EXHIBIT 10.3

PROMISSORY NOTE

$2,000,000.00

Date: December 1, 2006

 

BORROWER    Name:    Paladin Realty Income Properties, Inc. Address:    10880
Wilshire Blvd    Suite 1400    Los Angeles, CA 90024 LENDER       Paladin Realty
Partners, LLC Address:    10880 Wilshire Blvd    Suite 1440    Los Angeles, CA
90024

Borrower promises to pay to the order of Lender, in lawful money of the United
States of America, at its office indicated above or wherever else Lender may
specify, the sum of Two Million and No/100 Dollars ($2,000,000.00) or such sum
as may be advanced and outstanding from time to time, with interest on the
unpaid principal balance at the rate and on the terms provided in this
Promissory Note (including all renewals, extensions or modifications hereof,
this “Note”).

INTEREST RATE. Interest shall accrue on the unpaid principal balance of this
Note from the date hereof at the LIBOR Market Index Rate plus 2.5%, as that rate
may change from day to day in accordance with changes in the LIBOR Market Index
Rate (“Interest Rate”). “LIBOR Market Index Rate”, for any day, means the rate
for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00
a.m., London time, on such day, or if such day is not a London business day,
then the immediately preceding London business day (or if not so reported, then
as determined by Lender from another recognized source or interbank quotation).

DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (as defined herein) occurs and as long as a Default continues, all
outstanding Obligations, other than Obligations under any swap agreements (as
defined in 11 U.S.C. § 101, as in effect from time to time) between Borrower and
Lender or its affiliates, shall bear interest at the Interest Rate plus 3%
(“Default Rate”). The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.

INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall
be computed on the basis of a 360-day year for the actual number of days in the
applicable period (“Actual/360 Computation”). The Actual/360 Computation
determines the annual effective interest yield by taking the stated (nominal)
rate for a year’s period and then dividing said rate by 360 to determine the
daily periodic rate to be applied for each day in the applicable period.
Application of the Actual/360 Computation produces an annualized effective rate
exceeding the nominal rate.

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REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only, commencing on January 1, 2007, and continuing
on the same day of each month thereafter until fully paid. In any event, all
principal and accrued interest shall be due and payable on November 3, 2007.

APPLICATION OF PAYMENTS. Monies received by Lender from any source for
application toward payment of the Obligations shall be applied to accrued
interest and then to principal. If a Default occurs, monies may be applied to
the Obligations in any manner or order deemed appropriate by Lender.

If any payment received by Lender under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Lender because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.

DEFINITIONS. Loan Documents. The term “Loan Documents”, as used in this Note and
the other Loan Documents, refers to all documents executed in connection with or
related to the loan evidenced by this Note and any prior notes which evidence
all or any portion of the loan evidenced by this Note, and any letters of credit
issued pursuant to any loan agreement to which this Note is subject, any
applications for such letters of credit and any other documents executed in
connection therewith or related thereto, and may include, without limitation, a
commitment letter that survives closing, a loan agreement, this Note, guaranty
agreements, security agreements, security instruments, financing statements,
mortgage instruments, any renewals or modifications, whenever any of the
foregoing are executed, but does not include swap agreements (as defined in 11
U.S.C. § 101, as in effect from time to time). Obligations. The term
“Obligations”, as used in this Note and the other Loan Documents, refers to any
and all indebtedness and other obligations under this Note, all other
obligations under any other Loan Document(s), and all obligations under any swap
agreements (as defined in 11 U.S.C. § 101, as in effect from time to time)
between Borrower and Lender, or its affiliates, whenever executed. Certain Other
Terms. All terms that are used but not otherwise defined in any of the Loan
Documents shall have the definitions provided in the Uniform Commercial Code.

LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Lender a late charge equal to 4% of each payment past due for 15 or more days.
This late charge shall not apply to payments due at maturity or by acceleration
hereof, unless such late payment is in an amount not greater than the highest
periodic payment due hereunder.

Acceptance by Lender of any late payment without an accompanying late charge
shall not be deemed a waiver of Lender’s right to collect such late charge or to
collect a late charge for any subsequent late payment received.

 

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ATTORNEYS’ FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Lender’s
reasonable expenses actually incurred to enforce or collect any of the
Obligations including, without limitation, reasonable arbitration, paralegals’,
attorneys’ and experts’ fees and expenses, whether incurred without the
commencement of a suit, in any trial, arbitration, or administrative proceeding,
or in any appellate or bankruptcy proceeding.

USURY. If at any time the effective interest rate under this Note would, but for
this paragraph, exceed the maximum lawful rate, the effective interest rate
under this Note shall be the maximum lawful rate, and any amount received by
Lender in excess of such rate shall be applied to principal and then to fees and
expenses, or, if no such amounts are owing, returned to Borrower.

