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)) | | Definitive Proxy Statement |X| 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 ("Western Investment"), together with the other participants named herein, is filing materials contained in this Schedule 14A with the Securities and Exchange Commission in connection with the solicitation of proxies against the proposed merger involving Sunset Financial Resources, Inc. (the "Company") and Alesco Financial Trust and related proposals (collectively, the "Merger Proposals") to be submitted to a vote of the stockholders of the Company at a special meeting of stockholders scheduled to be held on October 6, 2006 (the "Special Meeting"). Item 1: On or about September 26, 2006, Western Investment mailed the following letter to stockholders of the Company: WESTERN INVESTMENT HEDGED PARTNERS LP September 26, 2006 Dear Fellow Stockholder: The Western Group is the holder of 9.7% of Sunset Financial Resources, Inc. ("SFO"). We are strongly opposed to the proposed merger with Alesco Financial Trust being considered at the October 6, 2006 Special Meeting of Stockholders. You should be aware that, on September 15, 2006, SFO announced adjusted terms to its deal with Alesco that we believe are even more disadvantageous to SFO stockholders. We urge you to join us in voting AGAINST the proposed merger and related proposals by executing the enclosed GREEN proxy card today. WE BELIEVE THAT SFO STOCKHOLDERS ARE GIVING UP TOO MUCH AND RECEIVING TOO LITTLE. WHY IS THE SFO BOARD OF DIRECTORS GIVING AWAY YOUR COMPANY TO ALESCO AND THE COHEN BROTHERS? Consider the following: o Under the proposed deal with Alesco, stockholders of Alesco will receive 1.29 SFO shares for each share of Alesco that they own. This means: --SFO stockholders are effectively PAYING $13.44 per share* for assets Alesco is carrying at $9.40 per share*. --SFO stockholders are effectively PAYING Alesco holders a 43%* premium for their shares. As a result, the book value of your shares would DROP by $2.65 in the transaction. o We believe that SFO's self-tender offer for $8.53 per share (inclusive of the $0.50 per share dividend) grossly undervalues your shares, which have a book value of $10.42 per share*. We believe that SFO's stockholders should receive full value for their shares. o SFO's stockholders would own only 42% of the combined company (and only 34% if SFO's self-tender offer is fully subscribed). So why are Alesco's stockholders, rather than SFO's stockholders, receiving a change of control premium in this transaction? *based upon book values at 3/31/06. o Don't be fooled by the $0.50 "pre-closing" dividend! Remember, YOUR book value will be reduced in an effort to win approval of what we believe to be an ill-conceived and unfair merger deal. o We believe that the new Cohen Brothers investment strategy for SFO, which current management put in place WITHOUT YOUR APPROVAL, is badly timed and carries much more risk and leverage than SFO's original business plan. It will also generate significant fees for the Cohen Brothers and its affiliates at YOUR expense. o Cohen Brothers and its affiliates stand to earn enormous up-front fees from managing and structuring investments for SFO, which would adversely affect the economics for SFO stockholders. COHEN BROTHERS AND ITS AFFILIATES HAVE RECEIVED OVER $22 MILLION IN FEES FROM ALESCO DEALS IN JUST THE FIRST SIX MONTHS OF 2006. o The deal, which SFO estimates will cost $13.8 million to complete, includes approximately $2.3 - $2.7 million in severance payments to SFO's management. PRESERVE YOUR COMPANY'S ABILITY TO PURSUE SUPERIOR ALTERNATIVES Remember, the Western Group intends to nominate candidates for election to the SFO Board of Directors at its 2006 annual meeting. If the Alesco deal is voted down, you will have an opportunity to elect directors who will put stockholders' interests first. We believe SFO should remain a standalone company and that--with a dedicated board and new management--it can succeed in maximizing the value of your investment. We have had discussions in that regard with Michael Tokarz, who is currently Chairman and Portfolio Manager of MVC Capital, Inc., Chairman of The Tokarz Group and formerly a General Partner of Kohlberg Kravitz Roberts & Co. (KKR). We believe that Mr. Tokarz is a superior portfolio manager of high integrity with a proven track record of increasing returns and returning money to stockholders. MVC's stock has returned over 22% annually to its stockholders since Mr. Tokarz became Chairman in November 2003. Western Investment is proud to be over a 7% stockholder in MVC. We believe the SFO Board of Directors is trying to force stockholders to accept a highly dilutive merger, and Cohen Brothers' new investment strategy for SFO will employ extreme leverage and result in significant credit risks from the derivative securities structured by affiliates of Cohen Brothers and sold to SFO in non-arms' length transactions. THESE DERIVATIVES ARE GENERALLY CONSIDERED TO BE MUCH RISKIER THAN THE AVERAGE JUNK BOND. Do you want this risk? PROTECT YOUR INVESTMENT--VOTE AGAINST THE MERGER ON THE GREEN PROXY CARD We are convinced that the proposed merger is not in your best interests. We have previously sent you our proxy statement, which contains important information and a more detailed discussion of our reasons for opposing the proposed merger. We urge you to read it carefully and