Document:

Advisory Agreement

 EXHIBIT 10.2 
  
 ADVISORY AGREEMENT 
  
 THIS ADVISORY AGREEMENT (this “Agreement”), dated as of
                            , 2004, is entered into between Paladin Realty Income Properties, Inc., a
Maryland corporation (the “Company”), Paladin Realty Income Properties, L.P. (the “Operating Partnership,” and collectively with the Company, the “Fund”), and Paladin Realty Advisors, LLC, a
Delaware limited liability company (the “Advisor”). 
  
 W I T N E S S E T H: 
  
 WHEREAS, the
Company has filed a registration statement with the Securities and Exchange Commission relating to its proposed offering of shares of its common stock, par value $.01 per share, to the public; 
  
 WHEREAS, the Company intends to qualify as a REIT (as defined below),
and to invest, through the Operating Partnership, its funds in investments permitted by the terms of the Articles (as defined below) and Sections 856 through 860 of the Code (as defined below); 
  
 WHEREAS, the Fund desires to avail itself of the experience, sources
of information, advice and assistance of, and certain facilities available to, the Advisor and to have the Advisor undertake the duties and responsibilities set forth herein on behalf of the Fund, subject to the supervision of the Board of Directors
of the Company and the general partner of the Operating Partnership; and 
  
 WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board of Directors and the general partner of the Operating Partnership, on the terms and conditions set
forth herein; 
  
 NOW, THEREFORE, in consideration of the
foregoing and of the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 
  
 1. Definitions. As used in this Agreement, the following terms have the definitions hereinafter indicated: 
  
 “Acquisition Expenses” means any and all expenses incurred
by the Company, the Advisor, the Operating Partnership, or any Affiliate thereof in connection with the selection or acquisition of any Real Estate Asset, including, without limitation, legal fees and expenses, travel and communications expenses,
costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, title insurance premiums, and other closing and miscellaneous expenses related to selection and acquisition of Real Estate Assets, whether or
not acquired. 
  
 “Acquisition Fee” means any and
all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including the Paladin Acquisition Fee (as defined in Section 8(a)) and any other fees or commissions paid by or to any Affiliate of the 

 Fund or the Advisor) in connection with the making or investing in mortgage loans or the purchase, development or
construction of any property or other Real Estate Asset, including, without limitation, real estate commissions, Development Fees and Construction Fees (except as provided in the following sentence), selection fees, nonrecurring management fees,
loan fees, points, or any other fees or commissions of a similar nature. Excluded shall be all Development Fees or Construction Fees paid to any Person or entity not affiliated with the Sponsor or Advisor in connection with the actual development
and construction of any property or other Real Estate Asset. 
  
 “Advisor” means Paladin Realty Advisors, LLC, a Delaware corporation, any successor advisor to the Company, or any person or entity to which Paladin Realty Advisors, LLC or any successor advisor subcontracts substantially
all of its functions. 
  
 “Affiliate” means, (A)
any Person directly or indirectly owning, controlling, or holding, with power to vote, 10% or more of the outstanding voting securities of such other Person, (B) any Person 10% or more of whose outstanding voting securities are directly or
indirectly owned, controlled, or held, with the power to vote, by such other Person, (C) any Person, directly or indirectly, controlling, controlled by, or under common control with such other Person, (D) any executive officer, director, trustee,
general partner or manager of such other person, or (E) any legal entity for which such Person acts as an executive officer, director, trustee, general partner or manager. 
  
 “Appraised Value” means value according to an appraisal made by an Independent Expert. 
  
 “Articles” means the Articles of Amendment and Restatement
of the Company dated as of                         , 2004, which comprise the articles of incorporation of the Company, as
amended from time to time. 
  
 “Asset Management
Fee” means the fee described in Section 8(b) hereof. 
  
 “Average Invested Assets” means, for a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in equity interests in and loans secured by real estate, before
reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period. 
  
 “Board” means the Board of Directors of the Company. 
  
 “Cause” means (i) any fraud, criminal conduct, willful
misconduct or willful breach of fiduciary duty by the Advisor, (ii) any material breach of this Agreement by the Advisor not cured by the Advisor within fifteen (15) days of the Advisor’s receipt of notice of such breach from the Fund, or (iii)
the bankruptcy of the Advisor. 
  
 “Code” means
the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in 
  

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 effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any
applicable regulations as in effect from time to time. 
  
 “Company” means Paladin Realty Income Properties, Inc., a corporation organized under the laws of the State of Maryland. 
  
 “Competitive Real Estate Commission” means a real estate or brokerage commission paid for the purchase or sale of property which is
reasonable, customary, and competitive in light of the size, type, and location of the Real Estate Asset. 
  
 “Construction Fee” means a fee or other remuneration for acting as general contractor and/or construction manager to construct
improvements, supervise and coordinate projects or to provide major repairs or rehabilitation for a Real Estate Asset. 
  
 “Control” means, with respect to a Person, the possession (directly or indirectly) of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting securities, by contract or otherwise. 
  
 “Contract Purchase Price” means the amount actually paid for a Real Estate Asset or allocated to the purchase, development, construction
or improvement of a property, exclusive of Acquisition Fees and Acquisition Expenses. 
  
 “Dealer Manager” means Prospect Financial Advisors, LLC or such other Person or entity selected by the Board of Directors to act as the dealer manager for the offering of the Shares. Prospect
Financial Advisors, LLC is a member of the National Association of Securities Dealers, Inc. 
  
 “Dealer Manager Fee” means the dealer manager fee paid to the Dealer Manager pursuant to that certain Dealer Manager Agreement, dated
                    , 2004, among the Company, the Operating Partnership and Prospect Financial Advisors, LLC, or any similar fee paid to any
other Dealer Manager in connection with an Offering. 
  
 “Development Fee” means a fee for the packaging of a Real Estate Asset, including the negotiation and approval of plans, and any undertaking to assist in obtaining zoning and necessary variances and financing for a specific
property, either initially or at a later date. 
  