GRACE/CURE PERIOD. Grace Period. The failure of timely payment of the
Obligations shall not be a Default until 5 days after such payment is due. Cure
Period. Except as provided below, any Default, other than non-payment, may be
cured within 10 days after written notice thereof is mailed to Borrower by
Lender. Borrower’s right to cure shall be applicable only to curable defaults
and shall not apply, without limitation, to Defaults based upon False Warranty,
Cessation, Bankruptcy, Guaranty or Material Capital Structure of Business
Alteration. Borrower shall have the right to cure a Default only once during any
12 month period.

DEFAULT. If any of the following occurs and is not cured within the applicable
Cure Period, a default (“Default”) under this Note shall exist: Nonpayment;
Nonperformance. The failure of timely payment or performance of the Obligations
or Default under this Note or any other Loan Documents. False Warranty. A
warranty or representation made or deemed made in the Loan Documents or
furnished Lender in connection with the loan evidenced by this Note proves
materially false, or if of a continuing nature, becomes materially false.
Defaults Under Other Loan Documents. Borrower shall breach any of the provisions
contained in any of the other Loan Documents. Cessation; Bankruptcy. The death
of, appointment of a guardian for, dissolution of, termination of existence of,
loss of good standing status by, appointment of a receiver for, assignment for
the benefit of creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against Borrower or John A. Gerson or James R. Worms, or any
party to the Loan Documents. Material Capital Structure or Business Alteration.
Without prior written consent of Lender, (i) a material alteration in the kind
or type of Borrower’s business or that of Borrower’s Subsidiaries or Affiliates,
if any; (ii) the sale of substantially all of the business or assets of
Borrower, any of Borrower’s Subsidiaries or Affiliates or any guarantor, or a
material portion (10% or more) of such business or assets if such a sale is
outside the ordinary course of business of Borrower, or any of Borrower’s
Subsidiaries or Affiliates or any guarantor, or more than 50% of the outstanding
stock or voting power of or in any such entity in a single transaction or a
series of transactions; (iii) the acquisition of substantially all of the
business or assets or more than 50% of the outstanding stock or voting power of
any other entity; or (iv) should any Borrower or any of Borrower’s Subsidiaries
or Affiliates or any guarantor enter into any merger or consolidation. Material
Adverse Change. Lender determines in good faith, in its sole discretion, that
the prospects for payment or performance of the Obligations are impaired or
there has occurred a material adverse change in the business or prospects of
Borrower, financial or otherwise.

 

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REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Lender may at any time thereafter, take the following
actions: Acceleration Upon Default. Accelerate the maturity of this Note and, at
Lender’s option, any or all other Obligations, other than Obligations under any
swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time)
between Borrower and Lender, or its affiliates, which shall be due in accordance
with and governed by the provisions of said swap agreements; whereupon this Note
and the accelerated Obligations shall be immediately due and payable; provided,
however, if the Default is based upon a bankruptcy or insolvency proceeding
commenced by or against Borrower or any guarantor or endorser of this Note, all
Obligations (other than Obligations under any swap agreement as referenced
above) shall automatically and immediately be due and payable. Cumulative.
Exercise any rights and remedies as provided under the Note and other Loan
Documents, or as provided by law or equity.

FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Lender such
information as Lender may reasonably request from time to time, including
without limitation, financial statements and information pertaining to
Borrower’s financial condition. Such information shall be true, complete, and
accurate.

WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Lender. No waiver by Lender of any Default shall operate as a waiver of any
other Default or the same Default on a future occasion. Neither the failure nor
any delay on the part of Lender in exercising any right, power, or remedy under
this Note and other Loan Documents shall operate as a waiver thereof, nor shall
a single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.

Except to the extent otherwise provided by the Loan Documents or prohibited by
law, each Borrower and each other person liable under this Note waives
presentment, protest, notice of dishonor, demand for payment, notice of
intention to accelerate maturity, notice of acceleration of maturity, notice of
sale and all other notices of any kind. Further, each agrees that Lender may
(i) extend, modify or renew this Note or make a novation of the loan evidenced
by this Note, and/or (ii) grant releases, compromises or indulgences with
respect to any collateral securing this Note, or with respect to any Borrower or
other person liable under this Note or any other Loan Documents, all without
notice to or consent of each Borrower and other such person, and without
affecting the liability of each Borrower and other such person; provided, Lender
may not extend, modify or renew this Note or make a novation of the loan
evidenced by this Note without the consent of the Borrower, or if there is more
than one Borrower, without the consent of at least one Borrower; and further
provided, if there is more than one Borrower, Lender may not enter into a
modification of this Note which increases the burdens of a Borrower without the
consent of that Borrower.