then join us in voting down this transaction, which we believe is unfair to SFO's stockholders. Please vote AGAINST the proposed merger and related proposals today by signing, dating and returning the enclosed GREEN proxy card. Thank you for your support. Art Lipson On behalf of the Western Group ================================================================================ TIME IS SHORT AND YOUR VOTE IMPORTANT! If your shares are held in your own name, please sign, date and return the enclosed GREEN proxy card TODAY in the envelope provided. If your shares are held in "Street-Name," only your broker or bank can vote your shares and only upon your specific instructions. WE URGE YOU TO VOTE BY TELEPHONE OR INTERNET TODAY. (Remember to locate the Control Number on the GREEN proxy card when voting by telephone or Internet.) DO NOT USE ANY WHITE PROXY CARD YOU MAY RECEIVE FROM SFO. If you have already voted using the White card, you have every legal right to change your vote--only your latest-dated vote counts. Simply vote using the GREEN proxy card today! If you have any questions, or need assistance in voting your shares, please contact: INNISFREE M&A INCORPORATED STOCKHOLDERS CALL TOLL-FREE: (888) 750-5834 Banks and Brokers call collect: (212) 750-5833 ================================================================================ FOR MORE INFORMATION, VISIT WWW.FIXMYFUND.COM For registered holders: ================================================================================ LATE BREAKING NEWS! Institutional Shareholder Services (ISS), one of the leading independent voting advisory firms worldwide, recommends that Sunset stockholders use the GREEN proxy to vote AGAINST all proposals. ISS recommends that Sunset holders do not vote on the company's white proxy card. In its analysis, ISS noted: "We believe the company has not fully explored the alternative of hiring an external manager prior to approving the merger agreement. Additionally, we do not think the merger is clearly beneficial to shareholders, as it assigns liquidation-like values to Sunset, a management agreement with an inherently high level of conflicts of interest and losing control of the company with no premium. By contrast, several of the benefits of the merger were apparently available for Sunset by exploring the external manager alternative before agreeing to the transaction." ================================================================================ TIME IS SHORT AND YOUR VOTE IS IMPORTANT! Since the October 6 meeting is fast approaching, WE ENCOURAGE YOU TO SUBMIT YOUR GREEN PROXY BY FAX. PLEASE SIGN AND DATE YOUR CARD AND FAX BOTH SIDES TO: (212) 750-5799. If you have any questions or need assistance in voting your shares, please call Innisfree M&A Incorporated, toll-free, at (888) 750-5834. For "street name" holders: ================================================================================ LATE BREAKING NEWS! Institutional Shareholder Services (ISS), one of the leading independent voting advisory firms worldwide, recommends that Sunset stockholders use the GREEN proxy to vote AGAINST all proposals. ISS recommends that Sunset holders do not vote on the company's white proxy card. In its analysis, ISS noted: "We believe the company has not fully explored the alternative of hiring an external manager prior to approving the merger agreement. Additionally, we do not think the merger is clearly beneficial to shareholders, as it assigns liquidation-like values to Sunset, a management agreement with an inherently high level of conflicts of interest and losing control of the company with no premium. By contrast, several of the benefits of the merger were apparently available for Sunset by exploring the external manager alternative before agreeing to the transaction." ================================================================================ TIME IS SHORT AND YOUR VOTE IS IMPORTANT! Since the October 6 meeting is fast approaching, WE ENCOURAGE YOU TO SUBMIT YOUR GREEN PROXY BY TELEPHONE OR VIA THE INTERNET. Please locate the 12-digit Control Number on the enclosed GREEN PROXY, and either: 1. CALL 1-800-454-8683, OR 2. GO TO WWW.PROXYVOTE.COM. If you have any questions or need assistance in voting your shares, please call Innisfree M&A Incorporated, toll-free, at (888) 750-5834. The website http://www.fixmyfund.com is being updated to include a link to the above letter. Item 2: On September 26, 2006, Western Investment issued the following press release: FOR IMMEDIATE RELEASE ISS RECOMMENDS VOTE AGAINST SUNSET FINANCIAL RESOURCES (SFO) MERGER WITH ALESCO FINANCIAL TRUST SALT LAKE CITY (September 26, 2006) -- Institutional Shareholder Services ("ISS"), respected and influential provider of voting advisory services to institutional investors worldwide, recommends that its clients vote on the GREEN proxy card AGAINST ALL PROPOSALS being considered at the Sunset Financial Resources (NYSE:SFO) Special Meeting of Stockholders scheduled for October 6, 2006, Western Investment Hedged Partners LP announced today. In making its recommendation to vote AGAINST Sunset's proposed merger with Alesco Financial Trust, ISS stated that it does "not think the merger is clearly beneficial to shareholders, as it assigns liquidation-like values to Sunset, a management agreement with an inherently high level of conflicts of interest and losing control of the company with no premium." ISS went on to