Exhibit 10.28
SETTLEMENT AGREEMENT
     This Settlement Agreement (the “Agreement”) is entered into as of
January 24, 2008, by and among Tarragon Corporation, having an address of 423
West 55th St., 12th Floor, New York, NY 10019 (“Tarragon” or, the “Company”) and
PNC Equity Securities, LLC having an address of One PNC Plaza, 249 Fifth Avenue,
Pittsburgh, Pennsylvania 15222-2707 (“PNC”).
RECITALS
A. Tarragon and U.S. Bank National Association (the “Trustee”) are parties to
that certain Indenture dated as of September 16, 2004 (the “Indenture”)1 with
respect to the 8.00% Senior Convertible Notes due 2009 (the “Notes”) issued by
the Company, in the original principal amount of $62,000,000, of which
$5,750,000 in principal amount is presently outstanding.
B. PNC is a Holder of $5,750,000 in principal amount of the Notes, which
constitute all of the outstanding notes under the Indenture (the “Outstanding
Notes” and, collectively with the Indenture, the “Loan Documents”).
C. Section 2 of the Outstanding Notes provides that Interest thereon shall be
due and payable at the rate of 8.00% per annum on March 15 and September 15 of
each year until the earlier to occur of payment in full of the outstanding
principal amount thereof or upon the maturity of the Outstanding Notes on
September 16, 2009.
D. In its form 8-K dated August 17, 2007, Tarragon disclosed that National City
Bank had notified Tarragon that it had accelerated approximately $75.1 million
of principal obligations, unrelated to the Company’s obligations under the
Indenture and the Notes, the payment of which is guaranteed by Tarragon (the
“National City Acceleration”).
E. By Notice of Default, dated August 27, 2007 (the “August 27 Default Notice”),
PNC notified Tarragon and the Trustee that the National City Acceleration
constituted a Default under Section 4.1(f) of the Indenture (the “National City
Default”) and that if the National City Default was not cured, waived, rescinded
or annulled within thirty (30) days of the August 27 Default Notice, then an
Event of Default would come into existence under Section 4.1(f) of the
Indenture.
F. In a Notice of Event of Default, Acceleration and Demand for Payment dated
September 28, 2007 (the “September 28 Acceleration Notice”), PNC notified
Tarragon and the Trustee that an Event of Default had occurred under the
Indenture because the National City Acceleration was not cured, waived,
rescinded or annulled within thirty (30) days of the date of the August 27
Default Notice (the “National City Event of Default”).
G. In a Notice of Default dated October 4, 2007 (the “October 4 Default
Notice”), the
 

1   Capitalized terms not otherwise defined herein shall have the meaning
ascribed to such terms by the Indenture.

 

