SCHEDULE 14A (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant | | Filed by a Party other than the Registrant |X| Check the appropriate box: | | Preliminary Proxy Statement | | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |X| Definitive Proxy Statement | | Definitive Additional Materials | | Soliciting Material Under Rule 14a-12 SUNSET FINANCIAL RESOURCES, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) WESTERN INVESTMENT HEDGED PARTNERS LP WESTERN INVESTMENT LLC WESTERN INVESTMENT INSTITUTIONAL PARTNERS LLC WESTERN INVESTMENT ACTIVISM PARTNERS LLC ARTHUR D. LIPSON MATTHEW S. CROUSE JAMES S. SCHALLHEIM D. JAMES DARAS MARSHALL W. COBURN GERALD HELLERMAN - -------------------------------------------------------------------------------- (Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): |X| No fee required. | | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.(1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- | | Fee paid previously with preliminary materials: - -------------------------------------------------------------------------------- | | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- WESTERN INVESTMENT HEDGED PARTNERS LP September 12, 2006 Fellow Stockholders: The attached proxy statement and the enclosed GREEN proxy card are being furnished to you, the stockholders of Sunset Financial Resources, Inc. ("Sunset" or the "Company"), in connection with the solicitation of proxies by Western Investment Hedged Partners LP ("Western Investment") for use at the special meeting of stockholders of Sunset, and at any adjournments or postponements thereof and any meeting which may be called in lieu thereof (the "Special Meeting"), relating to the proposed merger involving Sunset and Alesco Financial Trust ("Alesco"). Pursuant to the attached proxy statement, we are soliciting proxies from holders of shares of Sunset common stock to vote AGAINST Sunset's proposed merger with Alesco, and specifically to vote against the proposals to approve the issuance of shares of Sunset common stock in the proposed merger and to adopt a new long-term incentive plan and other related proposals. The Special Meeting will be held on October 6, 2006 at 9:00 a.m., local time, at the Clarion Hotel Airport Conference Center at 2101 Dixie Clipper Dr., Jacksonville, Florida 32218. We urge you to carefully consider the information contained in the attached proxy statement and then support our efforts by signing, dating and returning the enclosed GREEN proxy card today. The attached proxy statement and the enclosed GREEN proxy card are first being furnished to Sunset stockholders on or about September 12, 2006. If you have already voted for Sunset management's proposals relating to the proposed merger, you have every right to change your vote by signing, dating and returning a later dated proxy card. If you have any questions or require any assistance with your vote, please contact Innisfree M&A Incorporated, which is assisting us, at their address and toll-free number listed on the following page. Thank you for your support, Arthur D. Lipson Western Investment Hedged Partners LP - -------------------------------------------------------------------------------- IF YOU HAVE ANY QUESTIONS, REQUIRE ASSISTANCE IN VOTING YOUR GREEN PROXY CARD OR NEED ADDITIONAL COPIES OF WESTERN INVESTMENT'S PROXY MATERIALS, PLEASE CALL INNISFREE M&A INCORPORATED AT THE PHONE NUMBERS LISTED BELOW. INNISFREE M&A INCORPORATED 501 MADISON AVENUE, 20TH FLOOR NEW YORK, NY 10022 STOCKHOLDERS CALL TOLL-FREE AT: (888) 750-5834 BANKS AND BROKERS CALL COLLECT AT: (212) 750-5833 ADDITIONAL INFORMATION CAN BE FOUND AT: www.fixmyfund.com - -------------------------------------------------------------------------------- SPECIAL MEETING OF STOCKHOLDERS OF SUNSET FINANCIAL RESOURCES, INC. ------------------------- PROXY STATEMENT OF WESTERN INVESTMENT HEDGED PARTNERS LP ------------------------- PLEASE SIGN, DATE AND MAIL THE ENCLOSED GREEN PROXY CARD TODAY Western Investment Hedged Partners LP ("Western Investment" or "we") is a significant stockholder of Sunset Financial Resources, Inc., a Maryland corporation ("Sunset" or the "Company"). Western Investment is writing to you in connection with the proposed merger (the "Merger") involving Sunset and Alesco Financial Trust ("Alesco"). The Board of Directors of Sunset (the "Sunset Board") has scheduled a special meeting of stockholders for the purpose of approving proposals related to the Merger (the "Special Meeting"). The Special Meeting is scheduled to be held on October 6, 2006 at 9:00 a.m., local time, at the Clarion Hotel Airport Conference Center at 2101 Dixie Clipper Dr., Jacksonville, Florida 32218. Western Investment does not believe the Merger is in the best interests of the stockholders of Sunset and is therefore soliciting proxies from the stockholders of Sunset AGAINST the following Merger proposals: 1. The Company's proposal to approve the issuance of shares of Sunset common stock pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of July 20, 2006, as amended by the letter agreement dated September 5, 2006 (the "Merger Agreement"), by and among Sunset, Alesco and Jaguar Acquisition Inc. ("Jaguar"), a wholly-owned subsidiary of Sunset, pursuant to which Alesco will merge with and into Jaguar, Jaguar will remain a wholly-owned subsidiary of Sunset and all outstanding shares of beneficial interest of Alesco will be converted into the right to receive 1.26 shares of Sunset common stock (subject to adjustment as set forth in the Merger Agreement). 2. The Company's proposal to adopt a new long-term incentive plan, the terms of which will be substantially similar to the Alesco plan that is being terminated effective with the closing of the Merger, and the implementation of which is contingent upon the closing of the Merger. 3. The Company's proposal to adjourn or postpone the Special Meeting, if necessary, for the purpose of soliciting additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the foregoing proposals. Western Investment, Western Investment LLC ("WILLC"), Western Investment Institutional Partners LLC ("WIIP"), Western Investment Activism Partners LLC ("WIAP"), Arthur D. Lipson, Matthew S. Crouse, James S. Schallheim, D. James Daras, Marshall W. Coburn and Gerald Hellerman are members of a group (the "Western Group") formed in connection with this proxy solicitation and are deemed participants in this proxy solicitation. See "Other Participant Information." This Proxy Statement and the GREEN proxy card are first being furnished to Sunset stockholders on or about September 12, 2006. Sunset has set the record date for determining stockholders entitled to notice of and to vote at the Special Meeting as August 21, 2006 (the "Record Date"). The principal executive offices of Sunset are located at 10245 Centurion Parkway North, Suite 305, Jacksonville, Florida 32256. Stockholders of record at the close of business on the Record Date will be entitled to vote at the Special Meeting. As of the Record Date, there were 10,513,100 shares of common stock, $0.001 par value per share (the "Shares"), reported to be outstanding by the Company, each Share entitled to one vote at the Special Meeting. As of September 12, 2006, the approximate date on which Western Investment expects to mail this Proxy Statement to the Sunset stockholders, Western Investment, along with all of the participants in this solicitation, are the beneficial owners of an aggregate of 1,022,300 Shares, which represent approximately 9.7% of the votes entitled to be cast at the Special Meeting. The participants in