Document:

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                                                                    EXHIBIT 10.1

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                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                        TARRAGON DEVELOPMENT COMPANY LLC

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                                TABLE OF CONTENTS

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ARTICLE I
     DEFINED TERMS     ........................................................................................................1
     Act               ........................................................................................................1
     Adjusted Capital Account Deficit..........................................................................................1
     Adjusted Property ........................................................................................................1
     Affiliate         ........................................................................................................1
     Agreed Value      ........................................................................................................2
     Agreement         ........................................................................................................2
     Assignee          ........................................................................................................2
     Available Cash    ........................................................................................................2
     Book-Tax Disparities......................................................................................................3
     Business Day      ........................................................................................................3
     Capital Account   ........................................................................................................3
     Capital Contribution......................................................................................................3
     Carrying Value    ........................................................................................................3
     Certificate of Formation..................................................................................................3
     Class A Members   ........................................................................................................3
     Member Unit or Unit.......................................................................................................3
     Class B Members   ........................................................................................................4
     Member Unit or Unit.......................................................................................................4
     Class B Members   ........................................................................................................4
     Member Unit or Unit.......................................................................................................4
     Class D Members   ........................................................................................................4
     Member Unit or Unit.......................................................................................................4
     Code              ........................................................................................................4
     Common REIT Shares........................................................................................................4
     Company           ........................................................................................................4
     Company Minimum Gain......................................................................................................4
     Company Record Date.......................................................................................................4
     Completion Threshold......................................................................................................4
     Contributed Property......................................................................................................5
     Depreciation      ........................................................................................................5
     Event of Dissolution......................................................................................................5
     Fiscal Year       ........................................................................................................5
     Immediate Family  ........................................................................................................5
     Incapacity or Incapacitated...............................................................................................5
     Indemnitee        ........................................................................................................6
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     IRS               ........................................................................................................6
     Liquidating Transaction...................................................................................................6
     Liquidator        ........................................................................................................6
     Managing Member   ........................................................................................................6
     Member's and the Class D Members..........................................................................................6
     Member Consent    ........................................................................................................6
     Member Interest   ........................................................................................................6
     Member Minimum Gain.......................................................................................................6
     Member Nonrecourse Debt...................................................................................................7
     Member Nonrecourse Deductions.............................................................................................7
     Net Income        ........................................................................................................7
     Net Loss          ........................................................................................................7
     Nonrecourse Deductions....................................................................................................7
     Nonrecourse Liability.....................................................................................................7
     Percentage Interest.......................................................................................................7
     Person            ........................................................................................................7
     Preferred Allocation Account..............................................................................................7
     Preferred Distribution Account............................................................................................8
     Preferred REIT Shares.....................................................................................................8
     Preferred Return  ........................................................................................................8
     Property          ........................................................................................................8
     Recapture Income  ........................................................................................................8
     Recourse Liabilities......................................................................................................8
     REIT Shares       ........................................................................................................8
     Regulations       ........................................................................................................9
     Securities Act    ........................................................................................................9
     704(c) Value      ........................................................................................................9
     Subsidiary        .........................................................................................................
     Substituted Member........................................................................................................9
     Unit Adjustment Factor....................................................................................................9
     Unrealized Gain   .......................................................................................................10
     Unrealized Loss   .......................................................................................................10
     Value             .......................................................................................................10
ARTICLE II
     ORGANIZATIONAL MATTERS...................................................................................................11
     Section 2.1 Formation; Application of Act................................................................................11
     Section 2.2  Name .......................................................................................................11
     Section 2.3 Registered Office and Agent; Principal Office................................................................11
     Section 2.4 Term  .......................................................................................................11
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ARTICLE III
     PURPOSE           .......................................................................................................11
     Section 3.1 Purpose and Business.........................................................................................11
     Section 3.2 Powers.......................................................................................................12
ARTICLE IV
     CAPITAL CONTRIBUTIONS,, ISSUANCE OF UNITS; CAPITAL ACCOUNTS..............................................................12
     Section 4.1 Capital Contributions of the Members.........................................................................12
