-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RhIxVYv9QvVC8WAnkUzNQRu5h2wjGibYETb6kSvdbz4NrKkIjTJy37gT2GTnHkCd EIdbSnEiILz2THPK37ieCA== 0000921895-05-001449.txt : 20050829 0000921895-05-001449.hdr.sgml : 20050829 20050829113232 ACCESSION NUMBER: 0000921895-05-001449 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20050829 DATE AS OF CHANGE: 20050829 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SUNSET FINANCIAL RESOURCES INC CENTRAL INDEX KEY: 0001270436 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 161685692 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-79769 FILM NUMBER: 051053884 BUSINESS ADDRESS: STREET 1: 10245 CENTURION PARKWAY STREET 2: 3RD FLOOR CITY: JACKSONVILLE STATE: FL ZIP: 32256 BUSINESS PHONE: 9044254099 MAIL ADDRESS: STREET 1: 10245 CENTURION PARKWAY STREET 2: 3RD FLOOR CITY: JACKSONVILLE STATE: FL ZIP: 32256 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN INVESTMENT LLC CENTRAL INDEX KEY: 0001286207 IRS NUMBER: 870623442 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: PO BOX 71869 CITY: SALT LAKE CITY STATE: UT ZIP: 84171-0869 BUSINESS PHONE: 801-942-7803 MAIL ADDRESS: STREET 1: 2855 EAST COTTONWOOD PARKWAY, SUITE110 CITY: SALT LAKE CITY STATE: UT ZIP: 84121 SC 13D/A 1 sc13da306290001_08262005.htm sec document 

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 --------------

                                  SCHEDULE 13D
                                 (RULE 13d-101)

             INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
            TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
                                  RULE 13d-2(a)

                              (Amendment No. 3)(1)

                        Sunset Financial Resources, Inc.
                        --------------------------------
                                (Name of Issuer)

                     Common Stock, Par Value $.001 Per Share
                     ---------------------------------------
                         (Title of Class of Securities)

                                    867708109
                                    ---------
                                 (CUSIP Number)

                              STEVEN WOLOSKY, ESQ.
                 OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP
                                Park Avenue Tower
                               65 East 55th Street
                            New York, New York 10022
                                 (212) 451-2300
                                 --------------
                  (Name, Address and Telephone Number of Person
                Authorized to Receive Notices and Communications)

                                 August 27, 2005
                                 ---------------
             (Date of Event Which Requires Filing of This Statement)

     If the filing  person has  previously  filed a statement on Schedule 13G to
report the  acquisition  that is the subject of this Schedule 13D, and is filing
this  schedule  because  of Rule  13d-1(e),  13d-1(f)  or  13d-1(g),  check  the
following box / /.

     NOTE.  Schedules  filed in paper format shall include a signed original and
five copies of the schedule,  including  all exhibits.  SEE Rule 13d-7 for other
parties to whom copies are to be sent.

                         (Continued on following pages)

                              (Page 1 of 12 Pages)




- --------
(1)  The  remainder  of this  cover  page  shall be filled  out for a  reporting
person's  initial  filing on this  form with  respect  to the  subject  class of
securities,  and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.

     The  information  required on the remainder of this cover page shall not be
deemed to be "filed"  for the purpose of Section 18 of the  Securities  Exchange
Act of 1934 or otherwise  subject to the  liabilities of that section of the Act
but  shall be  subject  to all other  provisions  of the Act  (however,  SEE the
NOTES).


- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 2 of 12 Pages
- ---------------------                                      ---------------------

================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                                 WESTERN INVESTMENT L L C
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*
                     WC
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                     DELAWARE
- --------------------------------------------------------------------------------
   NUMBER OF       7      SOLE VOTING POWER
    SHARES
 BENEFICIALLY                   1,016,300
  OWNED BY
    EACH
  REPORTING
 PERSON WITH   -----------------------------------------------------------------
                   8      SHARED VOTING POWER

                                - 0 -
               -----------------------------------------------------------------
                   9      SOLE DISPOSITIVE POWER

                                1,016,300
               -----------------------------------------------------------------
                  10      SHARED DISPOSITIVE POWER

                                - 0 -
- --------------------------------------------------------------------------------
     11        AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                     1,016,300
- --------------------------------------------------------------------------------
     12        CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
     13        PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                     9.7%
- --------------------------------------------------------------------------------
     14        TYPE OF REPORTING PERSON*

                     OO
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!


- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 3 of 12 Pages
- ---------------------                                      ---------------------

================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                                 ARTHUR D. LIPSON
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*
                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                     USA
- --------------------------------------------------------------------------------
   NUMBER OF       7      SOLE VOTING POWER
    SHARES
 BENEFICIALLY                   1,021,300
  OWNED BY
    EACH
  REPORTING
 PERSON WITH   -----------------------------------------------------------------
                   8      SHARED VOTING POWER

                                - 0 -
               -----------------------------------------------------------------
                   9      SOLE DISPOSITIVE POWER

                                1,021,300
               -----------------------------------------------------------------
                  10      SHARED DISPOSITIVE POWER

                                - 0 -
- --------------------------------------------------------------------------------
     11        AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    1,021,300
- --------------------------------------------------------------------------------
     12        CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
     13        PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                     9.7%
- --------------------------------------------------------------------------------
     14        TYPE OF REPORTING PERSON*

                     IN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 4 of 12 Pages
- ---------------------                                      ---------------------

================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                                 WESTERN INVESTMENT HEDGED PARTNERS LP
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*
                    WC
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                     DELAWARE
- --------------------------------------------------------------------------------
   NUMBER OF       7      SOLE VOTING POWER
    SHARES
 BENEFICIALLY                   305,300
  OWNED BY
    EACH
  REPORTING
 PERSON WITH   -----------------------------------------------------------------
                   8      SHARED VOTING POWER

                                - 0 -
               -----------------------------------------------------------------
                   9      SOLE DISPOSITIVE POWER

                                305,300
               -----------------------------------------------------------------
                  10      SHARED DISPOSITIVE POWER

                                - 0 -
- --------------------------------------------------------------------------------
     11        AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    305,300
- --------------------------------------------------------------------------------
     12        CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
     13        PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                     2.9%
- --------------------------------------------------------------------------------
     14        TYPE OF REPORTING PERSON*

                     PN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!




- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 5 of 12 Pages
- ---------------------                                      ---------------------

================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                       WESTERN INVESTMENT INSTITUTIONAL PARTNERS L L C
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*
                    WC
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                     DELAWARE
- --------------------------------------------------------------------------------
   NUMBER OF       7      SOLE VOTING POWER
    SHARES
 BENEFICIALLY                   633,300
  OWNED BY
    EACH
  REPORTING
 PERSON WITH   -----------------------------------------------------------------
                   8      SHARED VOTING POWER

                                - 0 -
               -----------------------------------------------------------------
                   9      SOLE DISPOSITIVE POWER

                                633,300
               -----------------------------------------------------------------
                  10      SHARED DISPOSITIVE POWER

                                - 0 -
- --------------------------------------------------------------------------------
     11        AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    633,300
- --------------------------------------------------------------------------------
     12        CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
     13        PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                     6.0%
- --------------------------------------------------------------------------------
     14        TYPE OF REPORTING PERSON*

                     OO
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 6 of 12 Pages
- ---------------------                                      ---------------------

================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                       WESTERN INVESTMENT ACTIVISM PARTNERS L L C
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*
                    WC
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                     DELAWARE
- --------------------------------------------------------------------------------
   NUMBER OF       7      SOLE VOTING POWER
    SHARES
 BENEFICIALLY                    77,700
  OWNED BY
    EACH
  REPORTING
 PERSON WITH   -----------------------------------------------------------------
                   8      SHARED VOTING POWER

                                - 0 -
               -----------------------------------------------------------------
                   9      SOLE DISPOSITIVE POWER

                                77,700
               -----------------------------------------------------------------
                  10      SHARED DISPOSITIVE POWER

                                - 0 -
- --------------------------------------------------------------------------------
     11        AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                     77,700
- --------------------------------------------------------------------------------
     12        CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
     13        PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    0.7%
- --------------------------------------------------------------------------------
     14        TYPE OF REPORTING PERSON*

                     OO
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 7 of 12 Pages
- ---------------------                                      ---------------------



          The following  constitutes  Amendment No. 3 ("Amendment No. 3") to the
Schedule 13D filed by the undersigned.  This Amendment No. 3 amends the Schedule
13D as specifically set forth.

