UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 8-K
CURRENT REPORT   PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1933
Date of Report (Date of earliest event reported):  April 2, 2018
 
OWENS REALTY MORTGAGE, INC.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
 
Maryland
 
000-54957
 
46-0778087
(State or Other Jurisdiction
 
(Commission
 
(IRS Employer
of Incorporation)
 
File Number)
 
Identification No.)
 
 
 
 
 
2221 Olympic Boulevard
 
 
 
 
Walnut Creek, California
 
 
94595
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's telephone number, including area code: (925) 935-3840
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 1.01   Entry into a Material Definitive Agreement

As part of the previously announced effort to address the management compensation structure of Owens Realty Mortgage, Inc. (the "Company") and improve corporate governance, the Company and Owens Financial Group, Inc. (the "Manager"), have entered into Amendment No. 1 (the "Amendment") to the Management Agreement, dated May 20, 2013, by and between the Company and the Manager (the "Management Agreement").  The Amendment was unanimously approved by the Company's Board of Directors (the "Board") and by the Audit Committee and Compensation Committee of the Board, each of which committees is composed exclusively of independent Board members. In connection with its consideration of the terms of the Amendment and related matters, the Compensation Committee considered input received from stockholders, independent financial advisors, independent legal counsel and management, and the analysis of multiple options relating to the Company's internal and external management compensation structure.

Terms of the Amendment. The Amendment reflects the agreement of the Board and the Manager to implement the following changes to the Manager's compensation structure effective as of April 1, 2018:

·
Reduced Management Fee : The Amendment revises the management fee by making permanent the recent "Interim Management Fee" adjustment disclosed in Note 9 of the Notes to Consolidated Financial Statements in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, along with an additional adjustment such that the "Management Fee," calculated and payable to the Manager monthly in arrears, equals (i) one-twelfth (1/12) multiplied by (ii) (a) 1.50% of the first $300,000,000 of the Company's Stockholders' Equity (as defined in the Amendment), and (b) 1.25% of the Stockholders' Equity that is greater than $300,000,000.

·
Company to Receive 30% of Loan Fees : The Company will receive thirty-percent (30%) of the gross fees and commissions paid to the Manager in connection with the Company making or investing in mortgage loans, including thirty-percent (30%) of the gross fees paid in connection with the extension or modification of any loans, with the exception of certain miscellaneous administration fees collected in association with loan funding, demand, and partial release fees, with the remaining seventy-percent (70%) of such fees to be paid to the Manager.

·
Company to Receive 30% of Late Payment Charges : The Company will receive thirty-percent (30%) of all late payment charges from borrowers on loans owned by the Company, with the remaining seventy-percent (70%) to be paid to the Manager.

·
Elimination of Service Fees : The Company will no longer pay the Manager any servicing fees for the Manager's services as servicing agent with respect to any of its mortgage loans.
 

 
·
Elimination of Certain Expense Reimbursements : The Company will no longer reimburse the Manager for salary and related salary expense of the Manager's non-management and non-supervisory personnel.
The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which has been filed with this Current Report on Form 8-K as Exhibit 1.1 hereto and is incorporated herein by reference.

Item 7.01    Regulation FD Disclosure

A copy of a press release announcing the Amendment is attached hereto as Exhibit 99.1   and is incorporated in this Item 7.01 by reference.

The information in this Item 7.01, including Exhibit 99.1 incorporated by reference herein, is being furnished and shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that Section, nor shall it be incorporated by reference into any filing made by the Company pursuant to the Securities Act of 1933, as amended, or the Exchange Act, other than to the extent that such filing incorporates any or all of such information by express reference thereto.

Forward-Looking Statements

This Current Report (including information included or incorporated by reference herein) may contain "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements about the Company's business, financial condition and prospects, and anticipated events, including the amendment to the management agreement or other items discussed in this Current Report, are based on current information, estimates, and projections; they are subject to risks and uncertainties, as well as known and unknown risks, which could cause actual results to materially differ from the forward-looking statements made in this Current Report and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," "assume," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believe," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements.

Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company does not undertake and expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law. Additional information concerning these and other risk factors is contained in the Company's most recent filings with the Securities and Exchange Commission including those appearing under the heading "Item 1A. Risk Factors" in the Company's most recent Annual Report on Form 10-K and each subsequent Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning the Company or matters attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.
 

 
Item 9.01 Financial Statements and Exhibits  

(d) Exhibits.

 
Exhibit
No.
Description
 
   1.1
 
 
 
 


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
OWENS REALTY MORTGAGE, INC.,
a Maryland corporation
 
 
Date: April 3, 2018
By: /s/ Bryan H. Draper
 
Name: Bryan H. Draper
 
Title:   President and Chief Executive Officer
 



Exhibit 1.1
 
AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT


This Amendment No. 1 (this " Amendment ") is executed as of April 2, 2018 between Owens Realty Mortgage, Inc. a Maryland corporation (the " Company "), and Owens Financial Group, Inc., a California corporation (the " Manager ") , for the purpose of amending the Management Agreement between the Company and the Manager dated May 20, 2013, as amended (the " Management Agreement ").  Capitalized terms used herein but not defined shall be given the meanings assigned to them in the Management Agreement.