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Exhibit 10.28 (Continued)
Trustee notified Tarragon that Tarragon failed to make payment on September 15,
2007 of interest due on the Outstanding Notes in the amount of $230,000 and that
such failure to make timely payment of Interest due constituted a default under
Section 4.1 of the Indenture (the “Interest Payment Default”).
H. The October 4 Default Notice further notified Tarragon that the continuance
of the Interest Payment Default through October 15, 2007 would result in the
occurrence of an Event of Default pursuant to Section 4.1(c) of the Indenture.
I. In a Notice of Acceleration dated November 14, 2007 (the “November 14
Acceleration Notice”), the Trustee notified Tarragon that Tarragon failed to
cure the Interest Payment Default within the time allotted by Section 4.1(c) of
the Indenture and declared the entire amount of the Outstanding Notes to be due
and payable, together with all accrued and unpaid Interest, Additional Interest
and Liquidated Damages payable under the Indenture through the date of payment.
J. In an Additional Notice of Event of Default, Acceleration and Demand for
Payment dated October 18, 2007 (the “October 18 Acceleration Notice”), PNC
notified Tarragon and the Trustee that, inter alia, an Event of Default had
occurred under the Indenture as a result of the continuance of the Interest
Payment Default for thirty (30) days.
K. By the October 18 Acceleration Notice, PNC further notified Tarragon that PNC
declared the Outstanding Notes to be due and payable in full and made demand for
the immediate payment of all amounts owing under the Outstanding Notes.
L. As of January 15, 2008, the total outstanding balance of Principal, Interest
and Defaulted Interest owed to PNC by Tarragon under the Loan Documents is
$6,141,594 (the “P&I Balance Due”). In addition to the P&I Balance Due, certain
additional amounts are due to PNC by Tarragon under the Loan Documents
including, without limitation, PNC’s costs of collection and attorneys’ fees,
reimbursement of the Trustee’s fees and reimbursement of the Trustee’s
attorneys’ fees (“PNC’s Costs of Collection” and, together with the P&I Balance
Due, the “Total Indebtedness”).
M. Tarragon and PNC have agreed to settle Tarragon’s liability under the Loan
Documents in accordance with and subject to the terms and conditions set forth
herein.
     THEREFORE, the parties agree as follows:
     1. INCORPORATION OF RECITALS. The recitals set forth above are true and
correct.
     2. AFFIRMATION OF P&I BALANCE DUE. Tarragon affirms and ratifies that the
P&I Balance Due as of January 15, 2008 is $6,141,594.
     3. SETTLEMENT PAYMENT. Within twenty-four (24) hours of the execution

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Exhibit 10.28 (Continued)
of this Agreement by PNC and Tarragon (the “Settlement Date”), as a condition
precedent to PNC’s obligations under this Agreement, Tarragon shall pay to PNC
the sum of Three Million Five Hundred Ninety-Three Thousand Seven Hundred and
Fifty Dollars ($3,593,750) (“Settlement Payment”) in immediately available funds
by wire transfer or certified check, made payable originally to PNC without
intervening endorsements. TIME IS OF THE ESSENCE FOR THIS OBLIGATION.
     4. CONDITIONAL RELEASE OF TARRAGON. Upon receipt of the Settlement Payment
on or before the Settlement Date, and subject to Section 9 of this Agreement,
PNC, on behalf of itself and each of PNC’s successors, assigns, parents,
subsidiaries, affiliates, predecessors, officers, directors, employees, agents,
attorneys, heirs and executors, as applicable, both present and former
(collectively, “PNC Affiliates”), jointly and severally, releases, acquits and
forever discharges Tarragon and each of its successors, assigns, parents,
subsidiaries, affiliates, predecessors, officers, directors, employees, agents,
attorneys, heirs and executors, as applicable, both present and former
(collectively, the “Tarragon Parties”) of and from any and all manner of action
and actions, cause and causes of action, suits, debts, controversies, damages,
judgments, executions, claims and demands whatsoever, asserted or unasserted, in
contract, tort, law or in equity which PNC has or ever had against Tarragon
under the Loan Documents.
     5. [INTENTIONALLY OMITTED].
     6. RELEASE OF PNC. In consideration of PNC’s agreement to the provisions
herein, to the extent that Tarragon may have any offsets, defenses, claims or
counterclaims against PNC or any PNC Affiliate, Tarragon, on behalf of itself
and each of the Tarragon Parties, jointly and severally, releases, acquits and
forever discharges PNC and all PNC Affiliates of and from any and all manner of
action and actions, cause and causes of action, suits, debts, controversies,
damages, judgments, executions, claims and demands whatsoever, asserted or
unasserted, in contract, tort, law or in equity against PNC or any PNC Affiliate
which Tarragon or any Tarragon Party now has or ever had upon or by reason of
any matter, cause, causes or thing whatsoever, including, without limitation,
any presently existing claim or defense whether or not presently suspected,
contemplated or anticipated including, without limitation, (i) any claim arising
under or related to the Loan Documents, (ii) any actions or omissions of PNC or
any PNC Affiliate in connection with the initiation or continuing exercise of
any right or remedy contained in the Loan Documents or at law or in equity or
(iii) any actions or omissions of PNC with respect to the August 27 Default
Notice, September 28 Acceleration Notice or the October 18 Acceleration Notice.
     7. CONFIDENTIALITY. Tarragon agrees that the terms of this Agreement and
any terms that may have been previously discussed among Tarragon and PNC are and
shall remain confidential and Tarragon agrees that such terms shall not be
disclosed by Tarragon or any Tarragon Party to any other person unless otherwise
authorized by PNC in writing or required by law or regulation.
     8. COVENANT NOT TO SUE. Subject to the full and complete performance of

