EXHIBIT 10.3



PALADIN REALTY INCOME PROPERTIES, INC.



2005 INDEPENDENT DIRECTOR INCENTIVE STOCK PLAN



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TABLE OF CONTENTS



|                            |  |                                      |  |     
|--------------------------- |  | ------------------------------------ |  | ----
|                            |  |                                      |  | Page
|§ 1. BACKGROUND AND PURPOSE |  | 1                                   
|                            | 
|§ 2 DEFINITIONS             |  | 1                                   
|2.1                         |  | Affiliate                            |  | 1   
|2.2                         |  | Board                                |  | 1   
|2.3                         |  | Change Effective Date                |  | 1   
|2.4                         |  | Change in Control                    |  | 2   
|2.5                         |  | Code                                 |  | 4   
|2.6                         |  | Committee                            |  | 4   
|2.7                         |  | Company                              |  | 4   
|2.8                         |  | Fair Market Value                    |  | 4   
|2.9                         |  | Independent Director                 |  | 5   
|2.10                        |  | 1933 Act                             |  | 5   
|2.11                        |  | 1934 Act                             |  | 5   
|2.12                        |  | Option                               |  | 5   
|2.13                        |  | Option Certificate                   |  | 5   
|2.14                        |  | Option Price                         |  | 5   
|2.15                        |  | Parent                               |  | 5   
|2.16                        |  | Plan                                 |  | 5   
|2.17                        |  | Rule 16b-3                           |  | 5   
|2.18                        |  | SAR Value                            |  | 5   
|2.19                        |  | Stock                                |  | 5   
|2.20                        |  | Stock Appreciation Right             |  | 6   
|2.21                        |  | Stock Appreciation Right Certificate |  | 6   
|2.22                        |  | Stock Grant                          |  | 6   
|2.23                        |  | Stock Grant Certificate              |  | 6   
|2.24                        |  | Stock Unit Grant                     |  | 6   
|2.25                        |  | Subsidiary                           |  | 6   
|                            | 
|§ 3 SHARES AND GRANT LIMITS |  | 7                                   
|3.1                         |  | Shares Reserved                      |  | 7   
|3.2                         |  | Source of Shares                     |  | 7   
|3.3                         |  | Use of Proceeds                      |  | 7   
|                            | 
|§ 4 EFFECTIVE DATE          |  | 8                                   
|                            | 
|§ 5 COMMITTEE               |  | 8                                   
|                            | 
|§ 6 ELIGIBILITY             |  | 9                                   
|                            | 
|§ 7 OPTIONS                 |  | 9                                   



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|                                        |  |                                                              |  |   
|--------------------------------------- |  | ------------------------------------------------------------ |  | --
|7.1                                     |  | Committee Action                                             |  | 9 
|7.2                                     |  | Option Price                                                 |  | 9 
|7.3                                     |  | Payment                                                      |  | 9 
|7.4                                     |  | Exercise                                                     |  | 10
|7.5                                     |  | Terms and Conditions                                         |  | 10
|                                        | 
|§ 8 STOCK APPRECIATION RIGHTS           |  | 11                                                          
|8.1                                     |  | Committee Action                                             |  | 11
|8.2                                     |  | Terms and Conditions                                         |  | 11
|8.3                                     |  | Exercise                                                     |  | 13
|                                        | 
|§ 9. STOCK GRANTS AND STOCK UNIT GRANTS |  | 14                                                          
|9.1                                     |  | Committee Action                                             |  | 14
|9.2                                     |  | Conditions                                                   |  | 14
|9.3                                     |  | Dividends, Voting Rights and Creditor Status                 |  | 16
|9.4                                     |  | Satisfaction of Forfeiture Conditions.                       |  | 18
|                                        | 
|§ 10 NON-TRANSFERABILITY                |  | 18                                                          
|                                        | 
|§ 11 SECURITIES REGISTRATION            |  | 18                                                          
|                                        | 
|§ 12 LIFE OF PLAN                       |  | 19                                                          
|                                        | 
|§ 13 ADJUSTMENT                         |  | 20                                                          
|13.1                                    |  | Capital Structure                                            |  | 20
|13.2                                    |  | Available Shares                                             |  | 21
|13.3                                    |  | Transactions Described in § 424 of the Code                  |  | 21
|13.4                                    |  | Fractional Shares                                            |  | 22
|                                        | 
|§ 14 CHANGE IN CONTROL                  |  | 22                                                          
|                                        | 
|§ 15 AMENDMENT OR TERMINATION           |  | 23                                                          
|                                        | 
|§ 16 MISCELLANEOUS                      |  | 24                                                          
|16.1                                    |  | Shareholder Rights                                           |  | 24
|16.2                                    |  | No Contract of Employment                                    |  | 24
|16.3                                    |  | Withholding                                                  |  | 24
|16.4                                    |  | Construction                                                 |  | 25
|16.5                                    |  | Other Conditions                                             |  | 25
|16.6                                    |  | Rule 16b-3                                                   |  | 25
|16.7                                    |  | Coordination with Employment Agreements and Other Agreements |  | 26