     Section 4.2 No Preemptive Rights.........................................................................................13
     Section 4.3 Capital Accounts of the Members..............................................................................13
ARTICLE V
     DISTRIBUTIONS     .......................................................................................................15
     Section 5.1 Requirement and Characterization of Distribution.............................................................15
     Section 5.2 Amounts Withheld.............................................................................................15
     Section 5.3 Distribution Upon Liquidation................................................................................15
ARTICLE VI
     ALLOCATIONS       .......................................................................................................15
     Section 6.1 Allocations For Capital Account Purposes.....................................................................15
     Section 6.2 Special Allocation Rules.....................................................................................17
     Section 6.3 Allocation for Tax Purposes..................................................................................18
ARTICLE VII
     MANAGEMENT AND OPERATIONS OF BUSINESS....................................................................................18
     Section 7.1 Management...................................................................................................18
     Section 7.2 Certificate of Formation.....................................................................................19
     Section 7.3 Restriction on Managing Member's Authority...................................................................19
     Section 7.4 Responsibility for Expenses..................................................................................20
     Section 7.5 Outside Activities of the Managing Member....................................................................20
     Section 7.6 Contracts with Affiliates....................................................................................20
     Section 7.7 Indemnification..............................................................................................20
     Section 7.8 Liability of the Managing Member.............................................................................22
     Section 7.9 Other Matters Concerning the Managing Member.................................................................22
     Section 7.10 Title to Company Assets.....................................................................................23
     Section 7.11 Reliance by Third Parties...................................................................................23
ARTICLE VIII
     RIGHTS AND OBLIGATIONS OF NON-MANAGING MEMBERS...........................................................................23
     Section 8.1 Management of Business.......................................................................................23
     Section 8.2 Outside Activities of Members................................................................................24
     Section 8.3 Priority Among Members.......................................................................................24
     Section 8.4  Rights of Members Relating to the Company...................................................................24
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     Section 8.5 ERISA Matters................................................................................................25
ARTICLE IX
     BOOKS, RECORDS, ACCOUNTING AND REPORTS...................................................................................25
     Section 9.1 Records and Accounting.......................................................................................25
     Section 9.2 Fiscal Year..................................................................................................25
ARTICLE X
     TAX MATTERS       .......................................................................................................26
     Section 10.1 Preparation of Tax Returns..................................................................................26
     Section 10.2 Tax Elections...............................................................................................26
     Section 10.3 Tax Matters Partner.........................................................................................26
     Section 10.4 Organizational Expenses.....................................................................................28
     Section 10.5. Withholding................................................................................................28
ARTICLE XI
     TRANSFERS AND WITHDRAWALS................................................................................................28
     Section 11.1 Transfer....................................................................................................28
     Section 11.2 Transfer of Class C Units...................................................................................28
     Section 11.3 Non-Managing Members' Rights to Transfer....................................................................29
     Section 11.4 Substituted Members.........................................................................................29
     Section 11.5 Assignees...................................................................................................30
     Section 11.6 General Provisions..........................................................................................30
     Section 11.7 Conversion Rights of the Class A Members....................................................................31
     Section 11.8 Conversion Rights of the Class B Members....................................................................33
     Section 11.9 Conversion Rights of the Class D Members....................................................................35
ARTICLE XII
     ADMISSION OF MEMBERS.....................................................................................................36
     Section 12.1 Admission of Successor Managing Member......................................................................36
     Section 12.2 [Intentionally Left Blank]..................................................................................36
     Section 12.3 Amendment of Agreement and Certificate of Formation.........................................................36
ARTICLE XIII
     DISSOLUTION AND LIQUIDATION..............................................................................................36
     Section 13.1 Dissolution.................................................................................................36
     Section 13.2 Winding Up..................................................................................................36
     Section 13.3 Compliance with Timing Requirements of Regulations; Allowance for Contingent or Unforeseen
     Liabilities or Obligation................................................................................................38
     Section 13.4 Deemed Distribution and Recontribution......................................................................38
     Section 13.6 Notice of Dissolution.......................................................................................38
     Section 13.7 Cancellation of Certificate of Formation....................................................................39
     Section 13.8 Reasonable Time for Winding-Up..............................................................................39
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ARTICLE XIV
     MISCELLANEOUS PROVISIONS.................................................................................................39
     Section 14.1 Board of Directors of the Managing Member...................................................................39
     Section 14.2 Default.....................................................................................................39
ARTICLE XV
     GENERAL PROVISIONS.......................................................................................................40
     Section 15.1 Address and Notice..........................................................................................40
     Section 15.2 Titles and Captions.........................................................................................40
     Section 15.3 Pronouns and Plurals........................................................................................40
     Section 15.4 Further Action..............................................................................................40
     Section 15.5 Binding Effect..............................................................................................40
     Section 15.6 Waiver of Partition.........................................................................................40
     Section 15.7 Dispute Resolution..........................................................................................40
     Section 15.8 Entire Agreement............................................................................................42
     Section 15.9 Remedies Not Exclusive......................................................................................42
     Section 15.10 Time.......................................................................................................42
     Section 15.11 Creditors..................................................................................................42
     Section 15.12 Waiver.....................................................................................................42
     Section 15.13 Amendment..................................................................................................42
     Section 15.14 Execution Counterparts.....................................................................................42
     Section 15.15 Applicable Law.............................................................................................42
     Section 15.16 Invalidity of Provisions...................................................................................43
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                       LIMITED LIABILITY COMPANY AGREEMENT
                                       OF
                        TARRAGON DEVELOPMENT COMPANY LLC