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Exhibit 10.28 (Continued)
Tarragon’s obligations under this Agreement, and subject to the terms and
conditions of Section 9 below, PNC covenants not to sue Tarragon with respect to
Tarragon’s defaults under the Loan Documents during the ninety-five (95) day
period following the Settlement Date. Notwithstanding anything to the contrary
herein, Tarragon acknowledges that it may have other obligations to PNC
Affiliates incurred in connection with transactions other than the Loan
Documents and that such obligations are not released or impaired by this
Agreement.
     9. CONDITIONS SUBSEQUENT. Notwithstanding the foregoing, if any one or more
of the “Conditions Subsequent” as defined in subsections 9.1 — 9.5 of this
Agreement (“Conditions Subsequent”) occurs, the following provisions shall
apply: (a) the provisions of Sections 4 and 8 of this Agreement shall be deemed
void ab initio and shall be of no force or effect; (b) Tarragon’s obligations
under the Loan Documents shall continue to be effective, or be reinstated, as
the case may be; and (c) the full amount of the Total Indebtedness shall be due
and payable immediately by Tarragon, all as though PNC’s conditional agreement
to accept the Settlement Payment in satisfaction of Tarragon’s obligations under
the Loan Documents had not been made and PNC may immediately pursue all of its
rights and remedies to collect such amounts, together with interest thereon at
the highest rate provided in the Notes and Indenture following a default
accruing from January 15, 2008, and all other amounts which PNC may lawfully
recover in connection therewith, including attorneys’ fees (including allocable
costs of staff counsel) and expenses incurred to date or which may be hereafter
incurred, provided, however, that in any such event, the release of PNC and the
PNC Affiliates set forth in Section 6 of this Agreement and all other
obligations and agreements of Tarragon under this Agreement shall not be
avoided, set aside or undone and shall remain in full force and effect.
          The Conditions Subsequent are as follows:
          9.1. Litigation. Tarragon or any person claiming by or through
Tarragon commences, joins in, assists, cooperates in or participates as an
adverse party or as an adverse witness (subject to compulsory legal process
which requires testimony) in any suit or other proceeding against PNC or any PNC
Affiliate relating to the Outstanding Notes, Indenture or this Agreement; or
          9.2. Avoidance. The Settlement Payment or any portion thereof, or any
transfer of property to PNC or any portion of such property, whether paid or
transferred to PNC pursuant to this Agreement or otherwise, is rescinded,
avoided, set aside, rendered void or undone or otherwise restored by PNC or any
PNC Affiliate to Tarragon, or to any of the creditors of Tarragon, any
representative of Tarragon, any representative of any of Tarragon’s creditors,
any trustee, liquidating trust, liquidating committee or other representative of
an estate created under title 11 of the United States Code, upon the insolvency,
bankruptcy or reorganization of Tarragon, or otherwise; or