this solicitation intend to vote such Shares AGAINST the Company's Merger proposals. THIS SOLICITATION IS BEING MADE BY WESTERN INVESTMENT AND NOT ON BEHALF OF THE BOARD OF DIRECTORS OR MANAGEMENT OF SUNSET. WESTERN INVESTMENT IS NOT AWARE OF ANY OTHER MATTERS TO BE BROUGHT BEFORE THE SPECIAL MEETING. SHOULD OTHER MATTERS, WHICH WESTERN INVESTMENT IS NOT AWARE OF A REASONABLE TIME BEFORE THIS SOLICITATION, BE BROUGHT BEFORE THE SPECIAL MEETING, THE PERSONS NAMED AS PROXIES IN THE ENCLOSED GREEN PROXY CARD WILL VOTE ON SUCH MATTERS IN THEIR DISCRETION. WESTERN INVESTMENT URGES YOU TO SIGN, DATE AND RETURN THE GREEN PROXY CARD AGAINST THE COMPANY'S MERGER PROPOSALS. IF YOU HAVE ALREADY SENT A PROXY CARD FURNISHED BY SUNSET MANAGEMENT TO SUNSET, YOU MAY REVOKE THAT PROXY AND VOTE AGAINST THE COMPANY'S MERGER PROPOSALS BY SIGNING, DATING AND RETURNING THE ENCLOSED GREEN PROXY CARD. THE LATEST DATED PROXY IS THE ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE SPECIAL MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY FOR THE SPECIAL MEETING TO WESTERN INVESTMENT, C/O INNISFREE M&A INCORPORATED, WHICH IS ASSISTING IN THIS SOLICITATION, OR TO THE CHIEF EXECUTIVE OFFICER OF SUNSET (WITH A COPY TO INNISFREE M&A INCORPORATED), BY VOTING IN PERSON AT THE SPECIAL MEETING OR BY AUTHORIZING ANOTHER PROXY BY TELEPHONE OR OVER THE INTERNET, TO THE EXTENT PERMITTED. -2- IMPORTANT YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN. WESTERN INVESTMENT URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED GREEN PROXY CARD TODAY TO VOTE AGAINST THE COMPANY'S MERGER PROPOSALS. Western Investment does not believe that the Merger is in the best interest of the Company's stockholders. A vote AGAINST the Company's Merger proposals will enable you - as the owners of Sunset - to send a message to the Sunset Board that you are committed to maximizing the value of your Shares. o If your Shares are registered in your own name, please sign and date the enclosed GREEN proxy card and return it to Western Investment, c/o Innisfree M&A Incorporated, in the enclosed envelope today. o If any of your Shares are held in the name of a brokerage firm, bank, bank nominee or other institution on the Record Date, only it can vote such Shares and only upon receipt of your specific instructions. Accordingly, please contact the person responsible for your account and instruct that person to execute on your behalf the GREEN proxy card. Western Investment urges you to confirm your instructions in writing to the person responsible for your account and to provide a copy of such instructions to Western Investment, c/o Innisfree M&A Incorporated, who is assisting in this solicitation, at the address and telephone numbers set forth below, and on the back cover of this Proxy Statement, so that we may be aware of all instructions and can attempt to ensure that such instructions are followed. If you have any questions regarding your proxy, or need assistance in voting your Shares, please call: INNISFREE M&A INCORPORATED 501 MADISON AVENUE, 20TH FLOOR NEW YORK, NY 10022 STOCKHOLDERS CALL TOLL-FREE AT: (888) 750-5834 BANKS AND BROKERS CALL COLLECT AT: (212) 750-5833 ADDITIONAL INFORMATION CAN BE FOUND AT: www.fixmyfund.com -3- PROPOSAL NO. 1 APPROVAL OF PROPOSAL TO ISSUE SHARES OF SUNSET You are being asked by Sunset, in its Proxy Statement filed with the Securities and Exchange Commission on September 8, 2006 (the "Management Proxy Statement"), to approve the issuance of Shares to stockholders of Alesco in connection with the proposed Merger. The Merger cannot be consummated without Sunset stockholder approval of such issuance. For the reasons discussed below, we oppose the proposed Merger. To that end, we are soliciting your proxy to vote AGAINST Proposal No. 1. WE URGE YOU TO DEMONSTRATE YOUR OPPOSITION TO THE PROPOSED MERGER AND SEND A MESSAGE TO THE SUNSET BOARD THAT THE PROPOSED MERGER IS NOT IN THE BEST INTEREST OF THE SUNSET STOCKHOLDERS BY SIGNING, DATING AND RETURNING THE ENCLOSED GREEN PROXY CARD AS SOON AS POSSIBLE. REASONS TO VOTE AGAINST THE PROPOSED MERGER The following are the primary reasons why we believe stockholders should vote AGAINST the issuance of Shares to Alesco stockholders in connection with the proposed Merger. WE BELIEVE THAT THE PROPOSED EXCHANGE RATIO IN THE MERGER IS UNFAIR TO SUNSET'S STOCKHOLDERS Under the terms of the proposed Merger, stockholders of Alesco will receive 1.26 Shares of Sunset for each share of Alesco that they own. We believe that there are two numbers that clearly demonstrate that the proposed exchange ratio of 1.26 Sunset Shares for each Alesco share is unfair to Sunset's stockholders: SUNSET'S BOOK VALUE PER SHARE AT MARCH 31, 2006: $10.42 ALESCO'S BOOK VALUE PER SHARE AT MARCH 31, 2006: $9.40 So why is Sunset, a public company, paying a premium to stockholders of Alesco, a private company? Based on the companies' respective book values at March 31, 2006 and the proposed 1.26 exchange ratio, Sunset is effectively paying $13.13 per share, a staggering 40% premium to Alesco's book value, for a private company (1) that just commenced operations at the end of January 2006, (2) for which sophisticated investors, in a private offering of Alesco's shares, paid $10.00 per share on January 31, 2006, and (3) whose book value was $9.64 per share at June 30, 2006, as stated in the Management Proxy Statement. In addition, according to the Management Proxy Statement, the exchange ratio in the Merger would increase to 1.29 if the principal balance of Sunset's Peerless commercial loan, which matured as of June 8, 2006 and still had approximately $11.7 million outstanding as of September 6, 2006, is not changed as of September 14, 2006. -4- As stated in the Management Proxy Statement, the book value of the combined company would be $7.77. Sunset's stockholders would own 42% of the combined company and only 34% if the self-tender offer described below is fully subscribed. Sunset and Alesco management can make all the promises they want about how their new investment strategy will create value and result in increased returns to Sunset's stockholders, but how long will it take until Sunset's stockholders are able to recover from the substantial dilution they would suffer as a result of the Merger? We believe that it is the wrong time in the business cycle for Sunset to be pursuing Alesco's radically different investment strategy. We further believe that Sunset's and Alesco's revision of the Merger Agreement (which was announced on July 20, 2006 after our initial filing of this Proxy Statement) to include a "special merger dividend" of $0.50 per Share is a feeble attempt to create value for Sunset's stockholders that does nothing to lessen the dilutive impact of the Merger or the risks inherent in the new investment strategy, which are discussed at great length in the Management Proxy Statement and also referenced below. Of course, if Sunset's stockholders do not like the proposed Merger, they have the option to tender their Shares to the Company for an aggregate of $8.74 per Share (decreasing to $8.53 per Share if the principal balance of the Peerless loan is not changed as of September 14, 2006), which includes the special merger dividend of $0.50 per Share. We believe there are two problems with this option. First, it is only available to holders of approximately 29% of Sunset's Shares (or approximately 25% of Sunset's Shares if the principal balance of the Peerless loan is not changed as of September 14, 2006). Second, do you believe that tendering your Shares at a significant discount to book value is a viable or