         THIS LIMITED LIABILITY COMPANY AGREEMENT, dated as of the 7th day of
February, 2000, of Tarragon Development Company LLC, a Delaware limited
liability company (the "COMPANY"), is entered into by and among Tarragon Realty
Investors, Inc., a Nevada corporation, as the Managing Member (the "MANAGING
MEMBER") and The Rohdie Family LLC, a Delaware limited liability company
("ROHDIE LLC").

                              W I T N E S S E T H:

         WHEREAS, the Members (as defined herein) desire to form the Company as
a limited liability company under the Act, and desire to enter into this
Agreement to set forth the agreement of the Members for the operation of the
Company.

         NOW, THEREFORE, in consideration of the premises, the mutual promises
and agreements herein made, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Members hereby
agree as follows:

                                    ARTICLE I
                                  DEFINED TERMS

         The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

         "Act" means the Limited Liability Company Act of the State of Delaware,
as it may be amended from time to time, and any successor to such statute.

         "Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year (a) increased by any amounts which such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the penultimate sentences of Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (b) decreased by the items
described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-l(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).

         "Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.3 (d) hereof.

         "Affiliate" means, with respect to a Person, (i) any Person that
controls, is controlled by, or is under common control with, such Person, (ii)
any Immediate Family of any Person, and (iii) any officer, partner, member,
director or trustee of any Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting

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securities, by contract or otherwise; and the terms "affiliated," "controlling"
and "controlled" have meanings correlative to the foregoing.

         "Agreed Value" means (a) in the case of any Contributed Property set
forth in Exhibits A and B and as of the time of its contribution to the Company,
the Agreed Value of such property as set forth in Exhibits A and B; (b) in the
case of any Contributed Property not set forth in Exhibits A and B, the 704(c)
Value of such property as of the time of its contribution to the Company,
reduced by any liabilities either assumed by the Company upon such contribution
or to which such property is subject when contributed; and (c) in the case of
any property distributed to a Member by the Company, the Company's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Member upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the regulations promulgated thereunder.

         "Agreement" means this Limited Liability Company Agreement (as defined
in Section 18-101(7) of the Act), as it may be amended, supplemented or restated
from time to time in accordance with the terms hereof.

         "Assignee" means a Person to whom one or more Member Interests have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Member, and who has the rights set forth in Section 11.5.

         "Available Cash" means with respect to any period for which such
calculation is being made, (a) all cash revenues and funds received by the
Company from whatever source (excluding the proceeds of any Capital
Contribution) plus the amount of any reduction (including, without limitation, a
reduction resulting because the Managing Member determines such amounts are no
longer necessary) in reserves of the Company, which reserves are referred to in
clause (b)(iv) below;

                  (b) less the sum of the following (except to the extent made
         with the proceeds of any Capital Contribution):

                           (i) all interest, principal and other debt payments
                  made during such period by the Company,

                           (ii) all cash expenditures (including capital
                  expenditures) made by the Company during such period.

                           (iii) investments in any entity (including loans made
                  thereto) to the extent that such investments are not otherwise
                  described in clauses (b)(i) or (ii), and

                           (iv) the amount of any increase in reserves
                  established during such period which the Managing Member
                  determines is necessary or appropriate in its sole and
                  absolute discretion.

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Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Company.

