s Commercial Properties for a fee of 3% or less of the monthly
gross rents collected on any commercial properties Regis manages and leasing commissions of 6% or less in accordance with the
terms of a property level management agreement.
Real
Estate Brokerage
Regis
also provides real estate brokerage services to the Company (on a nonexclusive basis). Regis is entitled to receive a real estate
commission for property purchases and sales in accordance with a sliding scale of total fees to be paid (i) maximum fee of 4.5%
on the first $2 million of any purchase or sale transaction of which no more than 3.5% would be paid to Regis or affiliates; (ii) maximum
fee of 3.5% on transaction amounts between $2 million and $5 million, of which no more than 3% would be paid to Regis or affiliates;
(iii) maximum fee of 2.5% on transaction amounts between $5 million and $10 million, of which no more than 2% would be paid
to Regis; and (iv) maximum fee of 2% on transaction amounts in excess of $10 million, of which no more than 1.5% would be
paid to Regis or affiliates.
Certain
Relationships and Related Transactions
Certain
Business Relationships
Pillar
has served as the Company’s advisor since April 30, 2011.
Regis
provides property management services and subcontracts the property level management and leasing of the Company’s commercial
properties. Regis also provides brokerage services, on a nonexclusive basis, for the Company and receives brokerage commissions
in accordance with a brokerage agreement.
Messrs.
Bradley J. Muth, Erik L. Johnson, and Louis J. Corna are employed by Pillar, which is owned by RALLC. The sole member of RALLC
is RAI. Messrs. Muth, Johnson and Corna, executive officers of the Company, and Messrs. Corna and Johnson also serve as executive
officers of ARL and TCI and, accordingly, owe fiduciary duties to those entities as well as the Company. Mr. Roberts is a Director
of GBR and, as such, owes fiduciary duties to GBR as well as the Company. Messrs. Butler, Jakuszewski, Munselle and Roberts serve
as directors of ARL and TCI and owe fiduciary duties to TCI and ARL, as well as the Company, under applicable law.
Tax
Sharing Agreement
For
tax periods ending before August 31, 2012, the Company was part of the ARL consolidated federal return. After that date, the Company
and the rest of the ARL group joined the MRHI consolidated group for tax purposes. The income tax expense (benefit) for 2010 and
2011 tax periods was calculated under a tax sharing and compensating agreement among ARL, TCI, and the Company. That agreement
continued until August 31, 2012, at which time a new tax sharing and compensating agreement was entered into among ARL, TCI, the
Company, and MRHI for the remainder of 2012. For 2013, ARL, TCI, and the Company had a combined net taxable loss. The benefit
or expense under such arrangements is calculated based on the amount of losses absorbed by taxable income multiplied by the statutory
rate of 35% per the tax sharing and compensating agreements.
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.
TCI
owns 3,386,270 shares of Common Stock of the Company (approximately 81.1%).
In
2021, the Company paid Pillar $800,000 in advisory fees, $200,000 in cost reimbursements, and $400,000 in net income fees. In
addition, from time to time, the Company has made advances to Pillar, which generally has not had specific repayment terms and
has been reflected in the Company’s financial statements as receivables from or payables to affiliates. Such advances bear
interest at 1% above the prime rate. During 2021, the Company received interest of $2.8 million from Pillar.
From
time to time, the Company and its affiliates have made advances to each other which generally have not had specific repayment
terms, did not bear interest, are unsecured and have been reflected in the Company’s financial statements as other assets
or other liabilities. At December 31, 2021, the Company had notes and interest receivables of $13.9 million due from related parties.
During 2021, the Company recognized $1.8 million in interest income from these related party receivables.
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 Company’s Board of Directors or the appropriate committee thereof, and (b) the Company’s Board of Directors
or appropriate 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 an employee
of the Company, nor a director, officer or employee of the Company’s advisor.
OTHER
MATTERS
The
Board of Directors knows of no other matters that may be properly or should be brought before the Annual Meeting. However, if
any other matters are properly brought before the Annual Meeting, the persons named in the enclosed proxy or their substitutes
will vote in accordance with their best judgment on such matters.
FINANCIAL
STATEMENTS
The
audited financial statements of the Company, in comparative form for the years ended December 31, 2020 and 2021, are contained
in the 2021 Annual Report to Stockholders, which was mailed to stockholders in April 2022. 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 BOARD OF DIRECTORS OF INCOME OPPORTUNITY
REALTY
INVESTORS, INC. The cost of soliciting proxies will be born by the Company. Directors and officers of the Company may, without
additional compensation, solicit by mail, in person or by telecommunication.
