Exhibit (G)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT, dated ____________, between Hyperion Capital Management,
Inc. (the "Adviser"), a Delaware corporation, and Lend Lease Hyperion
Capital Advisors, L.L.C. (the "Sub-Adviser"), a Delaware limited liability
company.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
(the "Advisory Agreement") of even date herewith with The Hyperion Strategic
Mortgage Income Fund, Inc. (the "Fund"), a Maryland corporation; and
WHEREAS, the Adviser seeks to retain the Sub-Adviser in connection with
the Adviser's duties and obligations under said Investment Advisory Agreement
and the Sub-Adviser desires to provide such assistance.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is agreed by and between the parties hereto as
follows:
1. In General
The Sub-Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Adviser with respect to the investment of that
portion of the Fund's assets constituting commercial mortgage-backed
securities ("CMBS") and to provide investment research and advice with
respect to, supervise and arrange the purchase of CMBS for and the sale of
CMBS held in the investment portfolio of the Fund (the CMBS portion of the
Fund's portfolio is referred to herein as the "Portfolio").
2. Duties and Obligations of the Sub-Adviser with Respect to
Investments of Assets of the Fund
(a) Subject to the succeeding provisions of this paragraph and
subject to the direction and control of the Adviser, the Sub-Adviser
shall (i) act as investment adviser for and supervise and manage the
investment and reinvestment of the Portfolio only and in connection
therewith have complete discretion in purchasing and selling CMBS for
the Fund and in voting, exercising consents and exercising all other
rights appertaining to such securities on behalf of the Fund; (ii)
supervise continuously the investment program of the Fund and the
composition of its investment portfolio only as such program and
portfolio pertain to CMBS; and (iii) arrange, subject to the
provisions of paragraph 3 hereof, for the purchase and sale of CMBS
held in the Portfolio.
(b) In the performance of its duties under this Agreement, the
Sub-Adviser shall at all times conform to, and act in accordance with,
any requirements imposed by (i) the provisions of the Investment
Company Act of 1940 (the "Act"), and of any rules or regulations in
force thereunder; (ii) the provisions of Subchapter M of the Internal
Revenue Code of 1986, as amended, and of any rules or regulations in
force thereunder; (iii) any other applicable provision of law; (iv)
any policies and determinations of the Board of Directors of the Fund
and of the Adviser; and (v) the provisions of the Articles of
Incorporation and By-Laws of the Fund, as such documents are amended
from time to time.
(c) The Sub-Adviser will bear all costs and expenses of its
partners and employees and any overhead incurred in connection with
its duties hereunder and shall bear the costs of any salaries or
directors fees of any officers or directors of the Fund who are
affiliated persons (as defined in the Act) of the Sub-Adviser.
(d) The Sub-Adviser shall give the Adviser the benefit of its
best judgment and effort in rendering services hereunder, but the
Sub-Adviser shall not be liable for any act or omission or for any
loss sustained by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement.
(e) Nothing in this Agreement shall prevent the Sub-Adviser or
any director, officer, employee or other affiliate thereof from acting
as investment adviser for any other person, firm or corporation, or
from engaging in any other lawful activity, and shall not in any way
limit or restrict the Sub-Adviser or any of its partners, officers,
employees or agents from buying, selling or trading any securities for
its or their own accounts or for the accounts of others for whom it or
they may be acting, provided, however, that the Sub-Adviser will
undertake no activities which, in its judgment, will adversely affect
the performance of its obligations under this Agreement.
(f) (i) The Adviser will have sole and absolute discretion to
determine the amount or percentage of Fund assets to be invested in
CMBS. The Sub-Adviser shall invest that portion of the Fund's assets
designated by the Adviser for CMBS as soon as practicable or at such
later time as the Adviser may direct after such funds are made
available for investment. From time to time the Adviser may determine
to increase or decrease the amount or percentage of Fund assets to be
invested in CMBS. If the Adviser determines to increase such amount or
percentage, the Sub-Adviser shall invest such additional funds in CMBS
as soon as practicable, or at such later time as the Adviser may
direct, after (i) notice of such increase is given to the Sub-Adviser
and (ii) such additional funds are made available for investment. If,
on the other hand, the Adviser determines to decrease such amount or
percentage, the Sub-Adviser shall, as soon as practicable, or at such
later time as the Adviser may direct, after notice of such decrease is
given to the Sub-Adviser, liquidate that portion of the Portfolio
required for the Portfolio to represent the desired amount or
percentage of the Fund assets and cause such liquidated assets to be
available to the Adviser.
(ii) Hedging of positions in the Portfolio, if any, will
be undertaken by the Adviser in consultation with the Sub-Adviser.