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§ 1.



BACKGROUND AND PURPOSE



The purpose of this Plan is to promote the interest of the Company by authorizing the Committee to grant Options and Stock Appreciation Rights and to make
Stock Grants and Stock Unit Grants to Independent Directors in order (1) to attract and retain Independent Directors, (2) to provide an additional incentive to each Independent Director to work to increase the value of Stock and (3) to provide each
Independent Director with a stake in the future of the Company which corresponds to the stake of each of the Companys shareholders.



§ 2



DEFINITIONS



2.1    Affiliate  means any organization (other than a Subsidiary) that would be treated as under common control with the Company under § 414(c) of the Code if 50 percent were substituted
for 80 percent in the income tax regulations under § 414(c) of the Code.



2.2    Board  means the Board of Directors of the Company.



2.3    Change Effective Date  means either the date which includes the closing of the transaction which makes
a Change in Control effective if the Change in Control is made effective through a transaction which has a closing or the date a Change in Control is reported in accordance with applicable law as effective to the Securities and Exchange
Commission if the Change in Control is made effective other than through a transaction which has a closing.



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2.4    Change in Control  means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the 1934 Act as in effect at the time of such change in control, provided that such a change in control shall be
deemed to have occurred at such time as



| | (a) | any person (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act)
directly or indirectly, of securities representing 20% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor to the Company;
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| | (b) | during any period of two consecutive years or less, individuals who at the beginning of such period constitute the Board cease, for any reason, to constitute at least a majority of
the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period;
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| | (c) | the shareholders of the Company approve any reorganization, merger, consolidation or share exchange as a result of which the common stock of the Company shall be changed, converted
or exchanged into or for securities of another corporation (other than a merger with a wholly-owned subsidiary of the Company) or any
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| | dissolution or liquidation of the Company or any sale or the disposition of 50% or more of the assets or business of the Company; or
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| | (d) | shareholders of the Company approve any reorganization, merger, consolidation or share exchange unless (A) the persons who were the beneficial owners of the outstanding shares of
the common stock of the Company immediately before the consummation of such transaction beneficially own more than 60% of the outstanding shares of the common stock of the successor or survivor corporation in such transaction immediately following
the consummation of such transaction and (B) the number of shares of the common stock of such successor or survivor corporation beneficially owned by the persons described in § 2.4(d)(A) immediately following the consummation of such
transaction is beneficially owned by each such person in substantially the same proportion that each such person had beneficially owned shares of the Company common stock immediately before the consummation of such transaction, provided (C) the
percentage described in § 2.4(d)(A) of the beneficially owned shares of the successor or survivor corporation and the number described in § 2.4 (d)(B) of the beneficially owned shares of the successor or survivor corporation shall be
determined exclusively by reference to the shares of the
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successor or survivor corporation which result from the beneficial ownership of shares of common stock of
the Company by the persons described in § 2.4(d)(A) immediately before the consummation of such transaction.



2.5 Code  means the Internal Revenue Code of 1986, as amended.



2.6 Committee  means either the Board or a committee of the Board which shall have at least 2 members, each of
whom shall be appointed by and shall serve at the pleasure of the Board and shall come within the definition of a non-employee director under Rule 16b-3.