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Exhibit 10.28 (Continued)
          9.3. Representations, Warranties, Covenants and Other Agreements. Any
of the representations, warranties, covenants or other agreements of Tarragon
contained in this Agreement shall have been false or incorrect in any material
respect as of the Settlement Date; or
          9.4. Release of PNC Challenged. The release of PNC or any PNC
Affiliate set forth in Section 6 is alleged to be invalid or unenforceable by
any claim or proceeding initiated or commenced in favor of, through or by
Tarragon or any Tarragon Party; or
          9.5. Unauthorized Disclosure. Any breach by Tarragon or any Tarragon
Party to keep the terms of this Agreement confidential pursuant to Section 7 of
this Agreement.
     10. AGREEMENTS, ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES. Tarragon
acknowledges, represents, warrants, affirms and confirms the following:
     A. Tarragon has read this Agreement, understands the effect and scope of
this Agreement and has had the assistance of separate legal counsel of its
choice in carefully reviewing, discussing and considering all terms of this
Agreement or has elected to enter into this Agreement without consulting legal
counsel.
     B. Tarragon’s execution and delivery of this Agreement is not based upon
reliance upon any representation, understanding or agreement not expressly set
forth in this Agreement. Neither PNC nor any PNC Affiliate have made any
representations to any other party (or such party’s agent) not expressly set
forth in this Agreement.
     C. Tarragon does execute and deliver this Agreement as its free and
voluntary act, without any duress, coercion or undue influence exerted by or on
behalf of any other party.
     D. Tarragon has full and complete authorization and power to execute this
Agreement in the capacity herein stated. This Agreement is a valid, binding and
enforceable obligation of Tarragon and does not violate any law, rule or
regulation, or any contract or agreement to which Tarragon is a party.
     E. Tarragon has not conveyed, transferred, assigned, pledged or otherwise
encumbered any claim or causes of action covered by the release set forth in
Section 6 of this Agreement.
     11. SEVERABILITY. If any term, provision, covenant or condition of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the provisions shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. This Agreement
is, and shall be deemed to be, the product

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Exhibit 10.28 (Continued)
of joint drafting by the parties hereto and shall not be construed against any
of them as the drafter hereof.
     12. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania without
regard to such jurisdiction’s principles of conflicts of law. Tarragon agrees
that all claims, disputes, and other matters arising out of or relating to this
Agreement, or the breach thereof, will be decided by proceedings instituted and
litigated in a court of competent jurisdiction sitting in the County of
Allegheny or the United States District Court for the Western District of
Pennsylvania.
     13. COUNTERPARTS. This Agreement may be executed in multiple identical
counterparts, each of which when duly executed shall be deemed an original, and
all of which shall be construed together as one agreement.
     14. TIME IS OF THE ESSENCE. Time shall be of the essence with respect to
each and every of the various undertakings and obligations of Tarragon as set
forth in the Agreement.
     15. NO MODIFICATION OR WAIVER. None of the terms or provisions of this
Agreement may be changed, waived, modified, discharged, or terminated except by
an instrument in writing executed by the party against which enforcement of the
change, waiver, modification, discharge or termination is asserted. None of the
terms or provisions of this Agreement shall be deemed to have been abrogated or
waived by reason of any failure or failures to enforce the same.
     16. SUCCESSORS AND ASSIGNS. All rights and obligations of PNC under this
Agreement shall inure to the benefit of, and bind, PNC’s successors and assigns,
and all rights and obligations of Tarragon hereunder shall inure to the benefit
of, and bind, the successors, assigns, heirs, administrators, executors and
legal representatives and estate of Tarragon.
     17. COOPERATION. Prior to and at all times following the date of this
Agreement, Tarragon agrees to execute and deliver, or to cause to be executed
and delivered, such documents and to do, or cause to be done, such other acts
and things as might reasonably be requested by the PNC to assure that the
benefits of this Agreement are realized by the parties.
     18. WAIVER OF JURY TRIAL. TARRAGON KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE UNDERLYING TRANSACTIONS. TARRAGON CERTIFIES THAT NEITHER PNC NOR ANY PNC
AFFILIATE HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT PNC WOULD NOT IN

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Exhibit 10.28 (Continued)
THE EVENT OF ANY SUCH SUIT, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY
JURY.
     IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under seal as of the date first above written.

            Tarragon Corporation
      By:   /s/ Willian S. Friedman                Title:   CEO        PNC
Equity Securities, LLC
      By:   /s/ James S. Bernier                Title:   President     

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