Item 1.
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Security and Issuer
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This statement constitutes Amendment No. 5 to the Schedule 13D, as amended prior hereto, relating to shares of common stock, par value $0.01 per share, of
Broadway Financial Corporation (the Registrant), and hereby amends the Schedule 13D filed with the Securities and Exchange Commission (the Schedule 13D) to furnish the additional information set forth herein. All capitalized
terms contained herein but not otherwise defined shall have the meanings described to such terms in the Schedule 13D.
Item 4.
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Purpose of Transaction
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Item 4 of the Schedule 13D is hereby amended to add the following at the end thereof:
On May 28, 2020, The Capital Corps, LLC (Capital Corps) delivered a letter (the Letter) to the Board of Directors of the Registrant
(the Board) withdrawing its proposed acquisition offer. The full text of the body of the Letter is set forth below:
We write on behalf
of The Capital Corps, LLC (The Capital Corps) and its subsidiary, Commerce Home Mortgage, LLC (Commerce), which is your 9.6% shareholder. Based on our review of Broadways correspondence, recent public disclosures, and
other factors, including as described below, we hereby revoke our offer to purchase Broadways outstanding shares at $1.75 per share.
The continuing
lack of transparency and lack of candor by Broadways board of directors (the Board) in addressing our offer to purchase Broadways shares and Commerces lawful requests for access to books and records under California and
Delaware law suggest Broadway suffers serious weaknesses in its financial controls and corporate governance.
As a first step to remedy Broadways
fiduciary breaches, today Commerce filed a lawsuit in the Superior Court of California for the County of Los Angeles seeking Broadways compliance with our lawful demand to inspect the Companys books and records prior to the occurrence of
the 2020 annual meeting. Broadway is indefensibly hiding material information from shareholders and avoid transparency and accountability.
The
Companys cynical claim that it will not honor our inspection rights because it cannot confirm that we are actually shareholders of Broadway should alarm all shareholders.1 Broadway was
itself a signatory of the share purchase agreement by which we acquired our 9.6% stake in its voting common shares in May 2019. Moreover, Broadways position contradicts the Companys own public disclosures of our ownership in its Forms
10-K/A on April 29, 2020 and May 19, 2020 and in its subsequent proxy statement, as certified personally by the Companys Chief Executive Officer and Chief Financial Officer and filed with the Securities and Exchange Commission. These
inconsistencies alone raise serious questions about the Companys candor and the Boards view of its fiduciary duties to shareholders.
The
Board has and continues to engage in a pattern and practice designed to obstruct transparency, thus causing direct harm to shareholders. For example, on April 6, 2020, the Company filed an amendment to its Form 10-K to correct Exhibit 10.7,
Employment Agreement, dated as of March 22, 2017, for [CEO] Wayne-Kent A. Bradshaw. This amendment includedwithout any further explanationa corrected version of the CEOs employment agreement entered into more than
three years ago. While the Company did not disclose what corrections were made or why, our review of the newly filed agreement reveals that important changes were made to at least the provisions in Section 6 relating to Mr. Bradshaws
change-of-control payments.
It is highly unusual to correct a three-year-old agreement. Moreover, backdating of documents, including relating
to executive compensation, may be a violation of law and securities regulations. One concern is that contrary to the Companys public disclosure, the agreement was in fact amended after our initial buyout proposal to change provisions that
would have subjected Mr. Bradshaw to a 20% excise tax on his outsized2 change-of-control package under Internal Revenue Code Section 409A. At a minimum, the Companys disclosure of this
amendment and the reasons behind it is inadequate and demonstrates material flaws in the Companys system of financial controls. It is unacceptable that shareholders cannot rely on the accuracy of the CEOs employment contract on file for
three years. In fact, Commerce and other shareholders relied on the accurace of the CEO contract disclosure at the time they determined to acquire their interests in Broadway. We are now concerned that this post-effective reformation of a
non-compliant deferred compensation arrangement raises securities and tax concerns that may expose the Company, and all shareholders including Commerce, to significant liability and reduce the value of our holdings.
As an additional example, Commerce has been informed of serious executive misconduct that has been alleged by an employee at Broadway that has not been
disclosed to shareholders. This too raises serious issues of contingent liabilities, company disclosures, and tone at the top. We will be seeking further information relating to these whistleblower allegations.
It therefore shouldnt surprise us that Broadways Board operates in many ways in contravention of the most basic governance principles of ISS and
Glass Lewis and market norms of disclosure. Among other major problems, Broadway hides behind a staggered board, a non-shareholder-approved poison pill that lacks any justification, director elections without a majority vote requirement, and no
public disclosure of Risk Factors in its Form 10-K (enabled only by its falling market capitalization).3
Shareholders are owed, and the law requires, transparency by the Board alongside clear and accurate disclosures to allow appropriate decisions relating to
their shares. It is therefore no longer prudent for us to engage in purchase discussions with Broadway at this time. In fact we must consider the risks of continuing to hold our shares in Broadway absent full and accurate disclosures by the Company.