2.7 Company  means Paladin Realty Income Properties, Inc. and any successor to Paladin Realty Income
Properties, Inc.



2.8 Fair Market Value  means (a)
the closing price on any date for a share of Stock if the Stock is traded on any national stock exchange, (b) the average of the high bid and low ask prices of a share of Stock as reflected on National Market of the National Association of
Securities Dealers, Inc. Automated Quotation (NASDAQ) System on the date of determination if the Stock is not listed on any national stock exchange but is quoted on NASDAQ, (c) the per share sales price of the Stock if the Stock is not
traded or listed and if there is a current public offering of the Stock, or (d) the price which the Committee acting in good faith determines through any reasonable valuation method that a share of Stock might change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.



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2.9 Independent Director  means any member of the Board who is not an employee of the
Company or a Parent or Subsidiary or affiliate (as such term is defined in Rule 405 of the 1933 Act) of the Company.



2.10 1933 Act means the Securities Act of 1933, as amended.



2.11 1934 Act  means the Securities Exchange Act of 1934, as amended.



2.12 Option  means an Option granted under this Plan to purchase
Stock which is intended to fail to satisfy the requirements of §422 of the Code.



2.13 Option Certificate  means the certificate (whether in electronic or written form) which sets forth the terms and conditions of an Option granted under this Plan.



2.14 Option Price  means the price which shall be paid to
purchase one share of Stock upon the exercise of an Option granted under this Plan.



2.15 Parent  means any corporation which is a parent corporation (within the meaning of § 424(e) of the Code) of the Company.



2.16 Plan  means this Paladin Realty Income Properties, Inc. 2005 Independent Director Incentive Stock Plan as
amended from time to time thereafter.



2.17 Rule 16b-3
 means the exemption under Rule 16b-3 to Section 16(b) of the 1934 Act or any successor to such rule.



2.18 SAR Value  means the value assigned by the Committee to a share of Stock in connection with the grant of a Stock Appreciation Right
under § 8.



2.19 Stock  means the $0.01 par
value common stock of the Company.



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2.20Stock Appreciation Right  means a right which is granted under
§8 to receive the appreciation in a share of Stock.



2.21Stock Appreciation Right Certificate  means the certificate (whether in electronic or written form) which sets forth the terms and conditions of a Stock Appreciation Right which is not granted as
part of an Option.



2.22Stock
Grant  means a grant under § 9 which is designed to result in the issuance of the number of shares of Stock described in such grant rather than a payment in cash based on the Fair Market Value of such shares of Stock.



2.23Stock Grant Certificate  means the
certificate (whether in electronic or written form) which sets forth the terms and conditions of a Stock Grant or a Stock Unit Grant.



2.24Stock Unit Grant  means a grant under § 9 which is designed to result in the payment of cash based on the
Fair Market Value of the number of shares of Stock described in such grant rather than the issuance of the number of shares of Stock described in such grant.



2.25Subsidiary  means a corporation which is a subsidiary corporation (within the meaning of § 424(f) of the
Code) of the Company.



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§ 3



SHARES AND GRANT LIMITS



3.1    Shares Reserved. There shall (subject to § 13) be reserved for issuance under this Plan 60,000 shares of Stock.



3.2    Source of Shares. The shares
of Stock described in § 3.1 shall be reserved to the extent that the Company deems appropriate from authorized but unissued shares of Stock and from shares of Stock which have been reacquired by the Company. All shares of Stock described in
§ 3.1 shall remain available for issuance under this Plan until issued pursuant to the exercise of an Option or a Stock Appreciation Right or issued pursuant to a Stock Grant, and any such shares of stock which are issued pursuant to an Option,
a Stock Appreciation Right or a Stock Grant which are forfeited thereafter shall again become available for issuance under this Plan. Finally, if the Option Price under an Option is paid in whole or in part in shares of Stock or if shares of Stock
are tendered to the Company in satisfaction of any condition to a Stock Grant, such shares thereafter shall become available for issuance under this Plan and shall be treated the same as any other shares available for issuance under this Plan.



3.3    Use of Proceeds. The
proceeds which the Company receives from the sale of any shares of Stock under this Plan shall be used for general corporate purposes and shall be added to the general funds of the Company.



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§ 4



EFFECTIVE DATE



The effective date of this Plan shall be February 28, 2005.



§ 5



COMMITTEE



This Plan shall be administered by the Committee. The Committee acting in its absolute discretion shall exercise such powers and take such action as expressly called for under this Plan and, further, the Committee shall have the power to
interpret this Plan and (subject to § 14 and § 15 and Rule 16b-3) to take such other action in the administration and operation of this Plan as the Committee deems equitable under the circumstances, which action shall be binding on the
Company, on each affected Independent Director and on each other person directly or indirectly affected by such action.