     Item 3 is hereby amended and restated to read as follows:

          The  aggregate  purchase  price of the 1,016,300  Shares  beneficially
owned  by WILLC is  $8,975,178.  The  Shares  beneficially  owned by WILLC  were
acquired  with  the  working  capital  of  each  of  WIHP   ($2,896,216),   WIIP
($5,341,291) and WIAP ($737,609).

          The aggregate  purchase price of the 5,000 additional  Shares owned by
Mr.  Lipson is  $47,500.  The Shares  owned by Mr.  Lipson  were  acquired  with
personal funds.

     Item 4 is hereby amended to add the following:

          On August 27, 2005,  WILLC sent a letter to the Issuer stating that it
is in the best interest of the Issuer and its  shareholders to reconstitute  the
Board of Directors of the Issuer (the  "Board") and a majority of new  directors
be elected, with all directors other than Messrs. John Bert Watson and Rodney E.
Bennett be  replaced.  The letter is attached  as Exhibit 2 hereto and  requests
that the Issuer voluntarily agree to call a special meeting. The purposes of the
Special Meeting are as follows: (i) to remove Messrs.  George O. Deehan,  George
A. Murray, Joseph P. Stingone and G. Steven Dawson as directors,  as well as all
additional  persons,  if any,  serving as directors of the Issuer at the time of
the special  meeting,  other than Messrs.  Watson and Deehan;  (ii) to amend the
Issuer's  bylaws to permit the nomination at the Special Meeting of directors by
shareholders  of the  Issuer for  election  at the  Special  Meeting to fill the
vacancies created by the removal of directors as proposed above;  (iii) to amend
the  Issuer's  bylaws to fix the number of members of the Board at six (6);  and
(iv) to elect  directors  to fill the  vacancies  on the  Board  created  by the
removal of directors as proposed above.

          The  Reporting  Persons are aware that  Section  1.11 of the  Issuer's
bylaws  requires  that if  stockholders  wish to call a  special  meeting,  that
stockholders  who  constitute not less than 25% of all votes entitled to be cast
call a special meeting.  Nevertheless,  the Reporting Persons have requested the
Issuer's Board to voluntarily  call a special meeting of shareholders to provide
its  shareholders  with the opportunity to exercise their lawful right to remove
directors and elect their replacements.  The Reporting Persons also informed the
Issuer that in the event that it does not  proceed to promptly  call the Special
Meeting,  the  Reporting  Persons  would file proxy  solicitation  materials and
solicit proxies to obtain the requisite  proxies to require the Issuer to call a
special meeting of shareholders for the purposes described above.

          The  Reporting  Persons also informed the Issuer that they are willing
to discuss this matter  further to determine if the Reporting  Persons can reach
an  amicable  resolution  to  their  concerns  relating  to the  management  and
performance of the Issuer.  The Reporting Persons believe that it is in the best
interest of the Issuer and its  shareholders to avoid the disruption and expense
of a proxy fight. The Reporting Persons stressed,  however,  that they are fully
prepared  to  proceed  with a proxy  fight  if they  cannot  reach  an  amicable
resolution to address our concerns.

          The  Reporting  Persons  reserve the right to take any and all actions
requried it and to modify, expand or otherwise change its purpose.


- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 8 of 12 Pages
- ---------------------                                      ---------------------

          The second and third  paragraphs  of Item 5(a) are hereby  amended and
restated to read as follows:

          As of the close of business on August 27,  2005,  WIHP,  WIIP and WIAP
beneficially   owned   305,300,   633,300  and  77,700   Shares,   respectively,
representing 2.9%, 6.0% and 0.7%, respectively, of the Shares outstanding. WILLC
beneficially  owned 1,016,300  Shares,  constituting  approximately  9.7% of the
Shares outstanding. Mr. Lipson beneficially owned 1,021,300 Shares, constituting
approximately 9.7% of the Shares outstanding.

