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EXHIBIT 99.2
LETTER TO STOCKHOLDERS
February 24, 1999
Dear Fellow Stockholder:
Damen Financial Corporation ("Damen") entered into an Agreement and Plan of
Merger with MidCity Financial Corporation ("MidCity") on February 22, 1999. The
Agreement and Plan of Merger (the "Merger Agreement") provides that MidCity
will acquire all of the issued and outstanding shares of Damen Common Stock for
$18.35 per share in cash, pursuant to a merger between Damen and a wholly owned
subsidiary of MidCity (the "Merger").
The Merger has been unanimously approved by Damen's Board of Directors. In
reaching its decision, the Board was advised by its financial advisor, Keefe
Bruyette & Woods, Inc. ("Keefe Bruyette"), that the per share acquisition price
is fair to the stockholders of Damen from a financial point of view.
Stockholders will have an opportunity to vote on the proposed Merger at a
Special Meeting of Stockholders (the "Special Meeting") expected to take place
in the second quarter of 1999 after a proxy statement providing more details
about the proposed Merger is prepared and sent to stockholders.
You should, however, be aware of the following information concerning the
proposed Merger:
- - As of the date hereof, the directors and executive officers of Damen
collectively own 280,990 shares (9.50%) of the issued and outstanding
Common Stock, as well as vested options to acquire an additional
137,351 shares (4.64%) of the Common Stock. It is anticipated that the
directors and executive officers will vote their shares in favor of the
Merger Agreement. The Merger Agreement provides (as do Damen's stock
option plans) that upon the consummation of the Merger, the holders of
unexercised vested options will receive the difference between the
exercise price and the $18.35 per share cash price for each share
covered by an option. The average exercise price for the options held
by the executive officers and directors is $11.71. It is anticipated
that options held by directors and executive officers covering another
77,626 shares will vest prior to the consummation of the Merger.
Options representing 167,835 shares of Damen Common Stock, which will
not have vested prior to the consummation of the Merger, will be
cancelled upon the consummation of the Merger. Damen's stock option
plans and the awards to the nine directors and executive officers were
approved by stockholders in May of 1996. See discussion under the
headings, "EXECUTIVE COMPENSATION" and "DIRECTOR COMPENSATION" in
Damen's Proxy Statement for this year's Annual Meeting (the "Annual
Meeting Proxy Statement") which was mailed to stockholders on or about
January 28, 1999.
- - It is anticipated that the directors and executive officers of Damen
will hold 66,657 unvested shares of Common Stock under Damen's
Recognition and Retention Plan ("RRPs") prior to the consummation of
the Merger. The Merger Agreement provides that these shares will be
cancelled upon the consummation of the Merger. The RRPs and the awards
to the nine directors and executive officers were approved by
stockholders in May of 1996.
- - As disclosed in the Annual Meeting Proxy Statement, the
executive officers are entitled to receive certain severance payments
under their employment agreements upon their termination following a
change-in-control of Damen National Bank. The consummation of
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the Merger will constitute a change-in-control of Damen National Bank.
MidCity has indicated that it will terminate employment of these
officers following the consummation of the Merger, which will result in
payment of severance. These executive officers will be prohibited from
competing with Damen National Bank for a one-year period following
their termination. See the discussion under the heading "EXECUTIVE
COMPENSATION," in the Annual Meeting Proxy Statement.
- - The affirmative vote of the holders of a majority of the issued and
outstanding shares of Damen Common Stock is required to approve the
Merger. If stockholders holding more than 5% of the Common Stock
dissent from the Merger, MidCity will have the right to terminate the
Merger, if it so chooses.
- - The Merger must be approved by the Board of Governors of the Federal
Reserve System. In addition, the consummation of the Merger is subject
to the satisfaction of other conditions customary for transactions like
the Merger. The business of Damen until the consummation of the Merger
will be conducted in accordance with certain guidelines contained in
the Merger Agreement.
- - The Merger Agreement permits Damen to pay its regular quarterly
dividend of $.12 per share until the consummation of the Merger.
- - The Merger Agreement requires the Board of Directors of Damen to
recommend that stockholders approve the Merger at the Special Meeting,
subject to the Board's fiduciary duties.
- - The obligations of Damen under the Merger Agreement, and the fiduciary
duties of the Board of Directors in making determinations relating to
the Merger Agreement (including any termination of, or recommendation
that stockholders approve, the Merger Agreement), will be the same
whether the incumbent Directors or the stockholder nominees (or any
combination) are elected to the Board of Directors at the Annual
Meeting.