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§ 6



ELIGIBILITY



Independent Directors shall be eligible for the grant of Options and Stock Appreciation Rights and for Stock Grants and Stock Unit Grants under this Plan.



§ 7



OPTIONS



7.1 Committee Action. The Committee acting in its absolute discretion shall have the right to grant Options to
Independent Directors under this Plan from time to time to purchase shares of Stock, but the Committee shall not, absent the approval of the Companys shareholders, take any action, whether through amendment, cancellation, replacement grants,
or any other means, to reduce the Option Price of any outstanding Options.



7.2 Option Price. The Option Price for each share of Stock subject to an Option shall be no less than the Fair Market Value of a share of Stock on the date the Option is granted.



7.3 Payment. The Option Price shall be payable in full upon the
exercise of any Option and, at the discretion of the Committee, an Option Certificate can provide for the payment of the Option Price either in cash, by check or in Stock which has been held for at least 6 months and which is acceptable to the
Committee, or through any cashless exercise procedure which is effected by an unrelated broker through a sale of Stock in the open market and which is acceptable to the Committee, or in any combination of such forms of payment. Any payment made in
Stock shall be



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treated as equal to the Fair Market Value of such Stock on the date the certificate for such Stock (or proper evidence of
such certificate) is presented to the Committee or its delegate in such form as acceptable to the Committee.



7.4 Exercise.



| | (a) | Exercise Period. Each Option granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related Option Certificate, but no
Option Certificate shall make an Option exercisable on or after the date which is the tenth anniversary of the date the Option is granted.
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| | (b) | Termination of Status as Independent Director. Subject to § 7.5(a), an Option Certificate may provide for the exercise of an Option after an Independent Directors
status as such has terminated for any reason whatsoever, including death or disability.
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7.5 Terms and Conditions.



| | (a) | Option Certificate. Each grant of an Option to an Independent Director shall be evidenced by an Option Certificate and shall set forth such other terms and conditions of such
grant as the Committee acting in its absolute discretion deems consistent with the terms of this Plan.
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| | (b) | Minimum Period of Service. If the only condition to exercise of the Option is the completion of a period of service, such period of service shall be no less than the one (1)
year period which starts on the date as of which the Option is granted unless the Committee determines that a shorter period of service (or no period of service) better serves the Companys interest.
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§ 8



STOCK APPRECIATION RIGHTS



8.1 Committee Action. The Committee acting in its absolute discretion
shall have the right to grant Stock Appreciation Rights to Independent Directors under this Plan from time to time, and each Stock Appreciation Right grant shall be evidenced by a Stock Appreciation Right Certificate or, if such Stock Appreciation
Right is granted as part of an Option, shall be evidenced by the Option Certificate for the related Option.



8.2 Terms and Conditions.



| | (a) | Stock Appreciation Right Certificate. If a Stock Appreciation Right is granted independent of an Option, such Stock Appreciation Right shall be evidenced by a Stock
Appreciation Right Certificate, and such certificate shall set forth the number of shares of Stock on which the Independent Directors right to appreciation shall be based and the SAR Value of each share of Stock. Such SAR
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Value shall be no less than the Fair Market Value of a share of Stock on the date that the Stock
Appreciation Right is granted. The Stock Appreciation Right Certificate shall set forth such other terms and conditions for the exercise of the Stock Appreciation Right as the Committee deems appropriate under the circumstances, but no Stock
Appreciation Right Certificate shall make a Stock Appreciation Right exercisable on or after the date which is the tenth anniversary of the date such Stock Appreciation Right is granted.



|(b) | Option Certificate. If a Stock Appreciation Right is granted together with an Option, such Stock Appreciation Right shall be evidenced by an Option Certificate, the number of
shares of Stock on which the Independent Directors right to appreciation shall be based shall be the same as the number of shares of Stock subject to the related Option, and the SAR Value for each such share of Stock shall be no less than the
Option Price under the related Option. Each such Option Certificate shall provide that the exercise of the Stock Appreciation Right with respect to any share of Stock shall cancel the Independent Directors right to exercise his or her Option
with respect to such share and, conversely, that the exercise of the Option with respect to any share of Stock shall cancel the Independent Directors right to exercise his or her Stock
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Appreciation Right with respect to such share. A Stock Appreciation Right which is granted as part of an
Option shall be exercisable only while the related Option is exercisable. The Option Certificate shall set forth such other terms and conditions for the exercise of the Stock Appreciation Right as the Committee deems appropriate under the
circumstances.