          As the  general  partner or  managing  member,  as the case may be, of
WIHP,  WIIP and WIAP,  WILLC may be deemed  to  beneficially  own the  1,016,300
Shares  beneficially  owned in the  aggregate  by WIHP,  WIIP and  WIAP.  As the
managing  member of WILLC,  Mr.  Lipson  may be deemed to  beneficially  own the
1,016,300  Shares  beneficially  owned by WILLC, as well as the additional 5,000
Shares he beneficially owns.

          Item 5(c) is hereby amended to add the following:

          (c) Listed below are all transactions by the Reporting  Persons in the
Issuer's  Common  Stock  in the  past 60  days.  All of such  transactions  were
effected in the open market.

ENTITY       DATE OF TRANSACTION     NO. SHARES PURCHASE/(SOLD)      PRICE
- ----------   -------------------     --------------------------      ------------
WHIP         8/16/05                         8,400                    $8.2695
WHIP         8/17/05                         9,400                    $8.2822
WIAP         8/8/05                         (1,100)                   $9.3000
WIAP         8/3/05                          4,500                    $9.2100
WIAP         8/2/05                            800                    $9.2100

          Item 7 is hereby amended in to add the following:

     Item 7.  Materials to be filed as Exhibits.

          There are filed herewith the following Exhibits:

          Exhibit 2 - Special Meeting Demand Letter Dated August 26, 2005.






- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                     Page 9 of 12 Pages
- ---------------------                                      ---------------------

                                   SIGNATURES

          After reasonable  inquiry and to the best of his knowledge and belief,
each of the  undersigned  certifies  that  the  information  set  forth  in this
statement is true, complete and correct.

Dated: August 29, 2005           WESTERN INVESTMENT L L C

                                 By:  /s/ Arthur D. Lipson
                                     -----------------------------------------
                                 Name: Arthur D. Lipson
                                 Title: Sole Member

                                 WESTERN INVESTMENT HEDGED PARTNERS LP

                                 By: Western Investment L L C,
                                 Its General Partner

                                 By: /s/ Arthur D. Lipson
                                     -----------------------------------------
                                 Name: Arthur D. Lipson
                                 Title: Managing Member

                                 WESTERN INVESTMENT INSTITUTIONAL PARTNERS L L C

                                 By: Western Investment L L C,
                                 Its Managing Member

                                 By:  /s/ Arthur D. Lipson
                                     -----------------------------------------
                                 Name: Arthur D. Lipson
                                 Title: Managing Member

                                 WESTERN INVESTMENT ACTIVISM PARTNERS L L C

                                 By: Western Investment L L C,
                                 Its Managing Member

                                 By:  /s/ Arthur D. Lipson
                                     -----------------------------------------
                                 Name: Arthur D. Lipson
                                 Title: Managing Member

                                   /s/ Arthur D. Lipson
                                 -------------------------------------
                                 ARTHUR D. LIPSON




- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                    Page 10 of 12 Pages
- ---------------------                                      ---------------------


                                  EXHIBIT INDEX


            Exhibit                                                   Page
            -------                                                   ----

     1.   Joint  Filing   Agreement  by  and  among  Western           --
          Investment  L  L  C,  Arthur  D.  Lipson,  Western
          Investment Hedged Partners LP, Western  Investment
          Institutional   Partners   L  L  C   and   Western
          Investment  Activism  Partners L L C, dated  March
          16, 2005.