 “Director” means a member of the Board of Directors of the Company. 
  
 “Dividends” means any dividends or other distributions of money or other property by the Company to the Stockholders, including distributions that may constitute a return of capital for federal income
tax purposes. 
  
 “8% Return” means, with respect
to the Stockholders, an amount calculated like simple interest at the rate of eight percent (8%) per annum calculated on the varying daily balances of Invested Capital during the period to which the 8% Return relates, and determined on the basis of
a 360-day year/30-day month, cumulative for the period for which such 8% Return is being determined. 
  

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 “Fund” means the Company and the Operating Partnership, collectively. 
  
 “Good Reason” means (i) any failure by the Company or the
Operating Partnership to obtain a satisfactory agreement from a successor entity to the Company or the Operating Partnership to assume and agree to perform the Fund’s obligations under this Agreement, or (ii) any material breach of this
Agreement by the Fund not cured by the Fund within fifteen (15) days of the Fund’s receipt of notice of such breach from the Advisor. 
  
 “Gross Proceeds” means the aggregate purchase price of all Shares sold for the account of the Company, without deduction for Selling
Commissions, volume discounts, marketing support fees, due diligence expense reimbursement, fees paid to the Dealer Manager or other Organization and Offering Expenses. For the purposes of computing Gross Proceeds, the purchase price of any Share
for which Selling Commissions are paid to the Dealer Manager or a Soliciting Dealer (where net proceeds to the Company are not reduced) shall be deemed to be the full amount of the offering price per Share. 
  
 “Independent Director” means a Director who is not, and
within the last two years has not been, directly or indirectly associated with the Advisor or Sponsor by virtue of (i) ownership of an interest in the Advisor, the Sponsor or any of their Affiliates, (ii) employment by the Advisor, the Sponsor or
any of their Affiliates, (iii) service as an officer, trust manager or director of the Advisor, the Sponsor or any of their Affiliates, (iv) performance of services, other than as a Director, for the Company, (v) service as a director, trust manager
or trustee of more than three real estate investment trusts advised by the Advisor or organized by the Sponsor, or (vi) maintenance of a material business or professional relationship with the Advisor, the Sponsor or any of their Affiliates. A
business or professional relationship is considered material if the gross revenue derived by the Director from the Advisor or Sponsor and their Affiliates exceeds five percent of either the Director’s annual gross revenue, derived from all
sources, during either of the last two years or the Director’s net worth on a fair market value basis. An indirect relationship shall include circumstances in which a Director’s spouse, parents, children, siblings, mothers- or
fathers-in-law, sons- or daughters-in-law or brothers- or sisters-in-law is or has been associated with the Advisor or Sponsor or any of their Affiliates or the Company. 
  
 “Independent Expert” means a Person or entity with no material current or prior business or personal
relationship with the Advisor or any of the Directors that is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company. 
  
 “Invested Capital” means, with respect to the Stockholders,
as of any relevant date, an amount equal to the excess of (i) the aggregate amount of cash contributed or deemed contributed by the Company to the Operating Partnership from the gross proceeds of the issuance by the Company of Shares to the
Stockholders, over (ii) the sum of (A) the cumulative distributions of Net Sales Proceeds (as defined in the OP Partnership Agreement) made to the Company pursuant to Section 5.1(c) of the OP Partnership Agreement as of such date and distributed to
the Stockholders, and (B) the cumulative amounts paid to the Stockholders to repurchase Shares under the Company’s share redemption plan as of such date. 
  

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 “Joint Ventures” means the joint venture or general partnership arrangements in which
the Company or the Operating Partnership is a co-venturer or partner that are established to acquire Real Estate Assets. 
  
 “Listing” means the listing of Shares on a national securities exchange or quotation of the Common Shares on the National Market System
of the Nasdaq Stock Market. 
  
 “Listing Date”
means the date on which a Listing occurs. 
  
 “Net
Income” means for any period, the total revenues of the Fund applicable to such period, less the total expenses of the Fund applicable to such period excluding additions to reserves for depreciation, bad debts or other similar non-cash
reserves; provided, however, that Net Income for purposes of calculating total allowable Operating Expenses under Section 10 hereof shall exclude the gain from the sale of the Fund’s assets. 
  
 “Offering” means any public offering of Shares pursuant to a
Prospectus that is registered with the Securities and Exchange Commission. 
  
 “Operating Expenses” means, for purposes of Section 10 hereof, all costs and expenses incurred by the Fund, the Advisor or any of their respective Affiliates, as determined under generally accepted
accounting principles, which in any way are related to the operation of the Fund or to the Fund’s business, including advisory fees, but excluding (i) Organization and Offering Expenses, (ii) interest payments, (iii) taxes, (iv) non-cash
expenditures such as depreciation, amortization and bad debt reserves, (v) incentive fees payable to the Advisor, including the Subordinated Disposition Fee described in Section 8(c) hereof, (vi) the subordinated participation in net sales proceeds,
distribution upon listing and distribution upon termination to be received by the Advisor pursuant to the OP Partnership Agreement, (vii) Acquisition Fees and Acquisition Expenses, and (viii) real estate commissions on the resale of property and
other expenses connected with the acquisition, disposition and ownership of real estate interests, mortgage loans, or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of
property). 
  
 “Operating Partnership”
means Paladin Realty Income Properties, L.P., a Delaware limited partnership, and any successor thereof. 
  
 “OP Partnership Agreement” means the Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as the same may
be amended from time to time. 
  
 “Organization and
Offering Expenses” means any and all costs and expenses, other than Selling Commissions and any Dealer Manager Fee, incurred by the Advisor or any of its Affiliates, including the Sponsor, in connection with the formation, qualification and
registration of the Company and the Operating Partnership and the marketing and distribution of the Shares, including, without limitation, the following: legal, accounting, underwriting, brokerage, listing, registration and escrow fees and expenses;
printing, amending, supplementing, mailing and distributing costs; filing, registration, Listing and qualification fees and taxes; telegraph and telephone costs; and all advertising and marketing expenses, including any payment or 
  

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 reimbursements to the Dealer Manager or other broker-dealers of expenses associated with the Offering and all other costs
related to investor and broker-dealer sales meetings. 
  