attractive option? You have another option - vote NO to the Company's Merger proposals. WE BELIEVE THAT THE MERGER IS NOT IN THE BEST INTEREST OF SUNSET'S STOCKHOLDERS In Sunset's first quarter earnings call held on May 10, 2006 (the "May 10 Conference Call"), Sunset's management claimed that Sunset explored three alternatives for the Company before deciding to pursue the Merger: (1) liquidating the Company; (2) continuing its existing business; and (3) pursuing a strategic transaction such as the Merger. We believe that the Merger represents a poor choice by Sunset's Board and management that displays an alarming lack of concern for stockholder interests. We believe that the reason the Merger was pursued is that Sunset's Board and management are not properly committed to Sunset's business or its stockholders. The current Sunset Board members and management combined beneficially own less than 1% of the Company, as reported in the Management Proxy Statement. The majority of their Shares was not acquired with their personal funds, but was awarded to them in the form of options and restricted stock grants. We believe that the lack of significant actual ownership of the Company by the Sunset Board and management contributed to their willingness to pursue a course of action that we believe does not maximize the value of Sunset's Shares and is not in the best interest of stockholders. We also believe that George Deehan's resignation as Sunset's Chief Executive Officer to pursue -5- "other interests", which was announced by Sunset on July 20, 2006, is a clear example of management's lack of commitment to the Company and its stockholders. Furthermore, as disclosed by Sunset's management in an investor presentation, Sunset's executive officers who then had employment agreements with the Company could receive approximately a $2.3-$2.7 million severance package in the aggregate as a result of the Merger. This amount included potential severance payments to Stacy Riffe, Sunset's Chief Financial Officer (and current Interim Chief Executive Officer), and George Deehan, its former Chief Executive Officer, who, as of the date of the Merger Agreement, had served in their respective positions for a matter of months (although Mr. Deehan seems to have voluntarily resigned, based on disclosure in the Management Proxy Statement, Sunset appears to have nonetheless agreed to pay him an amount equivalent to this severance payment). As discussed in the May 10 Conference Call, these severance payments adversely affect the valuation of the Sunset Shares, thereby worsening the exchange ratio in the Merger and the dilution suffered by Sunset's stockholders. Accordingly, we believe that Sunset's management may be advancing their own interests in the Merger at the expense of stockholders. Given their lack of significant actual ownership of the Company and the severance payments described above, we are not surprised that Sunset's Board and management have thrown their support behind the Merger rather than try to turn around a company that we believe has been grossly mismanaged. WE HAVE GRAVE CONCERNS REGARDING THE COMBINED COMPANY'S BUSINESS AND ALESCO'S BUSINESS AND MANAGEMENT STRUCTURE We question the wisdom of the Sunset Board's decision to fundamentally change Sunset's investment strategy to invest in what we believe to be a highly leveraged portfolio of credit-sensitive assets at this point in the business cycle. Our concerns were further heightened after having read the alarming 37 PAGES of risk factors in the Management Proxy Statement relating to the Merger and the combined company's business. These risks, which are identified and described in great detail by Sunset in the Management Proxy Statement, include: o THERE ARE SUBSTANTIAL COSTS ASSOCIATED WITH THE MERGER. The Management Proxy Statement states that the special committee of the Sunset Board estimates the costs involved in connection with completing the Merger to be approximately $13.8 million, including projected losses on the sale of Sunset's securitized mortgage loans. We believe that $13.8 million, on top of what we believe to be the inferior economics of the transaction, is too steep of a price to ask Sunset stockholders to pay for this deal. o THERE ARE NUMEROUS RISKS AND CONFLICTS ASSOCIATED WITH ALESCO'S MANAGEMENT STRUCTURE. As described in the Management Proxy Statement, these include: o Members of Alesco's management team have competing duties to other entities. We believe it is possible that these competing duties could result in decisions that are not in the best interests of stockholders. Alesco's top executives (who would become Sunset's top executives -6- following completion of the Merger) also serve as executive officers of Alesco's external manager, Cohen Brothers (and, in some cases, affiliates of Cohen Brothers), and are accordingly not exclusively dedicated to Alesco's business and investment activities and would not be exclusively dedicated to the combined company's business and investment activities after the Merger. The amount of time they spend on other existing and future business and investment activities could be material. o Alesco's management agreement with Cohen Brothers, which the combined company would assume, was negotiated between related parties. We do not know whether the terms of this management agreement, including the fees payable to Cohen Brothers (which include both a management and incentive fee), are as favorable as they would be if they had been negotiated with an unaffiliated third party. In addition, the incentive fee payable to Cohen Brothers under the management agreement may induce it to make riskier investments. o Cohen Brothers, which is solely responsible for managing Alesco's portfolio and will be solely responsible for managing the combined company's portfolio, owes no fiduciary obligation to stockholders. o There are potential conflicts of interest in Alesco's relationship with Cohen Brothers, which would continue to exist and apply to the combined company. We believe it is possible that these conflicts of interest could result in decisions that are not in the best interests of stockholders. Cohen Brothers is subject to conflicts in the allocation of investment opportunities. Affiliates of Cohen Brothers have overlapping investment objectives with Alesco, which could cause Alesco, and, following the Merger, the combined company, to forego attractive investment opportunities. Cohen Brothers may allocate such investment opportunities without considering what is in the best interest of Sunset's stockholders. o Because the combined company would not have any employees or separate facilities, it would be as "completely reliant" on Cohen Brothers as Alesco is prior to the Merger. o ALESCO AND COHEN BROTHERS HAVE LITTLE EXPERIENCE OPERATING A REIT, AND THE COMBINED COMPANY'S ABILITY TO PURSUE ALESCO'S CORE INVESTMENT STRATEGY MAY BE LIMITED. Two of Sunset's stated reasons for the Merger are the access to the financial expertise and management experience of Cohen Brothers and the opportunity to adopt a new investment strategy. Yet, the Company admits that Cohen Brothers has limited experience in managing a REIT. Also, although the combined company intends to pursue Alesco's investment strategy focused on trust preferred securities, or TruPS, issued by banks and insurance companies (Sunset claims that Cohen Brothers is a market leader in TruPS in these sectors, with over $7.0 billion of -7- its $17.0 billion in assets under management invested in these securities), middle market loans and residential mortgage backed securities, the