Exhibit 10.3

 

PROMISSORY NOTE

 

Date: 10/31/2005

 

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 $1,700,000.00 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”).

 

LIBOR MARKET INDEX RATE. Interest shall accrue on the unpaid principal balance
of this Note from the date hereof at the LIBOR Market Index Rate plus 2.25% 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).

 

INTEREST ONLY, PRINCIPAL AT MATURITY. This Note shall be due and payable in
consecutive monthly payments of accrued interest only, commencing on November 1,
2005, and continuing on the same day of each month thereafter until fully paid;
provided that if the first day of any month in which payment is due is not a
business day, payment shall be due on the next succeeding business day of that
month. In any event, all principal and accrued interest shall be due and payable
ON DEMAND.

 

DEFAULT RATE. In addition to all other rights contained in this Note, if a
default in the payment of Obligations occurs, all outstanding Obligations shall
bear interest at the Interest Rate plus 3% (“Default Rate”), except if the Note
is governed by the laws of the State of North

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Carolina and the original principal amount is less than or equal to $300,000.00.
The Default Rate shall apply from demand 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 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.

 

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. Upon the occurrence of a default in the payment
of the Obligations or a Default (as defined in the other Loan Documents) under
any other Loan Document, 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.

 

USE OF PROCEEDS. Borrower shall use the proceeds of the loan(s) evidenced by
this Note for the commercial purposes of Borrower.

 

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
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 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).
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) between
Borrower and Lender 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.

 

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.

 

ATTORNEYS’ FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Lender’s
reasonable expenses incurred to enforce or collect any of the Obligations
including, without limitation, reasonable arbitration, paralegals’, attorneys’
and experts’ fees and expenses,

 

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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.

 

DEFAULT. If any of the following occurs, a default (“Default”) under this Note
shall exist: Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations or Default under 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. Cross
Default. At Lender’s option, any default in payment or performance of any
obligation under any other loans, contracts or agreements of Borrower, any
Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of
the majority ownership interests of Borrower with Lender or its affiliates
(“Affiliate” shall have the meaning as defined in 11 U.S.C. § 101, except that
the term “Borrower” shall be substituted for the term “Debtor” therein;
“Subsidiary” shall mean any business in which Borrower holds, directly or
indirectly, a controlling interest). 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, its Subsidiaries or Affiliates, if any, or
any general partner of or the holder(s) of the majority ownership interests of
Borrower, 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.

 

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) between Borrower and Lender, which
shall be governed by the default and termination 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

 

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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
the other Loan Documents shall be valid unless in writing and signed by an
officer of Lender. No waiver by Lender of any Default (as defined in the other
Loan Documents) 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.

 

Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, 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 extend, modify or renew this Note or make a
novation of the loan evidenced by this Note for any period, and grant any
releases, compromises or indulgences with respect to any collateral securing
this Note, or with respect to any other Borrower or any other person liable
under this Note or other Loan Documents, all without notice to or consent of
each Borrower or each person who may be liable under this Note or any other Loan
Document and without affecting the liability of Borrower or any person who may
be liable under this Note or any other Loan Document.

 

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 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. Organization;
Powers. Borrower represents that Borrower (i) is (a) an adult individual and is
sui juris, or (b) a corporation, general partnership, limited partnership,
limited liability company or other legal entity, duly organized, validly
existing and in good standing under the laws of its state of organization, and
is authorized to do business in each other jurisdiction wherein its ownership of
property or conduct of business legally requires such organization; (ii) has the
power and authority to own its properties and assets and to carry on its
business as now being conducted and as now contemplated; and (iii) has the power
and authority to execute, deliver and perform, and by all necessary action has
authorized the execution, delivery and performance of, all of its obligations
under this Note and any other Loan Document to which it is a party. 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

 

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the laws of the state named in Lender’s address on the first page hereof without
regard to that state’s conflict of laws principles. If the terms of this Note
should conflict with the terms of the Loan Agreement or any commitment letter
that survives closing, the terms of this Note shall control. Jurisdiction.
Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state
named in Lender’s address on the first page hereof. 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. Each person who signs this Note is a Borrower and 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. 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.

 

ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to the Loan Documents between the parties hereto (a “Dispute”) shall
be resolved by binding arbitration conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the “Arbitration Rules”) of the
American Arbitration Association (the “AAA”) and the Federal Arbitration Act.
Disputes may include, without limitation, tort claims, counterclaims, a dispute
as to whether a matter is subject to arbitration, claims brought as class
actions, or claims arising from documents executed in the future. A judgment
upon the award may be entered in any court having jurisdiction. Notwithstanding
the foregoing, this arbitration provision does not apply to disputes under or
related to swap agreements. Special Rules. All arbitration hearings shall be
conducted in the city named in the address of Lender first stated above. A
hearing shall begin

 

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within 90 days of demand for arbitration and all hearings shall conclude within
120 days of demand for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators
shall be licensed attorneys selected from the Commercial Financial Dispute
Arbitration Panel of the AAA. The parties do not waive applicable Federal or
state substantive law except as provided herein. Preservation and Limitation of
Remedies. Notwithstanding the preceding binding arbitration provisions, the
parties agree to preserve, without diminution, certain remedies that any party
may exercise before or after an arbitration proceeding is brought. The parties
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable:
(i) all rights to foreclose against any real or personal property or other
security by exercising a power of sale or under applicable law by judicial
foreclosure including a proceeding to confirm the sale; (ii) all rights of
self-help including peaceful occupation of real property and collection of
rents, set-off, and peaceful possession of personal property; (iii) obtaining
provisional or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and filing an involuntary
bankruptcy proceeding; and (iv) when applicable, a judgment by confession of
judgment. Any claim or controversy with regard to any party’s entitlement to
such remedies is a Dispute. Waiver of Exemplary Damages. The parties agree that
they shall not have a remedy of punitive or exemplary damages against other
parties in any Dispute and hereby waive any right or claim to punitive or
exemplary damages they have now or which may arise in the future in connection
with any Dispute whether the Dispute is resolved by arbitration or judicially.
Waiver of Jury Trial. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH REGARD TO A DISPUTE.

 

[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:  

Chief Financial Officer

 

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