- - Damen has no general right to terminate the Merger Agreement except
under certain specified circumstances. The Merger Agreement provides
customary termination provisions which allow Damen to terminate the
Merger Agreement in limited circumstances, including if the Board
receives a Takeover Proposal (as defined in the Merger Agreement)
which is, in the opinion of Damen's Board of Directors, more favorable
from a financial point of view to the stockholders, and the Board
determines, after receiving advice of counsel, that to proceed with
the Merger would violate the Board's fiduciary duties to stockholders.
Damen will have to pay a "Termination Fee" to MidCity of $1.0 million
plus reimburse MidCity for its reasonable out-of-pocket expenses if it
terminates the Merger Agreement for the reasons indicated. The
foregoing provisions apply regardless of whether the incumbent
Directors or the stockholder nominees (or any combination) are elected
to the Board of Directors at the Annual Meeting.
- - In addition, if the Merger Agreement is terminated because (i) Damen
receives a Takeover Proposal which the Board elects to pursue or (ii)
the Board fails to recommend that the stockholders approve the Merger,
or withdraws, modifies or amends, in any manner adverse to MidCity, its
approval or recommendation or recommends that stockholders accept a
Takeover Proposal, and within the following two years Damen enters into
a Takeover Proposal or Damen's Board shall have approved a Takeover
Proposal, Damen will be required to pay MidCity a "Termination Fee" of
$1.0 million as well as reimburse its reasonable out-of-pocket
expenses. Either party may be liable for damages if it breaches the
Merger Agreement which leads to the termination of the Merger. More
detailed provisions concerning the termination provisions of the Merger
Agreement are contained in the Merger
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Agreement, which will be filed by Damen with the Securities and
Exchange Commission (the "SEC") as an exhibit to a Form 8-K on or about
February 24, 1999. Damen's SEC filings are available to the public on
the Internet at http://www.sec.gov.
- - The Merger Agreement prohibits Damen, its executive officers,
directors, representatives and agents from: (i) soliciting any Takeover
Proposals from any persons which could reasonably be expected to lead
to an acquisition of Damen, and (ii) entering into negotiations with
any person for any such Takeover Proposal. Subject to certain
limitations, the Merger Agreement permits Damen to provide information
to any person who makes an unsolicited proposal to acquire Damen if
the Board determines in good faith, after consultation with counsel,
that its fiduciary duties require it to provide such information.
These restrictions will apply without regard to whether the incumbent
Directors or the stockholder nominees (or any combination) are elected
to the Board of Directors at the Annual Meeting.
- - Damen's investment banker has advised the Board that, in its opinion,
the per share cash price is fair to the stockholders of Damen from a
financial point of view. This opinion will be updated immediately prior
to the distribution of Damen's proxy statement for the Special Meeting.
In order to give stockholders time to consider the above information so as to be
able to make an informed decision before the Annual Meeting, and after
consultation with the SEC, Damen determined that it is appropriate to postpone
its Annual Meeting of Stockholders. As a consequence, the Annual Meeting has
been rescheduled to Friday, March 12, 1999, at 9:30 a.m., at the Marriott Hotel,
located at 50 North Martingale Road, Schaumburg, Illinois.
As you are aware, a group of dissident stockholders (the "Committee") is
conducting a disruptive proxy contest.
The Board believes Damen has made, and continues to make, significant
improvements in its business through a combination of hard work and disciplined
investment of your capital. Above all else, your Board is committed to enhancing
the value of your investment in Damen. Damen has continued its successes of
fiscal 1998 throughout the first quarter of this fiscal year. The following are
some of the highlights for the quarter ended December 31, 1998, compared with
the quarter ended December 31, 1997:
- Diluted Earnings - $0.18 per share, up from $0.15 - 20% increase
- Average Interest Spread - 2.01%, up from 1.85% - 8.6% increase
- Return on Assets (ROA) - .87%, up from .79% - more than 10% increase
- Quarterly Dividend - $0.12 per share, up from $0.06 - 100% increase -
66% of quarterly earnings
- Book Value per Share - $15.31, improved from $14.97
- Non-interest Income - $126,000, up from $45,000 - 280% increase
- Damen's Efficiency Ratio - Improved to 69.19% from 72.85%
The Committee has continually criticized Damen's stock price. As indicated in
the Annual Meeting Proxy Statement, Damen's return on investment for the period
from October of 1995 through December 31, 1998 was 73.5%, which your Board
believes is a fair return on your investment. Furthermore, comparing the
proposed purchase price of $18.35 per share offered by MidCity against Damen's
initial offering price of $10.00 indicates that the return on Damen's shares has
been 83.5% for the period from October of 1995 until February 22, 1999,
exclusive of dividends. Adding in the dividends paid of $1.00 per share since
January 1, 1996, improves the return to 93.5%. The Board
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believes that an 93.5% return on an investment in Damen's Common Stock, a small
bank holding company, which has a thinly-traded stock, represents a fair return
on your investment.