(g) The Sub-Adviser shall provide the Adviser with monthly
reports within 5 business days of the end of each month and quarterly
reports within 7 business days of the end of each calendar quarter.
Such reports shall include (i) an itemized print-out of the Portfolio
as of the last day of the period, including the current market value
thereof (ii) a statement of the Sub-Adviser's advice concerning the
Fund's investments in CMBS in light of the objectives of the Fund and
the then current market conditions, (iii) a print-out of the
performance of the Portfolio relative to a mutually agreed upon CMBS
securities index, and (iv) such other information as the Adviser may
from time to time reasonably request.
3. Portfolio Transactions and Brokerage
The Sub-Adviser is authorized, for the purchase and sale of the
securities in the Portfolio, to employ such securities dealers as may,
in the judgment of the Sub-Adviser, implement the policy of the Fund
to obtain the best net results taking into account such factors as
price, including dealer spread, the size, type and difficulty of the
transaction involved, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved.
Consistent with this policy, the Sub-Adviser is authorized to direct
the execution of Portfolio transactions to dealers and brokers
furnishing statistical information or research deemed by the
Sub-Adviser to be useful or valuable to the performance of its
investment advisory functions for the Portfolio. In addition, the
Sub-Adviser may give proper instructions to the Fund's custodian in
connection with the purchase or sale of CMBS. The Adviser, upon the
Sub-Adviser's request, shall confirm such authority to the Custodian.
4. Compensation of the Sub-Adviser
(a) The Adviser agrees to pay to the Sub-Adviser and the
Sub-Adviser agrees to accept as full compensation for all services
rendered by the Sub-Adviser as such, a fee computed and payable
monthly in an amount as attached on Schedule A per annum of the
Portfolio's average weekly net assets on an annualized basis, for the
then-current fiscal year. For any period less than a month during
which this Agreement is in effect, the fee shall be prorated according
to the proportion which such period bears to a full month of 28, 29,
30 or 31 days, as the case may be.
(b) For purposes of this Agreement, the average weekly net assets
of the Portfolio shall mean the average weekly value of the total
assets of the Portfolio, minus the sum of (i) accrued liabilities
(including accrued expenses) directly related to the Portfolio, (ii)
that percent of both declared and unpaid dividends on the Common
Shares issued by the Fund and any Preferred Shares issued by the Fund
(the "Preferred Shares") and any accumulated dividends on any
Preferred Shares, but without deducting the aggregate liquidation
value of the Preferred Shares, that is equal to the percent of the
Fund's assets that the Portfolio represents, and (iii) that percent of
accrued liabilities related to the Fund in general that is equal to
the percent of the Fund's assets that the Portfolio represents. The
average weekly net assets of the Portfolio shall be calculated
pursuant to the procedures adopted by resolutions of the Directors of
the Fund for calculating the net asset value of the Fund's shares or
delegating such calculations to third parties and such determination
shall be binding on the Sub-Adviser.
5. Indemnity
(a) Subject to and only to the extent of the indemnification
provided to the Adviser by the Fund in the Advisory Agreement, the
Adviser hereby agrees to indemnify the Sub-Adviser and each of the
Sub-Adviser's directors, officers, employees and agents (including any
individual who serves at the Sub-Adviser's request as director,
officer, partner, trustee or the like of another corporation or other
entity in connection with the Sub-Adviser's duties under this
Agreement) (each such person being an "indemnitee") against any
liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees
(all as provided in accordance with applicable corporate law)
reasonably incurred by such indemnitee in connection with the defense
or disposition of any action, suit or other proceeding, whether civil
or criminal, before any court or administrative or investigative body
in which he may be or may have been involved as a party or otherwise
or with which he may be or may have been threatened, while acting in
any capacity set forth above in this Section 5 or thereafter by reason
of his having acted in any such capacity, except with respect to any
matter as to which he shall have been adjudicated not to have acted in
good faith in the reasonable belief that his action was in the best
interest of the Fund and the Adviser and furthermore, in the case of
any criminal proceeding, so long as he had no reasonable cause to
believe that the conduct was unlawful; provided, however, that (1) no
indemnitee shall be indemnified hereunder against any liability to the
Adviser or the Fund or its stockholders or any expense of such
indemnitee arising by reason of (i) willful misfeasance, (ii) bad
faith, (iii) gross negligence or (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct referred to in
such clauses (i) through (iv) being sometimes referred to herein as
"disabling conduct"), (2) as to any matter disposed of by settlement
or a compromise payment by such indemnitee, pursuant to a consent
decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless there has been a
determination, in accordance with paragraph 5(c) below, that such
settlement or compromise is in the best interests of the Fund and the
Adviser and that such indemnitee appears to have acted in good faith
in the reasonable belief that his action was in the best interest of
the Fund and the Adviser and did not involve disabling conduct by such
indemnitee, (3) with respect to any action, suit or other proceeding
voluntarily prosecuted by any indemnitee as plaintiff, indemnification
shall be mandatory only if the prosecution of such action, suit or
other proceeding by such indemnitee was authorized by the Adviser and
(4) the indemnity provided herein shall only be effective if, and to
the extent, the Adviser is indemnified by the Fund pursuant to the
Advisory Agreement for the loss related to such indemnity.
