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 October 5, 2006, Western Investment delivered a letter to certain principal stockholders of the Company, the text of which is as follows: I am writing to you on behalf of the Western Group, the holder of 9.7% of Sunset Financial Resources, Inc. ("SFO"), as a fellow concerned stockholder who is seeking to maximize the value of SFO's shares. We are strongly opposed to the proposed merger with Alesco Financial Trust being considered at the October 6, 2006 Special Meeting of Stockholders, and urge you to join us in voting AGAINST the proposed merger and related proposals. As discussed in an article appearing in THE NEW YORK TIMES on October 3, 2006 (Big Board Delays Plan on Voting, by Gretchen Morgenson), institutional investors are highly critical of stockholders being disenfranchised. This practice often results in the entrenchment of board members and diminishes the accountability of directors to their stockholders. Now is your opportunity to stand up and demonstrate to the SFO board of directors, a board that has repeatedly failed to respond to stockholder concerns, that its decisions that adversely affect SFO's stockholders will not be rubber-stamped. Don't accept a performance from the SFO board of directors that you would not accept from your own employees. We as institutional investors must be the fiduciaries for our constituents. We urge you to consider the following, which we believe clearly demonstrates the inferior economics of the proposed transaction: o Under the proposed deal with Alesco, stockholders of Alesco will receive 1.26 SFO shares for each share of Alesco that they own. This means: -- SFO stockholders are effectively PAYING $13.13 per share* for assets Alesco is carrying at $9.40 per share*. -- SFO stockholders are effectively PAYING Alesco holders a 40%* premium for their shares. As a result, the book value of SFO shares would DROP by $2.65 in the transaction. - ------------------ * based upon book values at 3/31/06. o SFO's stockholders would own at most 42% of the combined company. Why are Alesco's stockholders, rather than SFO's stockholders, receiving a change of control premium in this transaction? o We believe that the new Cohen Brothers investment strategy for SFO, which current management put in place without stockholder approval, is badly timed and carries much more credit risk and leverage than SFO's original business plan. We believe, and other fixed income analysts agree, that risky low-grade fixed income securities are overvalued in today's market and that it is the wrong time in the credit cycle to be investing in long-term credit derivatives. If this merger is approved, SFO stockholders would be paying a premium price for an already aggressively valued sector. We believe the merger represents the exact opposite of value investing and does not adequately compensate investors for the potential downside risk posed by the Cohen Brothers investment strategy. 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. Management and incentive fees totaled only $859,000 over the same period. We believe that the bulk of a manager's compensation should be based on results, not up-front fees. 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. The execution of SFO's business, and by implication the SFO board of directors, has been severely criticized by many major long-term stockholders of SFO. What makes you believe we can trust their judgment now? 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 SFO's shares. 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. We are convinced that the proposed merger was not structured in the best interests of SFO's stockholders. We are conducting our proxy solicitation to ensure that SFO's stockholders are given a choice as to the future direction of their company, rather than having a highly dilutive merger and risky new investment strategy thrust upon them by a board that we believe is not properly motivated by stockholder interests. Please join us, on behalf of institutional investors everywhere, in taking a stand against misuses of corporate power. Now is the time to stand up and be counted. /s/ Art Lipson Art Lipson On behalf of the Western Group 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: 5 Oct 06, 12:00am