Company admits that the combined company will be limited in its ability to acquire TruPS and leveraged loans or maintain its investments in these assets, which form a core part of Alesco's investment strategy. o ALESCO AND THE COMBINED COMPANY MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL NEEDED TO EXECUTE ITS BUSINESS PLAN AND FUND ITS GROWTH IN THE NEAR TERM. According to the Management Proxy Statement, Alesco has deployed substantially all of the net proceeds of its January 2006 offering, and Alesco and the combined company currently have no commitments for any additional financings. If this needed additional financing cannot be obtained, the Management Proxy Statement states that the combined company's ability to execute its investment and growth strategies would be adversely affected. Are you willing to take the risk that this financing will not be available? WE BELIEVE THAT SUNSET SHOULD PURSUE ITS STANDALONE BUSINESS PLAN As a stockholder of Sunset, we believe you should have another alternative. Western Investment believes that Sunset should hold its 2006 annual meeting of stockholders, which we believe is long overdue, concurrently with the Special Meeting. Doing so would give Sunset stockholders, in the event the Merger proposals are defeated, an opportunity to express their confidence in the Company's existing directors or to replace them with directors that stockholders believe would be more responsive to their interests. In addition, it would avoid the additional solicitation and mailing costs that Sunset would incur if it were to hold the annual meeting at a separate time. We intend to nominate directors for election at the annual meeting to give stockholders a choice as to the future direction for their company. The Western Group, as one of the largest group of stockholders of Sunset, shares your interest in the maximization of the value of your Shares. We have had discussions with Michael Tokarz regarding his (or his affiliate) managing all or a portion of Sunset's portfolio. Mr. Tokarz has over 30 years of lending and investment experience, including, currently, as Chairman and Portfolio Manager of MVC Capital (NYSE: MVC), a publicly traded business development company that makes private debt and equity investments; and as Chairman of The Tokarz Group, a private merchant bank that he founded; and, formerly, as a General Partner with Kohlberg Kravis Roberts & Co. (KKR), one of the world's most experienced private equity firms. We believe that Mr. Tokarz is a superior portfolio manager with an exceptional record. If our nominees are elected to the Sunset Board at Sunset's annual meeting, their plan is to engage in negotiations with Mr. Tokarz regarding his managing all or a portion of the Sunset portfolio, and any agreement that is reached with Mr. Tokarz to manage the Company's assets would be submitted to the newly reconstituted Sunset Board for its approval. Sunset's portfolio would be managed in accordance with applicable tax and securities laws relating to REITs, and it is our present intention that any significant change in Sunset's investment strategy that Mr. Tokarz deems advisable would be subject to prior stockholder approval. This is in stark contrast to the current Sunset Board and -8- management team, which effected a fundamental change in Sunset's investment strategy by entering into an interim management agreement with Cohen Brothers to transition Sunset's assets into assets consistent with Alesco's investment strategy, without first obtaining stockholder approval. There is no assurance that we will be able to meet with or reach a definitive agreement with Mr. Tokarz, or with respect to the returns that Mr. Tokarz would be able to achieve if he or an affiliate of his is retained. If we are unable to finalize an agreement with Mr. Tokarz, our plan is to work closely with current management in an effort to improve management's performance and Sunset's investment returns and also may seek to retain another highly qualified person or persons to manage all or a portion of Sunset's portfolio. There is no assurance that the actions described above will take place or be implemented if our nominees are elected. We believe that our alternative plan of action would avoid many of the costs associated with a liquidation of Sunset (one of the options discussed in the May 10 Conference Call) and the substantial dilution that Sunset's stockholders would suffer in the Merger. We believe that there is value to be realized for stockholders in Sunset's existing business, but that the Company needs a dedicated and stable board and management team to help it unlock its potential. We believe what is needed now is not the radical change in direction and uncertainty that the Merger would create, but better management. For the reasons discussed above, we believe the proposed Merger does not represent the best means for Sunset stockholders to maximize the value of their Shares. There can be no assurance that our suggested alternative to the proposed Merger as described above would improve the Company's business or otherwise enhance stockholder value. If you share our concerns, then we urge you to vote NO to Sunset's Merger proposals. WESTERN INVESTMENT IS DETERMINED TO STOP THE PROPOSED MERGER. OUR OPPOSITION IS BASED ON OUR FIRM COMMITMENT TO STOCKHOLDER VALUE AND OUR FIRM BELIEF THAT THE PROPOSED MERGER IS NOT IN THE BEST INTEREST OF SUNSET STOCKHOLDERS. WE THEREFORE URGE YOU TO VOTE YOUR GREEN PROXY CARD AGAINST THE ISSUANCE OF SHARES IN CONNECTION WITH THE PROPOSED MERGER. -9- PROPOSAL NO. 2 PROPOSAL TO ADOPT A NEW LONG-TERM INCENTIVE PLAN You are being asked by Sunset to approve a proposal to adopt a new long-term incentive plan in connection with the proposed Merger. For the reasons discussed above, we oppose the proposed Merger. To that end, we are soliciting your proxy to vote AGAINST Proposal No. 2. WESTERN INVESTMENT URGES YOU TO VOTE AGAINST SUNSET'S PROPOSAL TO ADOPT A NEW LONG-TERM INCENTIVE PLAN, THE TERMS OF WHICH WILL BE SUBSTANTIALLY SIMILAR TO THE ALESCO PLAN THAT IS BEING TERMINATED EFFECTIVE WITH THE CLOSING OF THE MERGER, AND THE IMPLEMENTATION OF WHICH IS CONTINGENT UPON THE CLOSING OF THE MERGER. -10- PROPOSAL NO. 3 PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING You are being asked by Sunset to approve a proposal to adjourn or postpone the Special Meeting, if necessary, for the purpose of soliciting additional proxies in the event that there are not sufficient votes at the time of the Special Meeting in favor of the proposals to approve the issuance of Shares pursuant to the Merger Agreement and to adopt the new long-term incentive plan. According to the Management Proxy Statement, Sunset may propose to adjourn the Special Meeting to a date not later than 120 days after October 6, 2006 for the purpose of soliciting additional proxies in favor of the foregoing proposals. For the reasons discussed above, we oppose the proposed Merger. To that end, we are soliciting your proxy to vote AGAINST Proposal No. 3. WESTERN INVESTMENT URGES YOU TO VOTE AGAINST SUNSET'S PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING, IF NECESSARY, FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES IN FAVOR OF PROPOSALS 1 AND 2. -11- CERTAIN INFORMATION REGARDING THE PROPOSED MERGER In accordance with the Merger Agreement, Alesco would merge with and into Jaguar and Jaguar would remain a wholly-owned subsidiary of Sunset. If the Merger is completed, stockholders of Alesco would receive 1.26 Shares of Sunset for each share of Alesco that they own at the effective time of the