 “Paladin Acquisition Fee” means the acquisition fee described in Section 8(a) hereof. 
  
 “Person” means an individual, corporation, partnership, limited partnership, limited liability company, estate, trust (including a trust
qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d) (3) of the Securities Exchange Act of 1934, as amended. 
  
 “Prospectus” has the meaning set forth in Section 2(10) of
the Securities Act of 1933, as amended (the “Securities Act”), including a preliminary Prospectus, an offering circular as described in Rule 256 of the General Rules and Regulations under the Securities Act or, in the case of an
intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling securities to the public. 
  
 “Real Estate Assets” means unimproved and improved real property and Real Estate Related Investments or any direct and indirect interest
therein (including, without limitation, fee or leasehold interests, options, leases, partnership and joint venture interests, equity and debt securities of entities that own real property, first or second mortgages on real property, mezzanine loans
directly or indirectly secured by real property, and other contractual rights in real estate). 
  
 “Real Estate Related Investments” means mortgage loans secured by, or preferred equity investments (as described in the description of Real Estate Related Investments in the Prospectus, as amended
from time to time) in entities that own, real property (including first or second mortgages on real property and mezzanine loans directly or indirectly secured by real property). 
  
 “REIT” means a “real estate investment trust” as defined in Section 856 of the Code and
applicable Treasury Regulations. 
  
 “Sale”
means, with respect to any Real Estate Asset, any transaction or series of transactions whereby: 
  
 (a) the Fund directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys or relinquishes its
ownership of any Real Estate Asset, including, without limitation, any event with respect to any Real Estate Asset that gives rise to a significant amount of insurance proceeds or condemnation awards; or 
  
 (b) any Joint Venture directly or indirectly sells, grants, transfers,
conveys, or relinquishes its ownership of any Real Estate Asset, including any event with respect to any real property which gives rise to insurance proceeds or condemnation awards. 
  

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 “Remaining Capital” means, with respect to the Stockholders, as of any relevant date, an
amount equal to the excess of (i) the aggregate amount of cash contributed or deemed contributed by the Company to the Operating Partnership from the gross proceeds of the issuance by the Company of Shares to the Stockholders, over (ii) the
cumulative amounts paid to the Stockholders to repurchase Shares under the Company’s share redemption plan as of such date. 
  
 “Securities” means the Shares or any other stock or other evidences of equity or beneficial or other interests, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares
or participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire, any of the foregoing. 
  
 “Selling Commissions” means any and all commissions payable to underwriters, dealer managers, or other
broker-dealers in connection with the sale of Shares, including, without limitation, commissions payable to the Dealer Manager. 
  
 “Shares” means the shares of the Company’s common stock, par value $.01 per share. 
  
 “Sponsor” means any Person directly or indirectly
instrumental in organizing, wholly or in part, the Company or any Person who will control, manage or participate in the management of the Company, and any Affiliate of such Person. Not included is any Person whose only relationship with the Company
is that of an independent property manager of Company assets, and whose only compensation is as such. Sponsor does not include wholly independent third parties such as attorneys, accountants, and underwriters whose only compensation is for
professional services. A Person may also be deemed a Sponsor of the Company by: 
  
 (i) taking the initiative, directly or indirectly, in founding or organizing the business or enterprise of the Company, either alone or in
conjunction with one or more other Persons; 
  
 (ii) receiving a material participation in the Company in connection with the founding or organizing of the business of the Company, in consideration of services or property, or both services and property; 
  
 (iii) having a substantial number of relationships and
contacts with the Company; 
  
 (iv) possessing
significant rights to control Company properties; 
  
 (v) receiving fees for providing services to the Company which are paid on a basis that is not customary in the Company’s industry; or 
  
 (vi) providing goods or services to the Company on a basis which was not negotiated at arms length with the Company. 
  

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 “Stockholders” means the holders of record of Shares maintained in the Company’s
books and records. 
  
 “Termination Date” means
the date of termination of this Agreement pursuant to Section 14 hereof. 
  
 2. Appointment. The Fund hereby appoints the Advisor to serve as its advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment. 

 
 3. Duties of the Advisor. The Advisor shall undertake
to present to the Fund opportunities to invest in Real Estate Assets and to provide a continuing and suitable investment program consistent with the investment objectives and policies of the Fund as determined and adopted from time to time by the
Board. In performance of this undertaking, subject to the supervision of the Board and consistent with the provisions of the Company’s Prospectus, dated as of
                        , 2004 (and any supplements thereto), the Articles, the Bylaws of the Company and the OP
Partnership Agreement, the Advisor shall, either directly or by engaging an Affiliate: 
  
 a. serve as the Fund’s investment advisor; 
  

b. perform and supervise the various administrative functions reasonably necessary for the daily management of the Fund; 
  
 c. maintain and preserve the books and records of the
Company and the Operating Partnership; 
  
 d.
investigate, select, engage and conduct business with, on behalf of the Fund, such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to appraisers, consultants, accountants,
contractors, leasing agents, correspondents, lenders, technical advisors, attorneys, real estate brokers, broker-dealers, underwriters, corporate fiduciaries, escrow agents, transfer agents, depositaries, custodians, agents for collection, insurers,
insurance agents, banks, builders, developers, property managers, mortgagors, mortgage brokers, real estate research firms and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity
deemed by the Advisor necessary or desirable for the performance of any of the services described in this Section 3, including but not limited to entering into contracts in the name of the Company or the Operating Partnership with any of the
foregoing; 
  
 e. consult with the officers of
the Company and the Board and assist the Board in the formulation and implementation of the Company’s financial and investment policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of
investments consistent with the investment objectives and policies of the Fund and in connection with any borrowings proposed to be undertaken by the Fund; 
  