(b) To the extent made available to the Adviser pursuant to the
Advisory Agreement, the Adviser shall make advance payments in
connection with the expenses of defending any action with respect to
which indemnification might be sought hereunder if the Adviser
receives a written affirmation of the indemnitee's good faith belief
that the standard of conduct necessary for indemnification has been
met and a written undertaking to reimburse the Adviser, unless it is
subsequently determined that it is entitled to such indemnification
and if the Adviser and the directors of the Fund determine that the
facts then known to them would not preclude indemnification. In
addition, at least one of the following conditions must be met: (A)
the indemnitee shall provide a security for this undertaking, (B) the
Adviser and the Fund shall be insured against losses arising by reason
of any lawful advances, (C) a majority of a quorum consisting of
directors of the Fund who are neither "interested persons" of the Fund
(as defined in Section 2(a)(19) of the Act) nor parties to the
proceeding ("Disinterested Non-Party Directors") or (D) an independent
legal counsel in a written opinion, shall determine, based on a review
of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the indemnitee ultimately will be
found entitled to indemnification.
(c) All determinations with respect to indemnification hereunder
shall be made (1) by a final decision on the merits by a court or
other body before whom the proceeding was brought that such indemnitee
is not liable by reason of disabling conduct or, (2) in the absence of
such a decision, by (i) the Advisor together with a majority vote of a
quorum of the Disinterested Non-Party Directors of the Fund, or (ii)
if such a quorum is not obtainable or even, if obtainable, if a
majority vote of such quorum so directs, independent legal counsel in
a written opinion. All determinations regarding advance payments in
connection with the expense of defending any proceeding shall be
authorized in accordance with the immediately preceding clause (2)
above.
The rights accruing to any indemnitee under these provisions
shall not exclude any other right to which he may be lawfully
entitled.
6. Duration and Termination
(a) This Agreement shall become effective on the date first set
forth above and shall continue in effect until approved by _______,
the sole shareholder of the Fund. The Agreement shall continue for two
(2) years and thereafter from year to year, but only so long as such
continuation is specifically approved at least annually in accordance
with the requirements of the Act.
(b) This Agreement may be terminated by the Sub-Adviser at any
time without penalty upon giving the Adviser sixty days' written
notice (which notice may be waived by the Adviser) and may be
terminated by the Adviser at any time without penalty upon giving the
Sub-Adviser sixty days' notice (which notice may be waived by the
Sub-Adviser); provided that such termination by the Adviser shall be
directed or approved by the vote of a majority of the Directors of the
Fund in office at the time or by the vote of the holders of a
"majority" (as defined in the Investment Company Act of 1940) of the
voting securities of the Fund at the time outstanding and entitled to
vote. This Agreement shall terminate automatically in the event of its
assignment (as "assignment" is defined in the Investment Company Act
of 1940). The Sub-Adviser represents that it is a corporation and will
notify the Adviser promptly after any change in control of such
corporation, as defined in Section 2(a)(9) of the Act.
7. Assignment
This Agreement may not be assigned by either party hereto and
will terminate upon assignment.
8. Notices
Any notice under this Agreement shall be in writing to the other
party at such address as the other party may designate from time to
time for the receipt of such notice and shall be deemed to be received
on the date actually received.
9. Governing Law
This Agreement shall be construed in accordance with the laws of
the State of New York for contracts to be performed entirely therein
without reference to choice of law principles thereof and in
accordance with the applicable provisions of the Act.
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized officers
and their respective seals to be hereunto affixed, all as of the day
and the year first above written.
HYPERION CAPITAL MANAGEMENT, INC.
By:
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LEND LEASE HYPERION CAPITAL ADVISORS, L.L.C.
By:
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SCHEDULE A
For CMBS rated: Annual fee:
AAA, AA 0.13%
A 0.18%
BBB 0.25%
BB 0.50%
B 0.75%
Unrated 1.00%