RECITALS
WHEREAS , pursuant to the terms of the Management Agreement, the Manager is entitled to receive the fees and compensation set forth in Article IX of the Charter; and
WHEREAS , pursuant to Section 27 of the Management Agreement, the Management Agreement may be amended by a formal, definitive written agreement that is executed by the Company and the Manager and has been approved by a majority of Independent Directors of the Board; and
WHEREAS , pursuant to Section 9.4.1 of the Charter, the Board of Directors, without any action by the stockholders of the Company, may authorize the Company to amend the Management Agreement, with the consent of the Manager, to adjust the compensation to be paid to the Manager, provided that such adjustment shall not have a significant adverse impact on the stockholders of the Company; and
WHEREAS , in accordance with Section 27 of the Management Agreement, this Amendment has been unanimously approved by the Independent Directors of the Board; and
WHEREAS , in accordance with Section 9.4.1 of the Charter, the Board of Directors has determined that the proposed adjustments to the Manager's compensation set forth below will not have a significant adverse impact on the stockholders of the Company; and
WHEREAS , the Company and the Manager desire to amend the Management Agreement to adjust the compensation paid to the Manager on the terms and conditions contained herein.
NOW, THEREFORE , in consideration of the mutual agreements set forth herein, the Company and the Manager agree as follows:
AGREEMENTS
1.   Section 8(a) of the Management Agreement is hereby amended and restated in its entirety as follows:
8(a)   Management Fee .  In consideration of the services rendered by the Manager to the Company and the Subsidiaries under the Management Agreement, the Manager shall be entitled to receive the fees and compensation (the " Management Fee ") in accordance with the following:
(i)   The Management Fee will perpetually be calculated and payable to the Manager monthly in arrears, in an amount equal to (i) one-twelfth (1/12) multiplied by (ii) (a) 1.50% of the first $300,000,000 of Stockholders' Equity (defined below), and (b) 1.25% of Stockholders' Equity that is greater than $300,000,000.
 
 
(ii)   The Company will become entitled to receive thirty-percent (30%) of all gross Acquisition and Origination Fees, paid or payable by borrowers for services rendered in connection with the Company making or investing in first, second, third and wraparound   mortgage loans, construction and rehabilitation loans and leasehold interest loans (collectively " Loans "), including thirty-percent (30%) all gross fees paid in connection with the extension or modification of any Loans, with exception of certain miscellaneous administration fees collected in association with loan funding, demand, and partial release fees, as described in the Company's Form 10-K and consistent with past practice, with the remaining seventy-percent (70%) to be paid to the Manager.
(iii)   The Company will become entitled to receive thirty-percent (30%) of all Late Payment Charges from borrowers on Loans owned by the Company, with the remaining seventy-percent (70%) to be paid to the Manager.
(iv)   The Company will no longer pay the Manager any servicing fees for its services as servicing agent with respect to the Loans.
(v)   Notwithstanding Section 9 of the Management Agreement, the Company will no longer reimburse the Manager for salary and related salary expense of the Manager's non-management and non-supervisory personnel.
2.   The Management Agreement is hereby amended to add the following as Section 1(ii):
(ii)   Stockholders' Equity . As used in the calculation of the Management Fee, "Stockholders' Equity" means:
(i)   the sum of the net proceeds from any issuances of the Company's equity securities since inception (including the book value of the Company's Common Stock and additional paid-in capital at inception of the Company) less any amount that the Company pays for repurchases of its equity securities (determined as of the most recent month end), plus
(ii)   the Company's consolidated retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less
(iii)   any unrealized gains, losses or other items that do not affect realized net income as of the most recently completed calendar quarter, as adjusted to exclude
(iv)   one-time events pursuant to changes in United States Generally Accepted Accounting Principles and certain other non-cash charges after discussions between the Manager and the Company's Independent Directors and after approval by a majority of the Company's Independent Directors.
3.
The Management Agreement is hereby amended to add the following as Section 8(d):
8(d)   Computation of Management Fee . The Manager shall compute each installment of the  Management Fee reasonably promptly at the end of each calendar month.  A copy of the computations made by the Manager to calculate such installment shall thereafter promptly be delivered to the Board.
Because the Management Fee is to be paid monthly, and the components of Stockholders' Equity specified in clauses (ii), (iii) and (iv) in the definition of "Stockholders' Equity" will not be known until the end of the quarter in question, the Manager shall use the prior quarter's value as an estimate for each monthly payment and will effect a reconciliation at the end of the quarter, so that the actual aggregate Management Fee paid for each quarter will be based on the values of the components specified in clauses (ii), (iii) and (iv) in the definition of "Stockholders' Equity" at the end of that particular quarter as if the components specified in clauses (ii), (iii) and (iv) were known at each month end.
 