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 f. subject to the provisions of Section 4 hereof, (i) locate, analyze and select
potential investments in Real Estate Assets for the Fund, (ii) structure and negotiate the terms and conditions of transactions pursuant to which investments in Real Estate Assets will be made by the Fund; (iii) make investments in Real Estate
Assets on behalf of the Fund in compliance with the investment objectives and policies of the Fund; (iv) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from
the sale of, or otherwise deal with the Fund’s investments in, Real Estate Assets; (v) enter into leases and service contracts for Real Estate Assets; (vi) supervise property management, leasing, development and construction services provided
by third parties for the Fund’s Real Estate Assets; and (vii) to the extent necessary, perform all other operational functions for the maintenance and administration of Real Estate Assets held by the Fund; 
  
 g. if and to the extent that the Advisor deems appropriate,
negotiate on behalf of the Fund with banks or lenders for loans to be made to the Fund or with respect to its Real Estate Assets, and negotiate on behalf of the Fund with investment banking firms and broker-dealers or negotiate private sales of
Partnership Units (as defined in the OP Partnership Agreement) or obtain loans for the Fund, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided, further, that any fees and costs payable to
third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of the Fund; 
  
 h. provide the Fund with all necessary cash management services; 
  
 i. establish and maintain one or more bank accounts in its own name for the account of the Company and the
Operating Partnership or in the name of the Company and the Operating Partnership, and collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company or the Operating
Partnership, as applicable; provided that no funds shall be commingled with the funds of the Advisor; and provided further that the Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and to
the auditors of the Fund; 
  
 j. provide the
Board with reports of the Advisor’s performance of services under this Agreement from time to time, or at any time reasonably requested by the Board; 
  
 k. obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of the Fund’s
investments in Real Estate Assets; 
  
 l. provide
the Board with periodic reports regarding prospective investments in Real Estate Assets; 
  
 m. deliver to or maintain on behalf of the Fund copies of all appraisals obtained in connection with the investments in Real Estate
Assets; 
  

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 n. to the extent that the approval of the Board or the Independent Directors is not
otherwise required, notify the Board of all proposed material transactions before they are completed; and 
  
 o. do all other things reasonably necessary to assure its ability to render the services described in this Agreement. 
  
 4. Authority of Advisor. 
  
 a. Pursuant to the terms of this Agreement (including the
restrictions included in this Section 4 and in Section 6 hereof), and subject to the continuing and exclusive authority of the Board over the management of the Company, the Company and the Operating Partnership hereby delegate to the Advisor the
authority to perform, on behalf of the Fund, the services described in Section 3 hereof. 
  
 b. The Advisor hereby acknowledges the authority of the Advisor under this Agreement is subject to the investment limitations described in
Article X of the Articles and the approvals required for certain transactions between the Advisor or its Affiliates and the Company as set forth in Article XI of the Articles. 
  
 c. If any transaction requires approval by the Board or the Independent Directors under the Articles, the
Advisor will deliver to the Independent Directors all documents required by them to properly evaluate the proposed transaction. 
  
 d. The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Section 4 on
behalf of the Company (including the Company in its capacity as general partner of the Operating Partnership). 
  
 5. Records; Access. The Advisor shall maintain appropriate records of all its activities hereunder and make such records available
for inspection by the Fund and by counsel, auditors and authorized agents of the Fund at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of the Company and
the Operating Partnership. 
  
 6. Limitations on
Activities. Notwithstanding anything else in this Agreement to the contrary, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (a) adversely affect the status of the Company as a REIT, (b)
subject the Company to regulation under the Investment Company Act of 1940, as amended, (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company (including federal and state
securities laws), or (d) otherwise not be permitted by the Articles, the Bylaws of the Company or the OP Partnership Agreement; except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the
Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event, the Advisor shall have no liability for acting in
accordance with the 
  

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 specific instructions of the Board so given. Notwithstanding the foregoing, the Advisor, its directors, officers,
members, managers and employees and the directors, officers, managers, stockholders, members, partners and employees of the Advisor’s Affiliates shall not be liable to the Company or the Operating Partnership for any act or omission by the
Advisor, its directors, officers, members, managers, employees or Affiliates except as provided in Sections 15 and 16 of this Agreement. 
  
 7. Relationship with Directors. Directors, officers and employees of the Advisor or any Affiliate of the Advisor may serve as
Directors and as officers of the Company; provided that, no director, officer or employee of the Advisor or its Affiliates who also is a Director or officer of the Company shall receive any compensation from the Company for serving as a Director or
officer of the Company other than reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board. 
  
 8. Fees. 
  
 a. Acquisition Fees and Expenses. Subject to the following sentence, the Fund shall pay to the Advisor, as compensation for
services rendered by the Advisor in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of Real Estate Assets, a fee (the “Paladin Acquisition Fee”) in an amount equal to 2.75% of (i)
for any Real Estate Asset acquired by the Fund directly or indirectly other than a Real Estate Related Investment, the Contract Purchase Price of the underlying property, and (ii) for any Real Estate Related Investment acquired by the Fund directly
or indirectly, the Appraised Value of the underlying property, in the case of this subsection (ii), not to exceed 5.5% of the funds advanced by the Fund for the purchase of the Real Estate Related Investment. The total of all Acquisition Fees
(including the Paladin Acquisition Fee) and any Acquisition Expenses incurred by the Advisor and reimbursed by the Company in accordance with Section 9(a)(ii) hereof shall not exceed an amount equal to 6.0% of (i) for any Real Estate Asset acquired
by the Fund directly or indirectly other than a Real Estate Related Investment, the Contract Purchase Price of the underlying property, and (ii) for any Real Estate Related Investment acquired by the Fund directly or indirectly, 6.0% of the amount
of the underlying loan or investment in preferred equity securities. The Paladin Acquisition Fee payable with respect to the acquisition of any Real Estate Asset shall be paid to the Advisor by the Fund at the time of such acquisition. The Advisor
may elect, in its sole discretion, to defer (without interest) payment of any Paladin Acquisition Fee by providing written notice of such deferral to the Fund. 
  