| | (c) | Minimum Period of Service. If the only condition to exercise of a Stock Appreciation Right is the completion of a period of service, such period of service shall be no less
than the one (1) year period which starts on the date as of which the Stock Appreciation Right is granted unless the Committee determines that a shorter period of service (or no period of service) better serves the Companys interest.
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8.3 Exercise. A Stock Appreciation Right
shall be exercisable only when the Fair Market Value of a share of Stock on which the right to appreciation is based exceeds the SAR Value for such share, and the payment due on exercise shall be based on such excess with respect to the number of
shares of Stock to which the exercise relates. An Independent Director upon the exercise of his or her Stock Appreciation Right shall receive a payment from the Company in cash or in Stock issued under this Plan, or in a combination of cash and
Stock, and the number of shares of Stock issued shall be based on the Fair Market Value of a share of Stock on the date the Stock Appreciation Right is exercised. The Committee acting in its absolute discretion shall have the right to determine the
form and time of any payment under this § 8.3.



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§ 9.



STOCK GRANTS AND STOCK UNIT GRANTS



9.1 Committee Action. The Committee acting in its absolute discretion shall have the right to make Stock Grants and Stock Unit Grants to
Independent Directors. Each Stock Grant and each Stock Unit Grant shall be evidenced by a Stock Grant Certificate, and each Stock Grant Certificate shall set forth the conditions, if any, under which Stock will be issued under the Stock Grant or
cash will be paid under the Stock Unit Grant and the conditions under which the Independent Directors interest in any Stock which has been issued will become non-forfeitable.



9.2 Conditions.



| | (a) | Conditions to Issuance of Stock. The Committee acting in its absolute discretion may make the issuance of Stock under a Stock Grant subject to the satisfaction of one, or
more than one, condition which the Committee deems appropriate under the circumstances for Independent Directors generally or for an Independent Director in particular, and the related Stock Grant Certificate shall set forth each such condition and
the deadline for satisfying each such condition. Stock subject to a Stock Grant shall be issued in the name of an Independent Director only after each such condition, if any, has been timely satisfied, and any
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| | Stock which is so issued shall be held by the Company pending the satisfaction of the forfeiture conditions, if any, under § 9.2(b) for the related
Stock Grant.
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|(b) | Conditions on Forfeiture of Stock or Cash Payment. The Committee acting in its absolute discretion may make any cash payment due under a Stock Unit Grant or Stock issued in
the name of an Independent Director under a Stock Grant non-forfeitable subject to the satisfaction of one, or more than one, objective employment, performance or other condition that the Committee acting in its absolute discretion deems appropriate
under the circumstances for Independent Directors generally or for an Independent Director in particular, and the related Stock Grant Certificate shall set forth each such condition, if any, and the deadline, if any, for satisfying each such
condition. An Independent Directors non-forfeitable interest in the shares of Stock underlying a Stock Grant or the cash payable under a Stock Unit Grant shall depend on the extent to which he or she timely satisfies each such condition. Each
share of Stock underlying a Stock Grant shall not be available under § 3 after such grant is effective until such time, if any, as such share thereafter is forfeited as a result of a failure to timely satisfy a forfeiture condition, in which
event such share of Stock shall again become available
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| | under § 3 as of the date of such forfeiture. Finally, the Company shall have the right to require an Independent Director to sign an irrevocable stock
power in favor of the Company with respect to forfeitable shares of Stock issued under this § 9.2(b) in order for the Company to effect a forfeiture in accordance with this § 9.2(b).
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| | (c) | Minimum Period of Service. If the only condition to the forfeiture of a Stock Grant or a Stock Unit Grant is the completion of a period of service, such period of service
shall be no less than the three (1) year period which starts on the date as of which the Stock Grant or Stock Unit Grant is made unless the Committee determines that a shorter period of service (or no period of service) better serves the
Companys interest.
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| | 9.3 | Dividends, Voting Rights and Creditor Status.
| | --- | ---------------------------------------------