Your Board of Directors has always recognized its primary duty to be the
maximization of stockholder value. As a consequence, your Board engaged an
investment banking firm in March of 1998 to assist it in exploring its strategic
options, including a possible sale of Damen. Keefe Bruyette, pursuant to the
instructions given by your Board, held discussions with other companies to
determine if there is any interest in acquiring Damen. These discussions led to
the proposal made by MidCity which is embodied in the Merger Agreement.
The Committee has been critical of the compensation paid to management. The
facts are, however, that no bonuses were awarded for 1997 or 1998 and no pay
raises were granted for 1998 and 1999 (with the exception of a modest salary
increase for one officer). In addition, the executive officers took voluntary
pay cuts during the first quarter of 1997.
The Board would also note that the stock awards under its stock option plans and
recognition and retention plan were submitted to the stockholders and
overwhelmingly approved by them in May of 1996. In fact, Duggan advised Damen
management that he voted to approve these plans. In Damen's initial public
offering, Damen disclosed that it intended to enter into employment agreements
with its officers and disclosed the terms of these agreements. Damen has
disclosed all compensation paid to these officers in its proxy materials. As
noted in the Report of the Compensation Committee contained in the Annual
Meeting Proxy Statement, the Compensation Committee (which consists of four
outside directors) looked at a number of factors when setting executive
compensation, including compensation reviews prepared by third parties. Your
Board believes that the Committee's criticism of executive compensation is
unwarranted.
Your Board is urging you to vote "FOR" three current directors (Messrs. Tybor
and Caputo and Ms. Poronsky) who collectively have faithfully served the
interests of Damen and its stockholders, depositors and customers for over 60
years. See discussion in the Annual Meeting Proxy Statement, "PROPOSAL I --
ELECTION OF DIRECTORS." Your Board is also urging you to vote "AGAINST" a
proposal supported by the Committee. See discussion in the Annual Meeting Proxy
Statement, "PROPOSAL III -- STOCKHOLDER PROPOSAL."
FOR THE REASONS DISCUSSED ABOVE AND IN THE ANNUAL MEETING PROXY
STATEMENT, THE BOARD URGES YOU TO SUPPORT YOUR BOARD. IF YOU HAVE NOT ALREADY
DONE SO, PLEASE PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED WHITE PROXY CARD
INDICATING YOUR VOTE FOR DAMEN'S NOMINEES FOR DIRECTORS AND THE SELECTION OF
DAMEN'S AUDITORS AND YOUR VOTE AGAINST THE STOCKHOLDER PROPOSAL.
THE BOARD ALSO UNANIMOUSLY AND VIGOROUSLY OPPOSES THE COMMITTEE'S
SOLICITATION OF PROXIES AND URGES YOU NOT TO SIGN ANY PROXY YOU MAY RECEIVE FROM
THE COMMITTEE.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE,
WE URGE YOU TO CONTACT THE PARTY RESPONSIBLE FOR YOUR ACCOUNT AND DIRECT HIM OR
HER TO VOTE "FOR" DAMEN'S NOMINEES AND "AGAINST" THE STOCKHOLDER PROPOSAL ON
DAMEN'S WHITE PROXY CARD.
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I strongly urge you to support your current Board of Directors by signing,
dating and returning the enclosed WHITE proxy card in the postage-paid overnight
mail envelope provided.
Very truly yours,
/s/ Mary Beth Poronsky Stull
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Mary Beth Poronsky Stull
President
and Chief Executive Officer
IF YOU HAVE ANY QUESTIONS OR REQUIRE ANY ASSISTANCE, PLEASE CONTACT OUR PROXY
SOLICITOR, D.F. KING & CO. , INC. AT 1-800-628-8538.
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IMPORTANT
Your vote is important, no matter how many shares you own. Please
support your Board of Directors by signing, dating and promptly mailing your
enclosed WHITE proxy card. Remember, only your latest dated card will count. DO
NOT SIGN ANY CARD SENT TO YOU BY THE SO-CALLED COMMITTEE.
If you have already submitted a proxy to the Committee, you may change
your vote to a vote "FOR" the election of the Company's nominees and "AGAINST"
the Stockholder Proposal by signing, dating and returning the WHITE proxy card,
which must be dated after the proxy you submitted to the Committee. Only your
latest proxy for the Meeting will count at the Meeting.
If your shares are held in a brokerage firm, bank, bank nominee or
other institution, only it can vote your shares and only after receiving
specific instructions. Accordingly, please call the person responsible for your
account and instruct that person to execute the WHITE card on your behalf.
If you have any questions or need assistance, please call us at
847-882-5320 and ask to speak to Janine Poronsky or Mary Beth Poronsky Stull.
You may also call D.F. King, which is assisting us, toll-free at:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
1-800-628-8538
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