Merger. In connection with the proposed Merger, Sunset announced in April that it would commence a tender offer to purchase $25 million of its Shares for $8.74 per Share. Pursuant to a revision to the Merger Agreement announced by the Company on July 20, 2006, Sunset stockholders of record as of the close of business on the last trading day immediately preceding the Merger will receive a special merger dividend of $0.50 per Share and the tender offer price has been adjusted to $8.24 per Share to reflect this special dividend amount. The exchange ratio of 1.26 Sunset Shares for each Alesco share is subject to increase, and the $25 million repurchase amount and the $8.24 repurchase price in the tender offer are subject to reduction, if the principal balance of Sunset's Peerless commercial loan exceeds $8 million at September 14, 2006. According to the Management Proxy Statement, the principal balance of the Peerless loan was $11.7 million on September 6, 2006; if that balance is not changed as of September 14, 2006, the exchange ratio in the Merger would increase to 1.29. Based on disclosure provided in the Management Proxy Statement, upon completion of the Merger, Sunset stockholders would own approximately 42% of the combined company's shares (34% if the tender offer is fully subscribed). At the effective time of the Merger, Sunset is required to ensure that each option to purchase Sunset Shares and all warrants to purchase Sunset Shares, whether or not exercisable at the effective time of the Merger and regardless of the exercise price thereof, will be canceled, effective as of the effective time of the Merger, in exchange for the right to receive a single lump sum distribution, equal to the product of the number of Shares subject to such option or warrant, as applicable, immediately prior to the effective time of the Merger, whether or not vested or exercisable, and the excess, if any, of $8.74 over the exercise price per share of such option or warrant. If the exercise price per share of any such option or warrant is equal to or greater than $8.74, such option or warrant will be canceled without any cash payment. Sunset stockholders are not entitled to dissenters' rights of appraisal for their Shares in connection with the Merger. The foregoing description is not complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached to the Management Proxy Statement, as well as other information concerning the Merger set forth in the Management Proxy Statement. -12- VOTING AND PROXY PROCEDURES Only stockholders of record on the Record Date will be entitled to notice of and to vote at the Special Meeting. Each Share is entitled to one vote. Stockholders who sell Shares before the Record Date (or acquire them without voting rights after the Record Date) may not vote such Shares. Stockholders of record on the Record Date will retain their voting rights in connection with the Special Meeting even if they sell such Shares after the Record Date. Based on publicly available information, Western Investment believes that the only outstanding class of securities of Sunset entitled to vote at the Special Meeting is the Shares. Shares represented by properly executed GREEN proxy cards will be voted at the Special Meeting as marked and, in the absence of specific instructions, will be voted AGAINST the proposal to approve the issuance of shares of Sunset common stock in connection with the Merger, AGAINST the proposal to adopt a new long-term incentive plan and AGAINST the proposal to adjourn or postpone the Special Meeting, if necessary, for the purpose of soliciting additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the foregoing proposals and, in the discretion of the persons named as proxies, on all other matters as may properly come before the Special Meeting. If your Shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of Shares held in "street name." These proxy materials are being forwarded to you by your broker who is considered, with respect to those Shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker to vote your Shares, and your broker or nominee has enclosed a voting instruction card for you to use. If your Shares are held by a broker or nominee, please return your voting card as early as possible to ensure that your Shares will be voted in accordance with your instructions. You are also invited to attend the Special Meeting; however, since you are not the stockholder of record, you may not vote these Shares in person at the meeting without prior arrangement with your brokerage firm. QUORUM In order to conduct any business at the Special Meeting, a quorum must be present in person or represented by valid proxies. The presence in person or by proxy of holders of a majority of the outstanding Shares entitled to vote at the Special Meeting constitutes a quorum. All Shares that are voted "FOR", "AGAINST" or "ABSTAIN" on any matter will count for purposes of establishing a quorum (the "Votes Present"). VOTES REQUIRED FOR APPROVAL The approval of the issuance of shares of Sunset common stock in connection with the Merger and the approval of the long-term incentive plan require the affirmative vote of the holders of a majority of Shares cast on each proposal, in person or by proxy, provided that the holders of a majority of the Shares entitled to vote are present. The proposal to adjourn or postpone the Special Meeting, if necessary, for the purpose of soliciting additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the foregoing proposals, requires the affirmative vote of the -13- holders of a majority of the Shares present in person or by proxy, even if less than a quorum. Stockholders may cast their votes by marking the ballot at the Special Meeting, by submitting a proxy by telephone or over the internet, to the extent permitted, or by specific voting instructions sent with a signed proxy to either Western Investment in care of Innisfree M&A Incorporated at the address set forth on the back cover of this Proxy Statement or to Sunset at 10245 Centurion Parkway North, Suite 305, Jacksonville, Florida 32256 or any other address provided by Sunset. ABSTENTIONS Abstentions will count as Votes Present for the purpose of determining whether a quorum is present. Abstentions will not be treated as votes cast on any proposal set forth in this Proxy Statement. Accordingly, Western Investment believes that abstentions will have no effect upon the outcome of voting on the proposals set forth in this Proxy Statement. BROKER NON-VOTES Shares held in street name that are present by proxy will be considered as Votes Present for the purpose of determining whether a quorum is present. The term "broker non-vote" refers to Shares held in street name that are not voted with respect to a particular matter, generally because the beneficial owner did not give any instructions to the broker as to how to vote such Shares on that matter, and the broker is not permitted under applicable rules to vote such Shares in its discretion because of the subject matter of the proposal, but whose Shares are present on at least one matter. Such Shares shall be counted as Votes Present for the purpose of determining whether a quorum is present. Broker non-votes will not be counted as votes cast with respect to matters as to which the record holder has expressly not voted. Accordingly, Western Investment believes that broker non-votes will have no effect upon the outcome of voting on the proposals set forth in this Proxy Statement. REVOCATION OF PROXIES Stockholders of Sunset may revoke their proxies at any time prior to exercise by attending the