| | (a) | Cash Dividends. Except as otherwise set forth in a Stock Grant, if a dividend is paid in cash on a share of Stock after such Stock has been issued under a Stock Grant but
before the first date that an Independent Directors interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable, the Company shall pay such cash dividend directly to such Independent Director.
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| | (b) | Stock Dividends. If a dividend is paid on a share of Stock in Stock after such Stock has been issued under a Stock Grant but before the first date that an Independent
Directors interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable, the Company shall hold such dividend Stock subject to the same conditions under § 9.2(b) as the related Stock Grant.
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| | (c) | Other. If a dividend (other than a dividend described in § 9.3(a) or § 9.3(b)) is paid with respect to a share of Stock after such Stock has been issued under a
Stock Grant but before the first date that an Independent a Directors interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable, the Company shall distribute or hold such dividend in accordance with such
rules as the Committee shall adopt with respect to each such dividend.
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| | (d) | Voting. Except as otherwise set forth in a Stock Grant, an Independent Director shall have the right to vote the Stock issued under his or her Stock Grant during the period
which comes after such Stock has been issued under a Stock Grant but before the first date that an Independent Directors interest in such Stock (1) is forfeited completely or (2) becomes completely non-forfeitable.
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| | (e) | General Creditor Status. An Independent Director to whom a Stock Unit Grant is made shall be no more than a general and unsecured creditor of the Company with respect to any
cash payable under such Stock Unit Grant.
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9.4    Satisfaction of Forfeiture Conditions. A share of Stock shall cease to
be subject to a Stock Grant at such time as an Independent Directors interest in such Stock becomes non-forfeitable under this Plan, and the certificate or other evidence of ownership representing such share shall be transferred to the
Independent Director as soon as practicable thereafter.



§
10



NON-TRANSFERABILITY



No Option, Stock Grant, Stock Unit Grant or Stock Appreciation Right shall
(absent the Committees consent) be transferable by an Independent Director other than by will or by the laws of descent and distribution, and any Option or Stock Appreciation Right shall (absent the Committees consent) be exercisable
during an Independent Directors lifetime only by the Independent Director. The person or persons to whom an Option or Stock Grant or Stock Unit Grant or Stock Appreciation Right is transferred by will or by the laws of descent and distribution
(or with the Committees consent) thereafter shall be treated as the Independent Director.



§ 11



SECURITIES
REGISTRATION



As a condition to the receipt of shares of
Stock under this Plan, the Independent Director shall, if so requested by the Company, agree to hold such shares of Stock for investment and not with a view of resale or distribution to the public and, if so requested by the Company, shall deliver
to the Company a written statement satisfactory to the Company to that effect. Furthermore, if so requested by the



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Company, the Independent Director shall make a written representation to the Company that he or she will not sell or
offer for sale any of such Stock unless a registration statement shall be in effect with respect to such Stock under the 1933 Act and any applicable state securities law or he or she shall have furnished to the Company an opinion in form and
substance satisfactory to the Company of legal counsel satisfactory to the Company that such registration is not required. Certificates or other evidence of ownership representing the Stock transferred upon the exercise of an Option or Stock
Appreciation Right or upon the lapse of the forfeiture conditions, if any, on any Stock Grant may at the discretion of the Company bear a legend to the effect that such Stock has not been registered under the 1933 Act or any applicable state
securities law and that such Stock cannot be sold or offered for sale in the absence of an effective registration statement as to such Stock under the 1933 Act and any applicable state securities law or an opinion in form and substance satisfactory
to the Company of legal counsel satisfactory to the Company that such registration is not required.



§ 12



LIFE OF PLAN



No Option or Stock Appreciation
Right shall be granted or Stock Grant or Stock Unit Grant made under this Plan on or after the earlier of:



| | (1) | the tenth anniversary of the effective date of this Plan (as determined under § 4), in which event this Plan otherwise thereafter shall continue in effect until all outstanding
Options and Stock Appreciation Rights have been exercised
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| | in full or no longer are exercisable, all Stock issued under any Stock Grants under this Plan have been forfeited or have become non-forfeitable and all cash
payments payable under a Stock Unit Grant have been forfeited or paid, or
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| | (2) | the date on which all of the Stock reserved under § 3 has (as a result of the exercise of Options or Stock Appreciation Rights granted under this Plan or the satisfaction of
the forfeiture conditions, if any, on Stock Grants) been issued or no longer is available for use under this Plan, in which event this Plan also shall terminate on such date.
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§ 13