recommend a vote AGAINST the long-term incentive plan and the proposal to adjourn the meeting to allow for additional proxy solicitation. Art Lipson, of Western Investment, commented: "We believe that ISS has reached the right conclusion that this transaction undervalues Sunset. It changes Sunset's fundamental investment strategy and management without shareholder approval and dramatically increases the fees and expenses Sunset holders will have to bear going forward. We think it is simply a bad deal that should be rejected." Mr. Lipson added: "We believe there are better alternatives available to Sunset than this merger proposal. We intend to propose a slate of nominees for election to Sunset's board at the 2006 Annual Meeting of Stockholders that will represent stockholders' interests and work to maximize stockholder value. We have had discussions with Michael Tokarz regarding the future management of Sunset and look forward to continuing those discussions." Since the Special Meeting is only days away, Western Investment is asking Sunset stockholders to vote their shares as soon as possible. Holders may vote by phone at 1-800-454-8683 or internet at WWW.PROXYVOTE.COM. Please have your 12-digit control number on your GREEN proxy card available when you vote. Only the latest dated proxy counts, so even if you have already sent in a proxy to Sunset, you have every legal right to change your vote and vote AGAINST Sunset's proposals by using the GREEN proxy card. Contact: INNISFREE M&A INCORPORATED - Michael Brinn (212)-750-8253 For additional information, please visit: www.fixmyfund.com. The website http://www.fixmyfund.com is being updated to include a link to the above press release. Item 3: The website http://www.fixmyfund.com is being updated to include the following information: Green proxy cards have been mailed for the October 6th Sunset Financial Resources special meeting. For more information go to LATEST SUNSET INFORMATION Proxy statements and GREEN proxy cards have been mailed for the October 6, 2006 Sunset Financial Resources special meeting. Please sign, date and mail your GREEN proxy card today. Stockholders who hold their shares through their broker or bank may vote online or over the phone. Please note that there are separate voting systems for stockholders who hold their shares through a broker or bank and stockholders who have stock certificates registered in their own names: VOTING IF YOU HOLD YOUR SUNSET FINANCIAL SHARES THROUGH YOUR BROKER OR BANK. (link to page 2 of this document) VOTING IF YOU HOLD YOUR SUNSET FINANCIAL SHARES IN YOUR OWN NAME. (link to page 3 of this document) If you have any questions or need assistance voting your shares, you may contact: 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 VOTING IF YOU HOLD YOUR SUNSET FINANCIAL SHARES THROUGH YOUR BROKER OR BANK. Voting requires that you have the control number appearing on your GREEN proxy form. You can vote your shares by phone by calling the toll-free number appearing on your GREEN proxy form, or via the internet by going to WWW.PROXYVOTE.COM. Either method will require the control number appearing on your GREEN proxy form, so please have it available when you vote. If you have any questions or need assistance voting your shares, you may contact: 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 VOTING IF YOU HOLD YOUR SUNSET FINANCIAL SHARES IN YOUR OWN NAME. Please sign, date and mail your GREEN proxy card today. You may also submit your GREEN proxy card by FAX. Please sign and date your card and fax BOTH sides to our proxy solicitor, Innisfree M&A Incorporated, to the attention of Mike Brinn, at 212-750-5799. If you have any questions or need assistance voting your shares, you may contact: 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 CERTAIN INFORMATION CONCERNING PARTICIPANTS Western Investment, together with the other Participants (as defined below) named herein (collectively, the "Western Group"), has made a definitive filing with the Securities and Exchange Commission of a proxy statement and accompanying proxy card to be used to solicit votes against the Merger Proposals at the Special Meeting. THE WESTERN GROUP STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS RELATING TO THE SPECIAL MEETING BECAUSE THEY CONTAIN IMPORTANT INFORMATION. SUCH PROXY MATERIALS ARE AVAILABLE AT NO CHARGE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THE SOLICITATION WILL PROVIDE COPIES OF THE DEFINITIVE PROXY MATERIALS, WITHOUT CHARGE, UPON REQUEST. REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY SOLICITOR, INNISFREE M&A INCORPORATED, AT ITS TOLL-FREE NUMBER: (888) 750-5834. The participants in the solicitation are Western Investment LLC, Western Investment Hedged Partners LP, 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 and Gerald Hellerman (collectively, the "Participants"). Information regarding the Participants and their direct or indirect interests is available in their Schedule 13D initially filed with the Securities and Exchange Commission on March 17, 2005, as subsequently amended on March 29, 2005, May 6, 2005, August 29, 2005, September 23, 2005, October 4, 2005, November 1, 2005, December 5, 2005, December 13, 2005, May 3, 2006, June 20, 2006 and July 7, 2006.
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DFAN14A Filing
Western Investment Inactive DFAN14AAdditional proxy materials by non-management
Filed: 26 Sep 06, 12:00am