     2.   Special meeting Demand Letter dated August 27, 2005.      11 - 12






- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                    Page 11 of 12 Pages
- ---------------------                                      ---------------------



                                                                       Exhibit 2

                             WESTERN INVESTMENT LLC
                     2855 EAST COTTONWOOD PARKWAY, SUITE 110
                           SALT LAKE CITY, UTAH 84121



                                                      August 27, 2005



VIA FACSIMILE AND FEDERAL EXPRESS

Sunset Financial Resources, Inc.
10245 Centurion Parkway North, Suite 305
Jacksonville, Florida 32256
Attn: Corporate Secretary

Dear Sir:

     Western  Investments LLC,  together with certain of its affiliates,  is the
beneficial  owner of an aggregate of 1,016,300  shares (the  "Shares") of common
stock,  $.001 par value (the "Common  Stock"),  of Sunset  Financial  Resources,
Inc., a Maryland corporation (the "Company"), representing approximately 9.7% of
the  outstanding  Common Stock.  Enclosed  please find a copy of the most recent
amendment to our Schedule 13D filed on May 6, 2005,  evidencing our ownership of
Shares as of May 6, 2005.

     As the beneficial  holders of a significant number of the Company's shares,
we are concerned about recent  developments with the Company,  including today's
resignation  of  Ernst & Young  LLP.  We  believe  that it  would be in the best
interests of the Company and its  shareholders  if the Board of  Directors  were
reconstituted  and a majority of new directors were elected,  with all directors
other  than  Messrs.  John Bert  Watson and  Rodney E.  Bennett to be  replaced.
Accordingly,  we hereby request that you call a special  meeting of shareholders
of the Company (the "Special Meeting").  The purposes of the Special Meeting are
as follows: (i) to remove Messrs.  George O. Deehan, George A. Murray, Joseph P.
Stingone and G. Steven Dawson as directors,  as well as all additional  persons,
if any,  serving as directors of the Company at the time of the special meeting,
other than  Messrs.  Watson and Deehan;  (ii) to amend the  Company's  bylaws to
permit the nomination at the Special Meeting of directors by shareholders of the
Company for election at the Special Meeting to fill the vacancies created by the
removal of directors as proposed above;  (iii) to amend the Company's  bylaws to
fix the number of members of the Board at six (6);  and (iv) to elect  directors
to fill the  vacancies  on the Board  created  by the  removal of  directors  as
proposed above.



- ---------------------                                      ---------------------
CUSIP No. 867708109                   13D                    Page 11 of 12 Pages
- ---------------------                                      ---------------------

     We understand  that Section 1.11 of the Company's  bylaws requires not less
than 25% of all votes entitled to be cast to force the Company to call a special
meeting,  and we are  prepared to satisfy  that  requirement  if  necessary.  Of
course,  the Company can  voluntarily  call a special meeting of shareholders to
provide its shareholders  with the opportunity to exercise their lawful right to
remove  directors and elect their  replacements.  We encourage the Company to be
responsive to its shareholders and not to hide behind  corporate  formality.  We
inform you, however,  that in the event the Company does not proceed to promptly
call the Special  Meeting,  we intend to file proxy  solicitation  materials and
solicit proxies to obtain the requisite proxies to require the Company to call a
special meeting of shareholders for the purposes described above.

     We are willing to discuss this matter  further to determine if we can reach
an  amicable   resolution  to  our  concerns  relating  to  the  management  and
performance  of the Company.  We believe that it is in the best  interest of the
Company  and its  shareholders  to avoid the  disruption  and expense of a proxy
fight. Please note, however,  that we are fully prepared to proceed if we cannot
reach an amicable resolution and address our concerns.

     We request that any correspondence  concerning this request be delivered to
the undersigned at the address set forth above and copies of such correspondence
should also be  simultaneously  delivered to our counsel,  Olshan Grundman Frome
Rosenzweig & Wolosky LLP, Park Avenue Tower, 65 East 55th Street,  New York, New
York 10022, Attention: Steven Wolosky, Esq., telephone (212) 451-2333, facsimile
(212) 451-2222.

                                 Very truly yours,

                                 WESTERN INVESTMENT L L C

                                 By: /s/ Arthur D. Lipson
                                    ----------------------------
                                    Arthur D. Lipson, Sole Member


cc: Board of Directors of Sunset Financial Resources, Inc.





Enclosures (omitted)
-----END PRIVACY-ENHANCED MESSAGE-----