b. Asset Management Fee. On the last day of each month, the Fund shall pay the Advisor an “Asset Management
Fee” in an amount equal to one twelfth of 0.6% of (i) for any Real Estate Asset held by the Fund directly or indirectly as of the last day of the preceding month other than a Real Estate Related Investment, the Contract Purchase Price of
the underlying property, and (ii) for any Real Estate Related Investment held by the Fund directly or indirectly as of the last day of the preceding month, the Appraised Value of the underlying property, in the case of this subsection (ii), not to
exceed one twelfth of 1.2% of the funds advanced by the Fund for the purchase of the Real Estate 
  

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 Related Investment. The Advisor may elect, in its sole discretion, to defer (without interest) payment of
the Asset Management Fee in any month by providing written notice of such deferral to the Fund. 
  
 c. Subordinated Disposition Fee. 
  

i. If the Advisor or one of its Affiliates provides a substantial amount of services (as determined by a majority of the Independent
Directors) in connection with the Sale of one or more Real Estate Assets, the Fund shall pay to the Advisor or such Affiliate a “Subordinated Disposition Fee” equal to the lesser of (A) one-half of a Competitive Real Estate Commission, and
(B) 3.0% of the proceeds of the Sale of such Real Estate Asset. The Subordinated Disposition Fee will be payable only if the following condition (the “Subordination Condition”) has been satisfied as of the date of payment (or, for
purposes of Sections 8(c)(iii) and (iv), the Termination Date or the Listing Date, respectively): the Stockholders must have received Dividends in an amount equal to their Remaining Capital plus their 8.0% Return. To the extent that Subordinated
Disposition Fees are not payable by the Fund at the time of the Sale of a Real Estate Asset because the Subordination Condition has not been satisfied, any unpaid fees will be paid at such time as the Subordination Condition has been satisfied. The
Subordinated Disposition Fee may be paid in addition to real estate commissions paid to non-Affiliates in connection with any Sale of a Real Estate Asset; provided that the total real estate commissions paid to all Persons by the Fund shall not
exceed an amount equal to the lesser of (X) 6.0% of the proceeds of the Sale of such Real Estate Asset, and (Y) the Competitive Real Estate Commission with respect to the Sale of such Real Estate Asset. 
  
 ii. The Advisor may elect, in its sole discretion, to defer
(without interest) payment of any Subordinated Disposition Fee payable to the Advisor by providing written notice of such deferral to the Fund. 
  
 iii. Upon the termination of this Agreement, if any Subordinated Disposition Fees have accrued but not been paid to the Advisor or any of
its Affiliates because the Subordination Condition has not been satisfied prior to the Termination Date, an appraisal of the Real Estate Assets then held by the Fund shall be made. For purposes of determining whether the Stockholders have received
aggregate Dividends as of the Termination Date in an amount equal to their Remaining Capital plus their 8.0% Return, the Stockholders will be deemed to have received, in addition to any Dividends paid to the Stockholders prior to the Termination
Date, Dividends as of the Termination Date in an amount equal to (A) the Appraised Value of the Real Estate Assets then owned by the Fund, less (B) the amount of any indebtedness owed by the Fund. If, based on the calculation set forth in this
Section 8(c)(iii), the Subordination Condition has been satisfied as of the Termination Date, then the Fund shall pay promptly to the Advisor any accrued but unpaid Subordinated Disposition Fees. 
  

 12 

 iv. On the Listing Date, if any Subordinated Disposition Fees have accrued but not been
paid to the Advisor or any of its Affiliates because the Subordination Condition has not been satisfied prior to the Listing Date, then for purposes of determining whether the Stockholders have received aggregate Dividends in an amount equal to
their Remaining Capital plus their 8.0% Return, the Stockholders will be deemed to have received, in addition to any Dividends paid to the Stockholders prior to the Listing Date, Dividends as of the Listing Date in an amount equal to the product of
(A) the total number of Shares outstanding as of the date of the Listing and (B) the average closing price of the Shares over a period of 30 days during which the stock is traded, with such period beginning 180 days after Listing. If, based on the
calculation set forth in this Section 8(c)(iv), the Subordination Condition has been satisfied as of the Listing Date, then the Fund, promptly following the 30-day period described in this Section 8(c)(iv), shall pay to the Advisor any accrued but
unpaid Subordinated Disposition Fees. 
  
 9.
Expenses. 
  
 a. Subject to
Section 10 hereof, in addition to the compensation paid to the Advisor pursuant to Section 8 hereof, the Fund shall pay directly or reimburse the Advisor and its Affiliates for all of the costs and expenses paid or incurred by the Advisor or such
Affiliates that are in any way related to the operation of the Fund or to the Fund’s business, including, but not limited to: 
  
 i. the Organization and Offering Expenses; provided, however, that within 60 days after the end of the month in which an Offering
terminates, the Advisor shall reimburse the Company for any Organization and Offering Expenses reimbursement received by the Advisor pursuant to this Section 9 to the extent that such reimbursement of expenses associated with the Offering exceeds
3.0% of the Gross Proceeds. The Advisor shall be responsible for the payment of all such Organization and Offering Expenses in excess of 3.0% of the Gross Proceeds; 
  
 ii. subject to Section 8(a), all Acquisition Expenses incurred in connection with the investigation,
selection and acquisition of a Real Estate Asset in an amount equal to up to 0.5% of (A) for any Real Estate Asset acquired by the Fund directly or indirectly other than a Real Estate Related Investment, the Contract Purchase Price of the underlying
property, and (B) for any Real Estate Related Investment acquired by the Fund directly or indirectly, the Appraised Value of the underlying property, in the case of this subsection (B), not to exceed 1.0% of the funds advanced by the Fund for the
acquisition of the Real Estate Asset; 
  
 iii.
the actual cost of goods and services used by the Fund and obtained from entities not affiliated with the Advisor, other than Acquisition Expenses, including, but not limited to, fees of appraisers, consulting fees, 
  