2
 
MISCELLANEOUS
4.
Representations and Warranties.
(A)   The Company represents and warrants to the Manager that this Amendment: (i) has been duly and validly executed and delivered by the Company; and (ii) constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles related to or limiting creditors' rights generally and by general principles of equity.
(B)   The Manager represents and warrants to the Company that this Amendment: (i) has been duly and validly executed and delivered by the Manager; and (ii) constitutes the legal, valid and binding obligation of the Manager, enforceable against the Manager in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles related to or limiting creditors' rights generally and by general principles of equity.
5.   Effective Date . This Amendment shall become effective on April 1, 2018.
6.   Binding Effect; Governing Law .  Except as modified hereby, the Management Agreement shall remain in full effect and this Amendment shall be binding upon the Company and Manager and their respective successors and assigns.  If any inconsistency exists or arises between the terms of Sections 9.1 , 9.2 and 9.3 of Article IX of the Charter, the Management Agreement and the terms of this Amendment, the terms of this Amendment shall prevail.  This Amendment shall be governed by the laws of the State of California.
7.   Entire Agreement . This Amendment embodies the entire agreement and understanding among the Company and the Manager relating to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof, including, for the avoidance of doubt, the voluntary adjustment to the Manager's compensation taken by the Manager in August 2017 pursuant to Section 9.4.2 of the Charter as disclosed in the Company's Form 10-Q for the quarter ended September 30, 2017.
8.   Counterparts .  This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one document.  To facilitate execution of this Amendment, the parties hereto may execute and exchange, by telephone facsimile or electronic mail PDF, counterparts of the signature pages.  Signature pages may be detached from the counterparts and attached to a single copy of this Amendment to physically form one document.
[SIGNATURE PAGE FOLLOWS]
 
3
IN WITNESS WHEREOF , the Company and the Manager have executed this Amendment as of the date first written above.
 
OWENS REALTY MORTGAGE, INC.
 
By:
 
         
 
 
 
/s/ Dennis G. Schmal
    Name: Dennis G. Schmal
       
 
 
Title:
Chairman of the Compensation Committee
       


OWENS FINANCIAL GROUP, INC.
 
By:
 
 
 
 
 
/s/ Bryan H. Draper
 
 
Name:
Bryan H. Draper
 
 
 
 
 
 
Title:
Chief Financial Officer



 
 


For Immediate Release

Contact:                 Investor Relations
Owens Realty Mortgage, Inc.
www.owensmortgage.com
(925) 239-7001

Owens Realty Mortgage, Inc.  Announces Amendment to Management Agreement
 to Permanently Reduce Management Fees and Expenses


WALNUT CREEK, CA. – April 3, 2018 – Owens Realty Mortgage, Inc. (the "Company") (NYSE AMERICAN: ORM) today announced that, as part of the previously announced effort to address the management compensation structure of the Company and improve corporate governance, the Company and Owens Financial Group, Inc. (the "Manager"), have entered into Amendment No. 1 (the "Amendment") to the Management Agreement, dated May 20, 2013, by and between the Company and the Manager (the "Management Agreement").  The Amendment was unanimously approved by the Company's Board of Directors (the "Board") and by the Audit Committee and Compensation Committee of the Board, each of which committees is composed exclusively of independent Board members. In connection with its consideration of the terms of the Amendment and related matters, the Compensation Committee considered input received from stockholders, independent financial advisors, independent legal counsel and management, and the analysis of multiple options relating to the Company's internal and external management compensation structure.

The Amendment reflects the agreement of the Board and the Manager to implement changes to the Manager's compensation structure effective as of April 1, 2018, including:

·
Making permanent the recent interim management fee adjustment along with an additional adjustment that will decrease the management fee when Stockholders' Equity of the Company exceeds $300 million;
·
Providing that the Company will receive thirty-percent (30%) of all fees and commissions, with the exception of certain miscellaneous administration fees, paid to the Manager in connection with the Company making, investing, extending or modifying mortgage loans and late payment charges from borrowers on loans owned by the Company; and
·
Eliminating service fees and certain expense reimbursements payable to the Manager.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment and additional details on the terms of the Amendment, which can be found in the Company's filing on Form 8-K with the Securities and Exchange Commission.

About Owens Realty Mortgage, Inc.
Owens Realty Mortgage, Inc., a Maryland corporation, is a specialty finance mortgage company organized to qualify as a real estate investment trust ("REIT") that focuses on the origination, investment, and management of small balance and middle-market commercial real estate loans. We provide customized, short-term acquisition and transition capital to commercial real estate investors that require speed and flexibility. Our primary objective is to provide investors with attractive current income and long-term shareholder value. Owens Realty Mortgage, Inc., is headquartered in Walnut Creek, California, and is externally managed and advised by Owens Financial Group, Inc.

Additional information can be found on the Company's website at www.owensmortgage.com.
 

 
Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements about Owens Realty Mortgage Inc.'s plans, strategies, prospects, and anticipated events, including the anticipated benefits of the Amendment to the Management Agreement, are based on current information, estimates, and projections; they are subject to, risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," "assume," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believe," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. The forward-looking statements made in this release include, but may not be limited to, expectations around the company's plans to distribute current and accumulated earnings in 2018, tax treatment and characterization of distributions made by the company in 2018, and timing and content of any announcements made with respect thereto.

Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these and other risk factors is contained in the Company's most recent filings with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements concerning the Company or matters attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.