ADJUSTMENT



13.1 Capital Structure. The number, kind or class (or any combination thereof) of shares of Stock subject to Options and Stock Appreciation Rights
granted under this Plan and the Option Price of such Options and the SAR Value of such Stock Appreciation Rights as well as the number, kind or class (or any combination thereof) of shares of Stock subject to Stock Grants and Stock Unit Grants made
under this Plan shall be adjusted by the Committee in a reasonable and equitable manner to preserve immediately after



| | (a) | any equity restructuring or change in the capitalization of the Company, including, but not limited to, spin offs, stock dividends, large non-recurring dividends, rights offerings
or stock splits, or
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| | (b) | any transaction described in § 424(a) of the Code which does not constitute a Change in Control of the Company
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the aggregate intrinsic value of each such Option, Stock Appreciation Right, Stock Grant and
Stock Unit Grant immediately before such restructuring or recapitalization or transaction.



13.2    Available Shares. If any adjustment is made with respect to any outstanding Option, Stock Appreciation Right, Stock Grant or Stock Unit Grant under § 13.1, then the number, kind
or class (or any combination thereof) of shares of Stock reserved under § 3 automatically shall be adjusted so that there is a sufficient number, kind and class of shares of Stock available for issuance pursuant to each such Option, Stock
Appreciation Right, Stock Grant and Stock Unit Grant as adjusted under § 13.1. Furthermore, the Committee shall have the absolute discretion to further adjust such number, kind or class (or any combination thereof) of shares of Stock
reserved under § 3 in light of any of the events described in § 13.1(a) and § 13.1(b) to the extent the Committee acting in good faith determinates that a further adjustment would be appropriate and proper under the circumstances and
in keeping with the purposes of this Plan.



13.3    Transactions Described in § 424 of the Code. The Committee as part of any corporate transaction described in § 424(a) of the Code which does not constitute a Change in Control of the Company
shall have the right (without regard to any limitations set forth under this Plan) to make any Stock Grants, Stock Unit Grants and Option and Stock Appreciation Right grants to effect the assumption of, or the



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substitution for, stock grants, stock unit grants and option and stock appreciation right grants previously made by any
other corporation to the extent that such corporate transaction calls for such substitution or assumption of such stock grants, stock unit grants and stock option and stock appreciation right grants, and any shares of Stock issued pursuant to such
Stock Grants and Option and Stock Appreciation Right grants shall be treated as additional shares of Stock available under § 3 if the stockholders of the Company approve such corporate transaction.



13.4 Fractional Shares. If any adjustment under this § 13 would
create a fractional share of Stock or a right to acquire a fractional share of Stock under any Option, Stock Appreciation Right or Stock Grant, such fractional share shall be disregarded and the number of shares of Stock reserved under this Plan and
the number subject to any Options or Stock Appreciation Right grants and Stock Grants shall be the next lower number of shares of Stock, rounding all fractions downward. An adjustment made under this § 13 by the Committee shall be conclusive
and binding on all affected persons.



§ 14



CHANGE IN CONTROL



If there is a Change in Control of the Company, then as of the Change
Effective Date for such Change in Control any and all conditions to the exercise of all outstanding Options and Stock Appreciation Rights on such date and any and all outstanding issuance and forfeiture conditions on any Stock Grants and Stock Unit
Grants on such date automatically shall be deemed 100% satisfied as of such Change



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Effective Date, and the Board shall have the right (to the extent expressly required as part of such transaction) to
cancel such Options, Stock Appreciation Rights, Stock Grants and Stock Unit Grants after providing each Independent Director a reasonable period to exercise his or her Options and Stock Appreciation Rights and to take such other action as necessary
or appropriate to receive the Stock subject to any Stock Grants and the cash payable under any Stock Unit Grants.