Special Meeting and voting in person (although attendance at the Special Meeting will not in and of itself constitute revocation of a proxy), by authorizing another proxy by telephone or over the internet, to the extent permitted, or by delivering a written notice of revocation. The delivery of a subsequently dated proxy which is properly completed will constitute a revocation of any earlier proxy. The revocation may be delivered either to Western Investment in care of Innisfree M&A Incorporated at the address set forth on the back cover of this Proxy Statement or to Sunset at 10245 Centurion Parkway North, Suite 305, Jacksonville, Florida 32256 or any other address provided by Sunset. Although a revocation is effective if delivered to Sunset, Western Investment requests that either the original or photostatic copies of all revocations be mailed to Western Investment in care of Innisfree M&A Incorporated at the address set forth on the back cover of this Proxy Statement so that Western Investment will be aware of all revocations and can more accurately determine if and when proxies have been received from the holders of record on the Record Date of a majority of the outstanding Shares. Additionally, Innisfree M&A Incorporated may use this information to contact stockholders who have revoked their proxies in order to solicit later dated proxies against the Company's proposals in connection with the Merger. -14- IF YOU WISH TO VOTE AGAINST THE COMPANY'S PROPOSALS IN CONNECTION WITH THE MERGER, PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED GREEN PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. -15- SOLICITATION OF PROXIES The solicitation of proxies pursuant to this Proxy Statement is being made by Western Investment. Proxies may be solicited by mail, facsimile, telephone, telegraph, Internet, in person and by advertisements. Western Investment has entered into an agreement with Innisfree M&A Incorporated for solicitation and advisory services in connection with this solicitation, for which Innisfree M&A Incorporated will receive a fee not to exceed $75,000, together with reimbursement for its reasonable out-of-pocket expenses, and will be indemnified against certain liabilities and expenses, including certain liabilities under the federal securities laws. Innisfree M&A Incorporated will solicit proxies from individuals, brokers, banks, bank nominees and other institutional holders. Western Investment has requested banks, brokerage houses and other custodians, nominees and fiduciaries to forward all solicitation materials to the beneficial owners of the Shares they hold of record. Western Investment will reimburse these record holders for their reasonable out-of-pocket expenses in so doing. It is anticipated that Innisfree M&A Incorporated will employ approximately 40 persons to solicit Sunset stockholders for the Special Meeting. The entire expense of soliciting proxies will be borne by WILLC. Costs of this solicitation of proxies are currently estimated to be approximately $200,000. Western Investment estimates that through the date hereof, its expenses in connection with this solicitation are approximately $75,000. OTHER PARTICIPANT INFORMATION Each member of the Western Group is a participant in this solicitation. Arthur D. Lipson is the managing member of WILLC, a Delaware limited liability company. WILLC is the general partner of Western Investment and the managing member of WIIP, a Delaware limited liability company, and WIAP, a Delaware limited liability company. The principal business of Western Investment, WIIP and WIAP is acquiring, holding and disposing of investments in various companies. The principal business address of Mr. Lipson, Mr. Crouse, WILLC, Western Investment, WIIP and WIAP is c/o Western Investment LLC, 2855 E. Cottonwood Parkway, Suite 110, Salt Lake City, UT 84121. The principal business address of Mr. Schallheim is c/o University of Utah, Department of Finance, 1645 E. Campus Center Drive, Rm. 109, Salt Lake City, UT 84112. The principal business address of Mr. Daras is c/o Inter-Atlantic Group, 400 Madison Avenue, 16th Floor, New York, NY 10017. The principal business address of Mr. Coburn is 1000 South Pointe Drive #1402, Miami Beach, FL 33139. The principal business address of Mr. Hellerman is 10965 Eight Bells Lane, Columbia, MD 21044. As of the Record Date, Western Investment, WIIP and WIAP beneficially owned 305,300, 633,300 and 77,700 Shares, respectively, constituting approximately 2.9%, 6.0% and 0.7%, respectively, of the votes entitled to be cast at the Special Meeting. Mr. Lipson directly owned 6,000 Shares, constituting less than 1% of the votes entitled to be cast at the Special Meeting. As the general partner or managing member, as the case may be, of Western Investment, WIIP and WIAP, WILLC may be deemed to beneficially own the 1,016,300 Shares owned in the aggregate by Western Investment, WIIP and WIAP. As -16- the managing member of WILLC, Mr. Lipson may be deemed to beneficially own the 1,016,300 Shares beneficially owned by WILLC, in addition to the 6,000 Shares owned directly by Mr. Lipson. Each of WILLC and Mr. Lipson is deemed to have sole voting and dispositive power over the Shares reported as beneficially owned by Western Investment, WIIP and WIAP by virtue of their respective positions described above. Currently, none of Messrs. Crouse, Schallheim, Daras, Coburn and Hellerman beneficially owns any Shares. The principal business of WILLC is acting as the general partner and managing member, as the case may be, of Western Investment, WIIP and WIAP. The principal occupation of Mr. Lipson is acting as managing member of WILLC. The principal business of Western Investment, WIIP and WIAP is acquiring, holding and disposing of investments in various companies. The principal occupation of Matthew S. Crouse is serving as a portfolio manager at WILLC. The principal occupation of James S. Schallheim is serving as a Professor of Finance at the University of Utah. The principal occupation of D. James Daras is serving as a Partner of Inter-Atlantic Group, a money manager specializing in the financial services sector. The principal occupation of Marshall W. Coburn is serving as a General Partner and the President of Diversified Income Strategies Management Company, a mortgage-related hedge fund. The principal occupation of Gerald Hellerman is providing financial and corporate consulting services through his privately-owned firm, Hellerman Associates. Except as set forth in this Proxy Statement, no participant in this solicitation has a substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted on at the Special Meeting. On July 5, 2006, the members of the Western Group entered into an amended and restated Joint Filing and Solicitation Agreement in which, among other things, (a) the parties agreed to the joint filing on behalf of each of them of statements on Schedule 13D with respect to the securities of Sunset to the extent required by applicable law, (b) the parties agreed to solicit proxies or written consents (i) in opposition to Sunset's proposals in connection with the proposed Merger and (ii) in favor of the election of Western Investment's director nominees at the Company's 2006 annual meeting of stockholders (the "Solicitations"), and (c) WILLC agreed to bear all expenses incurred in connection with the Western Group's activities, including approved expenses incurred by any of the parties in connection with the Solicitations, subject to certain limitations. WILLC intends to seek reimbursement from Sunset of all expenses it incurs in connection with