         "Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Member's share of the Company's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Members Capital Account balance as maintained pursuant to Section
4.3 and the hypothetical balance of such Member's Capital Account computed as if
it had been maintained strictly in accordance with federal income tax accounting
principles.

         "Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City, New York are authorized or required by
law to close.

         "Capital Account" means the Capital Account maintained for a Member
pursuant to Section 4.3 hereof.

         "Capital Contribution" means, with respect to any Member, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Member
contributes or is deemed to contribute to the Company pursuant to Section 4.1
hereof and which shall be treated by the Company as a contribution to the
Company pursuant to Section 721(a) of the Code.

         "Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property (or in the case of an
Adjusted Property, the fair market value of such property at the time of its
latest adjustment under Section 4.3(d)) reduced (but not below zero) by all
Depreciation with respect to such property charged to the Members' Capital
Accounts and (b) with respect to any other Company Property, the adjusted basis
of such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Section 4.3 hereof.

         "Certificate of Formation" means the Certificate of Formation relating
to the Company filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.

         "Class A Members" means those Persons admitted to the Company as Class
A Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith, or admitted to the Company as
a Class A Member upon conversion of the Class D Member Units as provided herein.

         "Class A Unit" or "Class A Member Unit" means a fractional, undivided
share of the Member Interests of all Class A Members issued pursuant to Section
4.1 as set forth on Exhibit A attached hereto, as such Exhibit may be amended
from time to time in accordance with the terms of this Agreement.

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         "Class B Members" means those Persons admitted to the Company as Class
B Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith, or admitted to the Company as
a Class B Member upon conversion of the Class D Member Units as provided herein.

         "Class B Unit" or "Class B Member Unit" means a fractional, undivided
share of the Member Interests of all Class B Members issued pursuant to Section
4.1 as set forth on Exhibit A attached hereto, as such Exhibit may be amended
from time to time in accordance with the terms of this Agreement.

         "Class C Members" means those Persons admitted to the Company as Class
C Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith.

         "Class C Unit" or "Class C Member Unit" means the Member Interests of
all Class C Members issued pursuant to Section 4.1 as set forth on Exhibit A
attached hereto, as such Exhibit may be amended from time to time in accordance
with the terms of this Agreement.

         "Class D Members" means those Persons admitted to the Company as Class
D Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith.

         "Class D Unit" or "Class D Member Unit" means the Member Interests of
all Class D Members issued pursuant to Section 4.1 as set forth on Exhibit A
attached hereto, as such Exhibit may be amended from time to time in accordance
with the terms of this Agreement.

         "Code" means the Internal Revenue Code of 1986, as amended. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.

         "Common REIT Shares" means the common stock of the Managing Member.

         "Company" means the limited liability company formed under the Act and
continued pursuant to this Agreement, and any successor thereto.

         "Company Minimum Gain" has the meaning set forth in Regulation Section
1.704-2(b)(2), and the amount of Company Minimum Gain, as well as any net
increase or decrease in Company Minimum Gain, for a Fiscal Year shall be
determined in accordance with the rules of Regulation Section 1.704-2(d).

         "Company Record Date" means the record date established by the Managing
Member for the distribution of Available Cash pursuant to Section 5.1 hereof.

         "Completion Date" means, with respect to the real property owned by
each limited liability company set forth on Exhibit B, the date which follows
the completion of such project and is the earlier of (1) that date that is
twelve (12) months after such property first obtains

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occupancy of 80% of the apartment units, or (2) the date that is six (6) months
after the date that permanent (as opposed to construction) financing encumbers
such property.

         "Contributed Property" means each property or other asset (but
excluding cash), in such form as may be permitted by the Act contributed or
deemed contributed to the Company. Once the Carrying Value of a Contributed
Property is adjusted pursuant to Section 4.3(d) hereof, such property shall no
longer constitute a Contributed Property for purposes of Section 4.3(d) hereof,
but shall be deemed an Adjusted Property for such purposes.

         "Depreciation" means for each fiscal year or other period, an amount
equal to the federal income tax depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Carrying Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount determined in accordance with Regulation
Section 1.704-3(d) provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Carrying
Value using any reasonable method selected by the Managing Member.

         "Event of Dissolution" has the meaning set forth in Section 13.1.

         "Fiscal Year" means the fiscal year of the Company, which shall be the
calendar year.