MISCELLANEOUS PROVISIONS. Assignment. This Note and the other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Lender’s
interests in and rights under this Note and the other Loan Documents are freely
assignable, in whole or in part, by Lender. In addition, nothing in this Note or
any of the other Loan Documents shall prohibit Lender from pledging or assigning
this Note or any of the other Loan Documents or any

 

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interest therein to any Federal Reserve Bank. Borrower shall not assign its
rights and interest hereunder without the prior written consent of Lender, and
any attempt by Borrower to assign without Lender’s prior written consent is null
and void. Any assignment shall not release Borrower from the Obligations.
Applicable Law; Conflict Between Documents. This Note and, unless otherwise
provided in any other Loan Document, the other Loan Documents shall be governed
by and construed under the law of the State of New York without regard to that
state’s conflict of laws principles (other than Section 5-1402 of the General
Obligations Law of the State of New York). If the terms of this Note should
conflict with the terms of any loan agreement or any commitment letter that
survives closing, the terms of this Note shall control. Borrower’s Accounts.
[Intentionally Deleted] Swap Agreements. All swap agreements (as defined in 11
U.S.C. § 101, as in effect from time to time), if any, between Borrower and
Lender or its affiliates are independent agreements governed by the written
provisions of said swap agreements, which will remain in full force and effect,
unaffected by any repayment, prepayment, acceleration, reduction, increase or
change in the terms of this Note, except as otherwise expressly provided in said
written swap agreements, and any payoff statement from Lender relating to this
Note shall not apply to said swap agreements except as otherwise expressly
provided in such payoff statement. Jurisdiction. Borrower irrevocably agrees to
non-exclusive personal jurisdiction in the State of New York. Severability. If
any provision of this Note or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note or other such
document. Notices. Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower’s address shown above or such
other address as provided hereunder, and to Lender, if in writing and mailed or
delivered to Paladin Realty Partners, LLC, 10880 Wilshire Boulevard, Suite 1400,
Los Angeles, California 90024 or such other address as Lender may specify in
writing from time to time. Notices to Lender must include the mail code. In the
event that Borrower changes Borrower’s address at any time prior to the date the
Obligations are paid in full, Borrower agrees to promptly give written notice of
said change of address by registered or certified mail, return receipt
requested, all charges prepaid. Plural; Captions. All references in the Loan
Documents to Borrower, guarantor, person, document or other nouns of reference
mean both the singular and plural form, as the case may be, and the term
“person” shall mean any individual, person or entity. The captions contained in
the Loan Documents are inserted for convenience only and shall not affect the
meaning or interpretation of the Loan Documents. Advances. Lender may, in its
sole discretion, make other advances which shall be deemed to be advances under
this Note, even though the stated principal amount of this Note may be exceeded
as a result thereof. Posting of Payments. All payments received during normal
banking hours after 2:00 p.m. local time at the office of Lender first shown
above shall be deemed received at the opening of the next banking day. Joint and
Several Obligations. If there is more than one Borrower, each is jointly and
severally obligated. Fees and Taxes. Borrower shall promptly pay all
documentary, intangible recordation and/or similar taxes on this transaction
whether assessed at closing or arising from time to time. LIMITATION ON
LIABILITY; WAIVER OF PUNITIVE DAMAGES. EACH OF THE PARTIES HERETO, INCLUDING
LENDER BY ACCEPTANCE HEREOF, AGREES THAT IN ANY JUDICIAL, MEDIATION OR
ARBITRATION PROCEEDING OR ANY CLAIM OR CONTROVERSY BETWEEN OR AMONG THEM THAT
MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE LOAN
DOCUMENTS OR ANY OTHER AGREEMENT OR

 

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DOCUMENT BETWEEN OR AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED
HERETO, IN NO EVENT SHALL ANY PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE OTHER
FOR, (1) INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY
DAMAGES. EACH OF THE PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO
PUNITIVE OR EXEMPLARY DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN
CONNECTION WITH ANY SUCH PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS
RESOLVED BY ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE. Patriot Act Notice.
To help fight the funding of terrorism and money laundering activities, Federal
law requires all financial institutions to obtain, verify, and record
information that identifies each person who opens an account. For purposes of
this section, account shall be understood to include loan accounts. FINAL
AGREEMENT. This Note and the other Loan Documents represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties.

[Signature page follows.]

 

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IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.

Place of Execution and Delivery. Borrower hereby certifies that this note was
executed in the state of New Jersey and delivered to the Lender in the state of
California.

 

BORROWER: Paladin Realty Income Properties, Inc. By:   /s/ John A. Gerson Name:
  John A. Gerson Title:  

Executive Vice President,

Chief Financial Officer

 

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