the Solicitations. WILLC does not intend to submit the question of such reimbursement to a vote of security holders of the Company. -17- OTHER MATTERS AND ADDITIONAL INFORMATION Western Investment is unaware of any other matters to be considered at the Special Meeting. However, should other matters, which Western Investment is not aware of a reasonable time before this solicitation, be brought before the Special Meeting, the persons named as proxies on the enclosed GREEN proxy card will vote on such matters in their discretion. Western Investment has omitted from this Proxy Statement certain disclosure required by applicable law that is already included in the Management Proxy Statement. This disclosure includes, among other things, detailed information relating to the background, reasons for, and terms and consequences of, the Merger, including risk factors, financial and pro forma information, tax consequences, accounting treatment, description of business conducted by Sunset and Alesco, description and share price information of the common stock of Sunset, comparison of rights of holders of shares of common stock of Sunset and common shares of Alesco, and interests of officers and directors of Sunset and Alesco in the Merger. The Management Proxy Statement also includes disclosure on deadlines and procedures for submitting proposals at Sunset's next annual meeting of stockholders under Rule 14a-8 of the Securities Exchange Act of 1934, as amended, and outside the processes of Rule 14a-8. Stockholders should refer to the Management Proxy Statement in order to review this disclosure. See Schedule I for information regarding persons who beneficially own more than 5% of the Shares and the ownership of the Shares by the management of Sunset. The information concerning Sunset and Alesco contained in this Proxy Statement and the Schedule attached hereto has been taken from, or is based upon, publicly available information. WESTERN INVESTMENT HEDGED PARTNERS LP SEPTEMBER 12, 2006 -18- SCHEDULE I THE FOLLOWING TABLE IS DERIVED FROM THE MANAGEMENT PROXY STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 2006. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SUNSET The following table and the notes thereto sets forth certain information with respect to the beneficial ownership of Sunset common stock as of August 21, 2006 by (1) each person known by Sunset to own beneficially more than 5% of Sunset's outstanding common stock, (2) each current director, (3) each named executive officer, and (4) all current directors and executive officers as a group. The number of shares beneficially owned by each entity, person, director or executive officer is determined under the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any stock as to which the individual has the sole or shared voting power or investment power and also any stock that the individual has a right to acquire as of October 20, 2006 (60 days after August 21, 2006) through the exercise of any share option or other right. Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his spouse) with respect to the stock set forth in the following table. Amount and Nature of Name Beneficial Ownership Percent of Class(1) - ---- -------------------- ------------------- Osterweis Capital Management, LLC One Maritime Plaza, Suite 800 San Francisco, CA 94111 1,247,100(2) 11.9% NWQ Investment Management Company, LLC 2049 Century Park East 16th Floor Los Angeles, CA 90067 1,096,339(3) 10.4% Hunter Global Associates LLC c/o Hunter Global Investors L.P. 485 Madison Avenue, 22nd Floor New York, NY 10022 1,039,000(4) 9.9% Western Investment LLC 2855 East Cottonwood Parkway Suite 110 Salt Lake City, UT 84121 1,016,300(5) 9.7% Thomas Bruce Akin c/o Talkot Crossover Fund, L.P. 2400 Bridgeway, Suite 300 Sausalito, CA 94965 966,500(6) 9.2% Mercury Real Advisors LLC 100 Field Point Road Greenwich, CT 06830 628,100(7) 6.0% -19- Amount and Nature of Name Beneficial Ownership Percent of Class(1) - ---- -------------------- ------------------- Teachers Insurance and Annuity Association of America 730 Third Avenue New York, NY 10017 622,299(8) 5.9% Byron L. Boston 60,833(9) * Stacy M. Riffe 10,000(10) * Rodney E. Bennett 7,000(11) * Joseph P. Stingone 8,000(11) * G. Steven Dawson 7,000(11) * Charles W. Wolcott -- * Charles D. Van Sickle -- * All directors and executive officers as a group (7 persons) 92,833 * - ------------------------ * Beneficial ownership of less than 1% of the class is omitted. (1) The percentages of shares owned provided in the table is based on 10,513,100 shares outstanding as of August 21, 2006. Percentage of beneficial ownership by a person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares of common stock outstanding as of such date and the number of unissued shares as to which such person has the right to acquire voting and/or investment power within 60 days. (2) John Osterweis is the control person of Osterweis Capital Management, Inc., which is the direct beneficial owner of 117,100 shares of common stock, and Osterweis Capital Management, LLC, which is the direct beneficial owner of 1,130,000 shares of common stock. These shares were acquired in the ordinary course of business, and not with the purpose of effect of changing or influencing control of the Company. Based solely on Schedule 13G filed August 8, 2006. (3) Shares are beneficially owned by clients of NWQ Investment Management, or NWQ, an investment advisor, which clients may include investment companies registered under the Investment Company Act and/or employee benefit plans, pension funds, endowment funds or other institutional clients. NWQ has the sole power to dispose of or to direct the disposition of 1,096,339 shares, and the sole power to vote or direct the vote of 1,040,039 shares. Based solely on Schedule 13G/A dated April 12, 2006. (4) The shares of Sunset common stock to which this relates are held directly by Hunter Global Investors Fund I L.P., Hunter Global Investors Fund II L.P., Hunter Global Investors Offshore Fund Ltd. and Hunter Global Investors Offshore Fund II Ltd. Hunter Global Associates L.L.C. ("Associates") is the sole general partner of, and has investment discretion over the securities held by, Hunter Global Investors Fund I L.P. and Hunter Global Investors Fund II L.P. Hunter Global Investors, L.P. ("Investors") is the investment manager of, and has investment discretion over the securities held by, Hunter Global Investors Fund I L.P, Hunter Global Investors Fund II L.P, Hunter Global Investors Offshore Fund Ltd. and Hunter Global Investors Offshore Fund II Ltd. Duke Buchan III is the senior managing member of Associates and the sole member of the general partner of Investors. Based solely on Form 4 filed March 27, 2006. -20- (5) Western Investment LLC, or WILLC, Arthur D. Lipson, Western Investment Hedged Partners LP, or WIHP, Western Investment Institutional Partners LLC, a Delaware limited liability company, or WIIP, and Western Investment Activism Partners LLC, or WIAP, jointly reported their stock ownership. Based solely on Schedule 13D/A filed May 3, 2006. (6) Thomas Akin is the direct beneficial owner of 543,100 shares of common stock, and is the managing general partner of Talkot Crossover Fund, L.P. (Fund), which is the direct beneficial owner of 423,400 shares of common stock. By virtue of the relationship between Mr. Akin and the Fund, Mr. Akin may be deemed to possess indirect beneficial ownership of the shares of common stock beneficially owned by the Fund. Based solely on Schedule 13D filed September 27, 2005. (7) Mercury Real Estate Advisors LLC, a