FUTURE
PROPOSALS OF STOCKHOLDERS
Stockholder
proposals for our Annual Meeting to be held in 2023 must be received by us by December 31, 2022, and must otherwise comply with
the rules promulgated by the SEC to be considered for inclusion in our proxy statement for that year. Any stockholder proposal,
whether or not to be included in our proxy materials, must be sent to our Corporate Secretary at 1603 LBJ Freeway, Suite 800,
Dallas, Texas 75234.
COPIES
OF INCOME OPPORTUNITY REALTY INVESTORS, INC.’S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021, TO THE SECURITIES
AND EXCHANGE COMMISSION ON FORM 10-K, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (WITHOUT EXHIBITS), ARE AVAILABLE TO
STOCKHOLDERS WITHOUT CHARGE THROUGH OUR WEBSITE AT WWW.INCOMEOPP-REALTY.COM OR UPON WRITTEN REQUEST TO INCOME OPPORTUNITY
REALTY INVESTORS, INC., 1603 LBJ FREEWAY, SUITE 800, DALLAS, TEXAS 75234, ATTN: DIRECTOR OF INVESTOR RELATIONS.
| Dated: November
7, 2022 |
|
| |
|
| |
By order of the Board of
Directors, |
| |
|
| |
Louis J. Corna, Executive Vice President, General
Counsel, Tax Counsel and Secretary |
PROXY
INCOME OPPORTUNITY REALTY INVESTORS,
INC.
This
Proxy is solicited on behalf of the Board of Directors for the Annual Meeting of Stockholders to be held December 7, 2022.
NOTICE
OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The
Notice of Meeting, Proxy Statement, and
Proxy
Card are available at www.incomeopp-realty.com.
The
undersigned stockholder of INCOME OPPORTUNITY REALTY INVESTORS, INC. hereby appoints HENRY A. BUTLER and LOUIS J. CORNA, and each
of them proxies with full power of substitution in each of them, in the name, place and stead of the undersigned, as attorneys
and proxies to vote all shares of Common Stock, par value $0.01 per share, of INCOME OPPORTUNITY REALTY INVESTORS, INC. which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on Wednesday, December 7, 2022, at 11:00
a.m., local Dallas, Texas time, at 1603 LBJ Freeway, Suite 800, Dallas, Texas 75234, or any adjournment(s) thereof, with all powers
the undersigned would possess if personally present, as indicated below, for the transaction of such business as may properly
come before said meeting or any adjournment(s) thereof, all as set forth in the November 7, 2022, Proxy Statement for said meeting.
| [INSERT ADDRESS
LABEL] |
Please |
|
| |
Sign |
|
| |
Here |
|
| |
|
|
| |
|
Dated:
__________________________________________, 2022 |
| To
change the address on your account, please check the box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not be submitted via this method. ☐ |
Note:
Please sign exactly as your name or names appear hereon. When there is more than one owner, each must sign. When signing as
an agent, attorney, administrator, executor, guardian or trustee, please indicate your title as such. If executed by a corporation,
the proxy should be signed by a duly authorized officer who should indicate his title. If a partnership, please sign in partnership
name by an authorized person. Please date, sign and mail this proxy card in the enclosed envelope for which no postage is
required if mailed in the United States. |
(Continued
and to be Completed on the Other Side)
THIS PROXY WILL BE
VOTED AS DIRECTED BUT IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR ALL NOMINEES AND FOR RATIFICATION OF THE APPOINTMENT OF
SWALM & ASSOCIATES, P.C. AS INDEPENDENT AUDITORS. ON OTHER MATTERS THAT MAY COME BEFORE SAID MEETING, THIS PROXY WILL BE VOTED
IN THE DISCRETION OF THE ABOVE-NAMED PERSONS.
| 1. | Election
of Directors |
☐
For All Nominees (except or marked to the contrary) |
| | | |
☐
Withhold Authority for All Nominees listed below |
Henry
A. Butler, Robert A. Jakuszewski, Ted R. Munselle, Raymond D. Roberts, Sr.
Instruction:
To withhold authority to vote for any individual nominee, strike a line through the nominee’s name listed above.
| 2. | Ratification of the Appointment of Swalm & Associates, P.C. as the
independent registered public accounting firm |
| | | ☐
For
☐ Against ☐
Abstain |
| 3. | In
their discretion on any other matters which may properly come before the meeting or any
adjournment(s) thereof. |
The Board of Directors of Income Opportunity
Realty Investors, Inc. recommends approval of all nominees for election as directors and
a vote FOR ratification of the appointment
of Swalm & Associates, P.C. as the independent registered public accounting firm.
Please
sign, date and return promptly in the enclosed envelope.
(Continued
and to be Signed and Dated on the Other Side)