 13 

 accounting fees, legal fees, brokerage fees and underwriting fees paid in connection with the purchase
and sale of securities, fees paid to escrow agents, transfer agents, corporate fiduciaries and custodians, collection agent fees, depositary fees, loan fees, mortgagor fees and other banking fees, insurance premiums and fees to builders, developers,
contractors, property managers and leasing agents; 
  
 iv. interest and other costs for the Fund’s indebtedness, including discounts, loan fees, points and other similar fees; 
  
 v. taxes and assessments on income or property of the Fund and taxes as an expense of doing business; 
  
 vi. costs associated with insurance required in connection
with the business of the Fund (including directors’ and officers’ liability insurance); 
  
 vii. expenses of managing and operating Real Estate Assets owned by the Fund, whether or not payable to an Affiliate of the Fund or the
Advisor, including the costs of maintaining, repairing and improving any property; 
  
 viii. expenses associated with the disposition of Real Estate Assets, including, subject to Section 8(c), real estate commissions;

  
 ix. all expenses in connection with payments
to the Directors and meetings of the Board and the Stockholders; 
  
 x. expenses associated with Listing or with the issuance and distribution of Shares and Securities, such as selling commissions and fees, advertising expenses, taxes, legal and accounting fees, Listing and
registration fees; 
  
 xi. expenses connected
with payments of Dividends in cash or otherwise made or caused to be made by the Company to the Stockholders; 
  
 xii. expenses of maintaining communications with Stockholders, including the cost of preparation, printing, and mailing annual reports and
other Stockholder reports, proxy statements and other reports required by governmental entities; 
  
 xiii. administrative service, accounting, finance, internal audit or investor relations expenses (including personnel costs for the
provision of all services under this Agreement; provided, however, that no reimbursement shall be made for costs of personnel to the extent that such personnel perform services in transactions for which the Advisor receives a separate fee);

  

 14 

 xiv. audit, accounting and legal fees relating to the operations of the Fund; and

  
 xv. all other costs and expenses in any way
relating to the operation of the Fund or the Fund’s business (other than any fees payable to the Advisor or its Affiliates by the Fund). 
  
 b. Subject to Section 10 hereof, expenses incurred by the Advisor or its Affiliates on behalf of the Fund and payable pursuant to this
Section 9 shall be reimbursed to the Advisor or such Affiliates no less than quarterly by the Fund within 60 days after the end of each quarter. The Advisor shall prepare a statement documenting the expenses of the Fund during each quarter, and
shall deliver such statement to the Fund within 45 days after the end of each quarter. The Advisor may elect, in its sole discretion, to defer (without interest) any reimbursement of expenses payable pursuant to this Section 9 for any quarter by
providing written notice of such deferral to the Fund. 
  
 10.
Operating Expenses. The Fund shall not reimburse the Advisor for Operating Expenses that in the fiscal year then ended exceed the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Rule”)
for such year. Within 60 days after the end of each fiscal quarter, the Advisor will reimburse the Fund for any amounts by which the Operating Expenses exceeded the 2%/25% Rule for the 12 months then ended, unless a majority of the Independent
Directors determine, based on such unusual and non-recurring factors which they deem sufficient, that such excess was justified. Any such determination by the Independent Directors and the reasons supporting such determination shall be reflected in
the minutes of the meetings of the Board of Directors. Within 60 days after the end of any fiscal quarter of the Fund for which Operating Expenses (for the 12 months just ended) exceed the 2%/25% Rule, the Advisor shall send a written disclosure of
such fact to the Stockholders, together with an explanation of the factors the Independent Directors considered in arriving at the conclusion that such higher Operating Expenses were justified, if applicable. 
  
 11. Other Services. Should the Fund request that the
Advisor or any director, officer or employee thereof render services for the Fund other than set forth in Section 3, such services shall be separately compensated at such rates and in such amounts as are approved by the Independent Directors,
subject to the limitations contained in the Articles, and shall not be deemed to be services pursuant to the terms of this Agreement. 
  
 12. Other Activities of the Advisor. Nothing in this Agreement shall prevent the Advisor and its Affiliates from engaging in other
activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates. The Advisor, however, will devote
sufficient resources to the management of the Fund to discharge its duties under Section 3 hereof. This Agreement shall not limit or restrict the right of any director, officer, manager, member or employee of the Advisor or its Affiliates to engage
in any other business or to render services of any kind to any other Person. The Advisor may, with respect to any investment in which the Fund is a participant, also render advice and service to each and every other participant therein. If the
Sponsor, the Advisor, or any Director, or Affiliates thereof, 
  

 15 

 have sponsored other investment programs with similar investment objectives which have investment funds available at the
same time as the Fund, it shall be the duty of the Board (including the Independent Directors) to adopt the method set forth in the Company’s registration statement on Form S-11 filed with the Securities and Exchange Commission or another
reasonable method by which investments are to be allocated to the competing investment entities and to use their best efforts to apply such method fairly to the Fund. 
  
 13. Relationship of the Advisor and the Fund. Nothing in this Agreement shall be construed to make the
Fund and the Advisor partners or joint venturers or impose any liability as such on either of them. 
  