§ 15



AMENDMENT OR TERMINATION



This Plan may be
amended by the Board from time to time to the extent that the Board deems necessary or appropriate; provided, however, (a) no amendment shall be made absent the approval of the shareholders of the Company to the extent such approval is required
under applicable law or the rules of any national securities exchange or Nasdaq Stock Market on which shares of Stock are then-listed and (b) no amendment shall be made to § 14 on or after the date of any Change in Control which might adversely
affect any rights which otherwise would vest on the related Change Effective Date. The Board also may suspend granting Options or Stock Appreciation Rights or making Stock Grants or Stock Unit Grants under this Plan at any time and may terminate
this Plan at any time; provided, however, the Board shall not have the right unilaterally to modify, amend or cancel any Option or Stock Appreciation Right granted or Stock Grant made before such suspension or termination unless (1) the Independent
Director consents in writing to such modification, amendment or cancellation or (2) there is a dissolution or liquidation of the Company or a transaction described in § 13.2 or § 14.



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§ 16



MISCELLANEOUS



16.1    Shareholder Rights. No Independent Director shall have any rights as a shareholder of the Company as a result of the
grant of an Option or a Stock Appreciation Right pending the actual delivery of the Stock subject to such Option or Stock Appreciation Right to such Independent Director. Subject to § 9.3, an Independent Directors rights as a shareholder
in the shares of Stock underlying a Stock Grant which is effective shall be set forth in the related Stock Grant Certificate.



16.2    No Contract of Employment. The grant of an Option or a Stock Appreciation Right or a Stock Grant or Stock Unit Grant to
an Independent Director under this Plan shall not constitute a right to continue to serve on the Board and shall not confer on an Independent Director any rights upon his or her termination of service in addition to those rights, if any, expressly
set forth in this Plan or the related Option Certificate, Stock Appreciation Right Certificate, or Stock Grant Certificate.



16.3    Withholding. Each Option, Stock Appreciation Right, Stock Grant and Stock Unit Grant shall be made subject to the
condition that the Independent Director consents to whatever action the Committee directs to satisfy the minimum statutory federal and state tax withholding requirements, if any, which the Company determines are applicable to the exercise of such
Option or Stock Appreciation Right or to the satisfaction of any forfeiture conditions with respect to Stock subject to a Stock



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Grant or Stock Unit Grant issued in the name of the Independent Director. No withholding shall be effected under this
Plan which exceeds the minimum statutory federal and state withholding requirements.



16.4 Construction. All references to sections (§) are to sections (§) of this Plan unless otherwise indicated. This Plan shall be construed under the laws of the State of California. Each term set
forth in § 2 shall, unless otherwise stated, have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular.
Finally, if there is any conflict between the terms of this Plan and the terms of any Option Certificate, Stock Appreciation Right Certificate or Stock Grant Certificate, the terms of this Plan shall control.



16.5 Other Conditions. Each Option Certificate, Stock Appreciation
Right Certificate or Stock Grant Certificate may require that an Independent Director (as a condition to the exercise of an Option or a Stock Appreciation Right or the issuance of Stock subject to a Stock Grant) enter into any agreement or make such
representations prepared by the Company, including (without limitation) any agreement which restricts the transfer of Stock acquired pursuant to the exercise of an Option or a Stock Appreciation Right or a Stock Grant or provides for the repurchase
of such Stock by the Company.



16.6 Rule 16b-3. The
Committee shall have the right to amend any Option, Stock Grant or Stock Appreciation Right to withhold or otherwise restrict the transfer of any Stock or cash under this Plan to an Independent Director as the



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Committee deems appropriate in order to satisfy any condition or requirement under Rule 16b-3 to the extent Rule 16 of
the 1934 Act might be applicable to such grant or transfer.



16.7 Coordination with Other Agreements. If the Company enters into agreement with an Independent Director which expressly provides for the acceleration in vesting of an outstanding Option, Stock Appreciation Right, Stock Grant or
Stock Unit Grant or for the extension of the deadline to exercise any rights under an outstanding Option, Stock Appreciation Right, Stock Grant or Stock Unit Grant, any such acceleration or extension shall be deemed effected pursuant to, and in
accordance with, the terms of such outstanding Option, Stock Appreciation Right, Stock Grant or Stock Unit Grant and this Plan even if such agreement is first effective after the date the outstanding Option or Stock Appreciation Right was granted or
the Stock Grant or Stock Unit Grant was made.



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IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Plan to evidence
its adoption of this Plan.



Paladin Realty
Income Properties, Inc.







By:/s/    James R.
Worms

Name: James R. Worms

Title: President and Chief Executive
Officer



Date: February 28, 2005



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