Delaware limited liability company and Messrs. Jarvis and MacLean jointly reported their stock ownership. Mercury Real Estate Advisors LLC, is a registered investment adviser ("Mercury Advisors"), with respect to Sunset shares held by Mercury Special Situations Fund LP, Mercury Special Situations Offshore Fund, Ltd., Silvercrest Real Estate Fund, Silvercrest Real Estate Fund (International) and Silvercreek SAV LLC (collectively, the "Funds"), of which Mercury Advisors is the investment adviser. Mercury Advisors has investment discretion with respect to the Sunset shares held by the Funds. Messrs. Jarvis and MacLean are the Managing Members of Mercury Advisors. Based solely on the Schedule 13G filed on May 4, 2006. On August 28, 2006 Mercury Real Estate Advisors LLC issued a press release which stated that it had a 9.8% ownership interest in Sunset. An updated Schedule 13G has not yet been filed by Mercury Real Estate Advisors LLC. (8) Teachers Insurance and Annuity Association of America, or TIAA holds 303,820 shares of common stock for the benefit of TIAA Real Estate Account, a separate account of TIAA. In addition, TIAA, as the parent of two registered investment advisers, may be deemed to have indirect voting or investment discretion over 318,479 shares of common stock that are beneficially owned by three registered investment companies - College Retirement Equities Fund, or CREF, TIAA-CREF Institutional Mutual Funds, or Institutional Funds, and TIAA-CREF Life Funds, or Life Funds - whose investment advisers are TIAA-CREF Investment Management, LLC (in the case of CREF) and Teachers Advisors, Inc. (in the case of Institutional Funds and Life Funds), both of which are wholly owned subsidiaries of TIAA. TIAA is reporting the combined holdings of these entities for the purpose of administrative convenience. These shares were acquired in the ordinary course of business, and not with the purpose of effect of changing or influencing control of the Company. TIAA should not be construed, for the purpose of Sections 13 or 16 of the Securities Exchange Act of 1934, as the beneficial owner of these shares. Based solely on Schedule 13G dated December 31, 2005. (9) Includes options to purchase 33,333 shares of common stock, and 5,000 non-vested restricted shares. (10) Includes 6,944 non-vested restricted shares. As vested through August 2006. (11) Includes options to purchase 5,000 shares of common stock. -21- IMPORTANT Tell your Board what you think! Your vote is important. No matter how many Shares you own, please give Western Investment your proxy AGAINST the Company's Merger proposals by taking three steps: o SIGNING the enclosed GREEN proxy card, o DATING the enclosed GREEN proxy card, and o MAILING the enclosed GREEN proxy card TODAY in the envelope provided (no postage is required if mailed in the United States). If any of your Shares are held in the name of a brokerage firm, bank, bank nominee or other institution, only it can vote such Shares and only upon receipt of your specific instructions. Accordingly, please contact the person responsible for your account and instruct that person to execute the GREEN proxy card representing your Shares. Western Investment urges you to confirm in writing your instructions to Western Investment in care of Innisfree M&A Incorporated at the address provided below so that Western Investment will be aware of all instructions given and can attempt to ensure that such instructions are followed. If you have any questions or require any additional information concerning this Proxy Statement, please contact Innisfree M&A Incorporated at the address and phone numbers set forth below. INNISFREE M&A INCORPORATED 501 MADISON AVENUE, 20TH FLOOR NEW YORK, NY 10022 STOCKHOLDERS CALL TOLL-FREE AT: (888) 750-5834 BANKS AND BROKERS CALL COLLECT AT: (212) 750-5833 ADDITIONAL INFORMATION CAN BE FOUND AT: www.fixmyfund.com GREEN PROXY CARD SUNSET FINANCIAL RESOURCES, INC. SPECIAL MEETING OF STOCKHOLDERS THIS PROXY IS SOLICITED ON BEHALF OF WESTERN INVESTMENT HEDGED PARTNERS LP THE BOARD OF DIRECTORS OF SUNSET FINANCIAL RESOURCES, INC. IS NOT SOLICITING THIS PROXY P R O X Y The undersigned appoints Arthur D. Lipson and Michael Brinn, and each of them, as the undersigned's attorneys and agents with full power of substitution to vote all shares of common stock of Sunset Financial Resources, Inc. (the "Company") which the undersigned would be entitled to vote if personally present at the special meeting of stockholders of the Company, and including at any adjournments or postponements thereof and at any meeting called in lieu thereof (the "Special Meeting"). The undersigned hereby revokes any other proxy or proxies heretofore given to vote or act with respect to the shares of common stock of the Company held by the undersigned, and hereby ratifies and confirms all action the herein named attorneys and proxies, their substitutes, or any of them may lawfully take by virtue hereof. If properly executed, this Proxy will be voted as directed on the reverse and in the discretion of such attorneys and proxies and their substitutes with respect to any other matters as may properly come before the Special Meeting that are unknown to Western Investment Hedged Partners LP a reasonable time before this solicitation. IF NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSALS ON THE REVERSE, THIS PROXY WILL BE VOTED AGAINST PROPOSALS 1, 2, 3 & 4. This Proxy will be valid until the sooner of one year from the date indicated on the reverse side and the completion of the Special Meeting. IMPORTANT: PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY! CONTINUED AND TO BE SIGNED ON REVERSE SIDE GREEN PROXY CARD WESTERN INVESTMENT HEDGED PARTNERS LP RECOMMENDS A VOTE AGAINST PROPOSALS 1, 2, 3 & 4. [X] PLEASE MARK VOTE AS IN THIS EXAMPLE (1) The Company's proposal to approve the issuance of shares of Company common stock pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of July 20, 2006, as amended by the letter agreement dated September 5, 2006, by and among the Company, Alesco Financial Trust and Jaguar Acquisition Inc., a wholly-owned subsidiary of the Company, pursuant to which Alesco will merge with and into Jaguar, Jaguar will remain a wholly-owned subsidiary of the Company and all outstanding shares of beneficial interest of Alesco will be converted into the right to receive 1.26 shares of Company common stock (subject to adjustment as set forth in the Merger Agreement): FOR AGAINST ABSTAIN [ ] [ ] [ ] (2) The Company's proposal to adopt a new long-term incentive plan: FOR AGAINST ABSTAIN [ ] [ ] [ ] (3) The Company's proposal to adjourn or postpone the Special Meeting, if necessary, for the purpose of soliciting additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the foregoing proposals: FOR AGAINST ABSTAIN [ ] [ ] [ ] (4) The Company's proposal to transact any other business as may properly arise before the Special Meeting or any adjournments or postponements of the Special Meeting: FOR AGAINST ABSTAIN [ ] [ ] [ ] DATE: ------------------------------ - ------------------------------------ (Signature) - ------------------------------------ (Signature, if held jointly) - ------------------------------------ (Title) WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS SHOULD EACH SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC. SHOULD INDICATE THE CAPACITY IN WHICH SIGNING. PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS PROXY.
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DEFC14A Filing
Western Investment Inactive DEFC14AProxy in contested solicitation
Filed: 12 Sep 06, 12:00am