 14. Term; Termination of Agreement. 
  
 a. Unless terminated in accordance with Section 14(b) hereof, this Agreement shall continue in force until the first anniversary of the
date hereof. Thereafter, this Agreement may be renewed for an unlimited number of successive one-year terms upon the mutual agreement of the parties. Prior to the Company agreeing to renew this Agreement for any additional one-year term, the Board
shall evaluate the performance of the Advisor in accordance with Section 9.1 of the Articles. Each such renewal shall be for a term of no more than one year. The failure of the parties to renew this agreement prior to the expiration of its term
shall constitute a termination of this Agreement.  
  
 b. This Agreement will automatically terminate upon Listing. This agreement also may be terminated: 
  
 i. for any reason by the Company or the Advisor, upon 60 days written notice to the other party; provided that, if termination is by the
Company, then such termination must be approved by a majority of the Independent Directors; 
  
 ii. by the Company or the Operating Partnership at any time for Cause; or 
  
 iii. by the Advisor at any time for Good Reason. 
  
 c. Upon termination, the Fund shall promptly pay to the
Advisor any fees then due and payable and any reimbursable expenses incurred as of the Termination Date. Notwithstanding the termination of this Agreement, Sections 8, 9, 10 and 11 shall continue in full force and effect until all amounts payable
thereunder to the Advisor are paid in full. 
  
 d. The Advisor shall promptly upon termination: 
  
 iv. pay over to the Fund all money collected and held for the account of the Fund pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;

  
 v. deliver to the Board a full accounting,
including a statement showing all payments collected by it and a statement of all money held by the 
  

 16 

 Advisor, covering the period following the date of the last accounting furnished to the Board;

  
 vi. deliver to the Fund all assets, including
all Real Estate Assets, and documents of the Fund then in the custody of the Advisor; and 
  
 vii. cooperate with the Fund to provide an orderly management transition. 
  
 15. Indemnification by the Company. The Company shall indemnify and hold harmless the Advisor and its
Affiliates, including their respective officers, directors, manager, stockholders, partners, members and employees, to the fullest extent permitted by the laws of the State of Maryland and the Articles, from all liability, claims, damages or losses
arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys’ fees. Notwithstanding the foregoing, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section
15 for any activity which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Section 16. Any indemnification of the Advisor may be paid only out of the net assets of the Company and not by Stockholders. 

 
 16. Indemnification by Advisor. The Advisor shall
indemnify and hold harmless the Company from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that such liability, claims, damages, taxes or losses and related expenses
are not fully reimbursed by insurance and are incurred by reason of the Advisor’s bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of its duties, but the Advisor shall not be held responsible
for any action of the Board in following or declining to follow any advice or recommendation given by the Advisor. 
  
 17. Voting of Shares and Partnership Units. The Advisor shall not vote any Shares or Partnership Units (as defined in the OP
Partnership Agreement) it now owns, or hereafter acquires, in any vote of the Stockholders for the election of Directors or in any vote of the Stockholders or the Limited Partners (as defined in the OP Partnership Agreement) regarding the approval
or termination of any contract with the Advisor or any of its Affiliates, including this Agreement. 
  
 18. Notices. Any notice required or permitted to be given or made to a party under this Agreement shall be in writing and shall be
deemed given or made when delivered if delivered in person, sent by first class United States mail, by overnight delivery or via facsimile to such party at the address of such party set forth below or such other address of which such party shall
notify the other parties in writing. Notwithstanding the foregoing, a party may elect to deliver any such notice by E-mail, or by any other electronic means, in which case such communication shall be deemed given or made one day after being sent.

  

			
	 To the Company, the Operating
	  	 
	 Partnership, or the Board:
	  	Paladin Realty Income Properties, Inc.
	 	  	10880 Wilshire Blvd.

  

 17 

			
	 	  	Suite 1400
	 	  	Los Angeles, CA 90024
		
	 To the Advisor:
	  	Paladin Realty Advisors, LLC
	 	  	10880 Wilshire Blvd.
	 	  	Suite 1400
	 	  	Los Angeles, CA 90024

  
 19.
Assignment to an Affiliate. This Agreement may be assigned by the Advisor to an Affiliate of the Advisor only with the approval of a majority of the Board (including a majority of the Independent Directors). The Advisor may assign
any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by the Company or the Operating Partnership without the consent of the Advisor, except in the case of
an assignment by the Company or the Operating Partnership to a successor to all of the assets, rights and obligations of the Company or the Operating Partnership, respectively, in which case such successor shall be bound hereunder and by the terms
of said assignment in the same manner as the Company and the Operating Partnership are bound by this Agreement. 
  
 20. Modification. This Agreement shall not be changed, modified, terminated or discharged, in whole or in part, except by an
instrument in writing signed by each of the parties hereto, or their respective successors or assigns. 
  
 21. Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 
  
 22. Construction. The provisions of this Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of California without regard to the principles of conflicts of laws thereof. 
  
 23. Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms
hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 
  
 24. Waivers. Neither the failure nor any delay on the
part of a party hereto to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise
of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other

  

 18 

 occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such
waiver. 
  
 25. Number and Gender. Words used
herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. 
  
 26. Headings The headings contained in this Agreement
are for convenience only, do not form a part of this Agreement and are not to be used in the construction or interpretation hereof. 
  
 27. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 
  
 28. Name. Paladin Realty Partners, LLC, an Affiliate of the Advisor, has a proprietary interest in the name “Paladin.”
Accordingly, and in recognition of this right, if at any time the Fund ceases to retain the Advisor or one of its Affiliates to perform the services of the Advisor under this Agreement, the Fund will cease to conduct business under or use the name
“Paladin” or any variation or diminutive thereof and each of the Company and the Operating Partnership shall use its best efforts to change their respective names (and the names of any of their subsidiaries) to a name that does not contain
the name “Paladin” or any other word or words that might, in the sole discretion of the Advisor, be susceptible of indication of some form of relationship between the Fund and the Advisor or any Affiliate thereof. Consistent with the
foregoing, the parties acknowledge and agree that the Advisor or one or more of its Affiliates has organized or sponsored, and intends to continue to organize and sponsor, other investment vehicles (including vehicles for investment in real estate)
and financial and service organizations having “Paladin” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company or the Operating Partnership. 
  

 19 

 IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement as of the date and
year first above written. 
  

			
	 PALADIN REALTY INCOME
 PROPERTIES,
INC.

		
	By:	 	 
	 Name:
	 	 
	 Title:
	 	 

  

					
	 PALADIN REALTY INCOME
 PROPERTIES,
L.P.