While we are forced to pursue our inspection rights through the courts, we reiterate our belief that Broadway owes all shareholders the answers to at
least the following questions:
1.
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How does Broadway intend to return to profitability?
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2.
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Are Broadways NOLs at risk of being lost?
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3.
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What is Broadways plan to ensure shareholders achieve a present value above $1.75 per share?
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4.
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Why hasnt Broadway designated African-American borrowers as a target market for its CDFI certification?
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5.
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Did Broadway make any loans to any African-American borrowers in 2019?
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6.
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Did Broadway make any loans to any Hispanic/Latino borrowers in 2019?
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7.
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Did Broadway make any loans to any low-income borrowers in 2019?
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8.
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Does Broadway have the liquidity to pay its interest expense at its holding company absent receipt of waivers
from the Office of the Comptroller of the Currency from regulations that restrict the payment of dividends that exceed earnings?
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9.
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Did Broadways Board received a fairness opinion relating to the level of change of control payments it
has issued to the management team (over 7% of market capitalization) following our LOI?
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10.
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Does Broadway believe its current level of Allowance for Loan and Lease Losses (ALLL) is sufficient post-COVID?
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We request Broadway reasonably delay its 2020 shareholder meeting until we are provided the books and records shareholders have legally
requested. Shareholders must be provided with adequate time to evaluate and consider the materials as well as the responses Broadway provides to the questions above. All shareholders deserve full transparency, just as those individuals in Los
Angeles underserved urban communities deserve the support that Broadways mission statement purports to provide.
As major shareholders, we
continue to explore the appropriate avenue through which to address the concerns we now have relating to the Boards faithfulness to its fiduciary duties, the accuracy and completeness of its public disclosures, conflicts of interest, and the
control environment at Broadway. We are concerned that Broadway is not fulfilling the mission that our capital is dedicated to financing due to our status as a CDFI, and look forward to better evaluating Broadways compliance with its mission
as well.
1
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Your attorney responded to our demand in a letter dated May 15, 2020 claiming Such rights are only
available to stockholders of record. I am informed that neither Commerce Home Mortgage, LLC nor any of the other apparently related persons or entities named in your prior correspondence appear in the Companys list of stockholders. Your
chairman Virgil Roberts personally endorsed this bad faith argument, emailing to Commerces Chairman that this was a Good letter.
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2
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Broadway has burdened its shareholders with change of control payments in favor of four senior officers
totaling approximately 7% of its book value. These payments were set to expire, but it appears that the Board elected to extend these excess payments following our offer to acquire the Company. The decision to re-commit to such payments may breach
director fiduciary duties to the detriment of shareholders given there is no intent by Commerce to retain management upon a change of control.
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3
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We expect Broadways counsel will advise us that Risk Factors disclosures are not required by law because
Broadways market capitalization does not exceed $75 million. Of course, this response would be consistent with the Boards established approach of avoiding any disclosure they feel they can.
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* * *
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The foregoing does not purport to be or contain a complete description of the Letter, a copy of which is filed as Exhibit 99.1 to this
Amendment No. 5 and incorporated herein by this reference.
Other than as described above, the Reporting Persons have no plans or proposals which relate
to or would result in any of the events described in (a) through (j) of Item 4, except as described in the Schedule 13D as hereby amended and as follows. The Reporting Persons are continually reviewing their interest in the Registrant. Depending
upon (i) the Registrants businesses, assets and prospects and the outcome of discussions with the Board regarding a potential acquisition, (ii) other plans and requirements of the Reporting Persons, (iii) general economic conditions and
overall market conditions and the ability of the Reporting Persons to carry out transactions without liability under Section 16 of the Securities and Exchange Act, (iv) the price at which shares of Common Stock are available for sale, and (v)
availability of alternative investment opportunities and the Reporting Persons investment strategy at the time, the Reporting Persons may seek to pursue the potential acquisition with the Registrant or to not pursue the potential acquisition
and instead decrease their holdings of Common Stock, and may seek to engage in communications with management or the Board of Directors of the Registrant or with other stockholders of the Registrant concerning the Issuers businesses,
prospects, operations, strategy, personnel, directors, ownership and capitalization, and either individually or together with others may make additional proposals with respect to the Registrant that may involve one or more of the types of
transactions specified in clauses (a) through (j) of Item 4 of Schedule 13D.
Item 7.
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Material to be Filed as Exhibits
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Exhibit
No.
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Description
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99.1
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Letter from The Capital Corps, LLC to the Registrant dated May 28, 2020.
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