		
	By:	 	 Paladin Realty Income Properties, Inc.,
 its
general partner

			
	 	 	By:	 	 
	 	 	 Name:
	 	 
	 	 	 Title:
	 	 

  

			
	PALADIN REALTY ADVISORS, LLC
		
	By:	 	 
	 Name:
	 	 
	 Title:
	 	 

  

 202004 Independent Director Incentive Stock Plan

 EXHIBIT 10.3 
  
  
  
 PALADIN REALTY INCOME PROPERTIES, INC. 
  
 2004 INDEPENDENT DIRECTOR INCENTIVE STOCK PLAN 
  
  
  
  
  

 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
	  	1
	 	 	2.5	  	 Code
	  	2
	 	 	2.6	  	 Committee
	  	2
	 	 	2.7	  	 Company
	  	2
	 	 	2.8	  	 Fair Market Value
	  	2
	 	 	2.9	  	 Independent Director
	  	2
	 	 	2.10	  	 1933 Act
	  	2
	 	 	2.11	  	 1934 Act
	  	2
	 	 	2.12	  	 Option
	  	2
	 	 	2.13	  	 Option Certificate
	  	2
	 	 	2.14	  	 Option Price
	  	2
	 	 	2.15	  	 Parent
	  	2
	 	 	2.16	  	 Plan
	  	2
	 	 	2.17	  	 Rule 16b-3
	  	2
	 	 	2.18	  	 SAR Value
	  	2
	 	 	2.19	  	 Stock
	  	3
	 	 	2.20	  	 Stock Appreciation Right
	  	3
	 	 	2.21	  	 Stock Appreciation Right Certificate
	  	3
	 	 	2.22	  	 Stock Grant
	  	3
	 	 	2.23	  	 Stock Grant Certificate
	  	3
	 	 	2.24	  	 Stock Unit Grant
	  	3
	 	 	2.25	  	 Subsidiary
	  	3
		
	 § 3 SHARES AND GRANT LIMITS
	  	3
				
	 	 	3.1	  	 Shares Reserved
	  	3
	 	 	3.2	  	 Source of Shares
	  	3
	 	 	3.3	  	 Use of Proceeds
	  	3
		
	 § 4 EFFECTIVE DATE
	  	3
		
	 § 5 COMMITTEE
	  	4
		
	 § 6 ELIGIBILITY
	  	4
		
	 § 7 OPTIONS
	  	4
				
	 	 	7.1	  	 Committee Action
	  	4
	 	 	7.2	  	 Option Price
	  	4
	 	 	7.3	  	 Payment
	  	4
	 	 	7.4	  	 Exercise
	  	4
	 	 	7.5	  	 Terms and Conditions
	  	4
		
	 § 8 STOCK APPRECIATION RIGHTS
	  	5
				
	 	 	8.1	  	 Committee Action
	  	5
	 	 	8.2	  	 Terms and Conditions
	  	5
	 	 	8.3	  	 Exercise
	  	5

							
	 	  	Page

	 § 9. STOCK GRANTS AND STOCK UNIT GRANTS
	  	6
				
	 	 	9.1	  	 Committee Action
	  	6
	 	 	9.2	  	 Conditions
	  	6
	 	 	9.3	  	 Dividends, Voting Rights and Creditor Status
	  	6
	 	 	9.4	  	 Satisfaction of Forfeiture Conditions.
	  	7
		
	 § 10 NON-TRANSFERABILITY
	  	7
		
	 § 11 SECURITIES REGISTRATION
	  	7
		
	 § 12 LIFE OF PLAN
	  	8
		
	 § 13 ADJUSTMENT
	  	8
				
	 	 	13.1	  	 Capital Structure
	  	8
	 	 	13.2	  	 Available Shares
	  	8
	 	 	13.3	  	 Transactions Described in § 424 of the Code
	  	8
	 	 	13.4	  	 Fractional Shares
	  	9
		
	 § 14 CHANGE IN CONTROL
	  	9
		
	 § 15 AMENDMENT OR TERMINATION
	  	9
		
	 § 16 MISCELLANEOUS
	  	9
				
	 	 	16.1	  	 Shareholder Rights
	  	9
	 	 	16.2	  	 No Contract of Employment
	  	9
	 	 	16.3	  	 Withholding
	  	10
	 	 	16.4	  	 Construction
	  	10
	 	 	16.5	  	 Other Conditions
	  	10
	 	 	16.6	  	 Rule 16b-3
	  	10
	 	 	16.7	  	 Coordination with Employment Agreements and Other Agreements
	  	10

  

 ii 

 § 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.” 
  
 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; 
  
 (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; 
  
 (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 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 
  
 (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 

  

 1 

 
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 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. 
  
 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.
2004 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 

 2.19 Stock—means the $0.01 par value common stock of the Company. 
  
 2.20 Stock Appreciation Right—means a right which is granted
under §8 to receive the appreciation in a share of Stock. 
  
 2.21 Stock 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.

  
 2.22 Stock 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. 
  
 2.23 Stock 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. 
  
 2.24 Stock 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. 
  
 2.25
Subsidiary—means a corporation which is a subsidiary corporation (within the meaning of § 424(f) of the Code) of the Company. 
  
 § 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. 
  
 § 4 
  
 EFFECTIVE DATE 
  
 The effective date of
this Plan shall be                     , 2004. 
  

 3 

 § 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. 
  
 § 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 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. 
  
 (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. 
  
 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. 
  

 4 

 (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. 
  
 § 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
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 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. 
  
 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. 
  

 5 

 § 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 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. 
  

(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 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). 
  
 (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. 
  
 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. 
  
 (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. 
  

 6 

 (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. 
  
 (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. 
  
 (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. 
  
 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 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. 
  

 7 

 § 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 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 
  
 (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. 
  
 § 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 
  
 (b) any transaction described in § 424(a) of the Code which does not constitute a Change in Control of the Company 
  
 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 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.  
  

 8 

 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 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. 
  
 § 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. 
  

 9 

 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 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 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. 
  

 10 

 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:
	 	  

		
	 Date:
	 	  

  

 11

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