         "Immediate Family" means, with respect to any natural Person, such
natural Person's spouse, parents, descendants, nephews, nieces, brothers and
sisters and trusts for the benefit of any of the foregoing.

         "Incapacity" or "Incapacitated" means, (a) as to any individual Member,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (b) as to any
corporation which is a Member, the filing of a certificate of dissolution, or
its equivalent, for the corporation; (c) as to any partnership or limited
liability company which is a Member, the dissolution and commencement of winding
up of the partnership or limited liability company, (d) as to any estate which
is a Member, the distribution by the fiduciary of the estate's entire interest
in the Company; (e) as to any trustee of a trust which is a Member, the
termination of the trust (but not the substitution of a new trustee); or (f) as
to any Member, the bankruptcy of such Member. For purposes of this definition,
bankruptcy of a Member shall be deemed to have occurred when the Member (i)
makes an assignment for the benefit of creditors, (ii) files a voluntary
petition in bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has
entered against him an order of relief in any bankruptcy or insolvency
proceeding, (iv) files a petition or answer seeking for himself any
reorganization, arrangement composition, readjustment liquidation, dissolution
or similar relief under any statute, law or regulation, (v) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against him in any proceeding of this nature, (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Member or of all or any substantial part of his properties,
(vii) the Member is the debtor in any proceeding seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, which has not been dismissed within
120 days after the

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commencement thereof or (viii) the appointment without the Member's consent or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within 90 days after the appointment or such appointment is not vacated within
90 days after the expiration of any such stay.

         "Indemnitee" means (a) any Person made a party to a proceeding by
reason of his status as (i) the Managing Member, (ii) any other Member or (iii)
a director, officer, Member, employee, agent or attorney of the Company or a
Member, and (b) such other Persons (including Affiliates of the Managing Member
or the Company) acting in good faith on behalf of the Company as determined by
the Managing Member in its good faith judgment other than for any action by such
Person involving fraud, willful misconduct or gross negligence.

         "IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States, or any successor agency performing
the same functions.

         "Liquidating Transaction" means any sale or other disposition of all or
substantially all of the assets of the Company or a related series of
transactions that, taken together, results in the sale or other disposition of
all or substantially all of the assets of the Company.

         "Liquidator" has the meaning set forth in Section 13.2.

         "Managing Member" means Tarragon Realty Investors, Inc., and any
successor thereto as the Managing Member of the Company; provided, however, that
in the event Tarragon Realty Investors, Inc. is Incapacitated and only for so
long a period as such Incapacity exists, then the Class A Members and Class B
Members shall be entitled to appoint a Co-Managing Member and each decision
required to be made hereunder by the Managing Member shall only be made by the
unanimous consent of the Managing Member and such Co-Managing Member.

         "Members" shall mean the Class A Members, the Class B Members, Class C
Members and the Class D Members and any Person named as a Class A Member, Class
B Member, Class C Member or Class D Member in Exhibit A attached hereto, as such
Exhibit may be amended from time to time in accordance herewith, or any
Substituted Member admitted to the Company in accordance herewith, in such
Person's capacity as a Member in the Company.

         "Member Consent" means the consent of all of Members.

         "Member Interest" means an ownership interest in the Company
representing a fractional part of the Member Interests of all Members and
includes any and all benefits to which the holder of such a Member Interest may
be entitled as provided in the Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. A Class A
Member Interest may be expressed as a number of Class A Member Units, a Class B
Member Interest may be expressed as a number of Class B Member Units, and a
Class D Member Interest may be expressed as a number of Class D Member Units.

         "Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt equal to the Company Minimum Gain that would result if such
Member Nonrecourse Debt

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were treated as a Nonrecourse Liability, determined in accordance with
Regulation Section 1.704-2(i)(3).

         "Member Nonrecourse Debt" has the meaning set forth in Regulation
Section 1.704-2(b)(4) and the amount of Member Nonrecourse Deductions with
respect to a Member Nonrecourse Debt for a Fiscal Year shall be determined in
accordance with the rules of Regulation Section 1.704-2(i)(2).

         "Member Nonrecourse Deductions" has the meaning set forth in Regulation
Section 1.704-2(i)(1), and the amount of Member Nonrecourse Deductions with
respect to a Member Nonrecourse Debt for a Fiscal Year shall be determined in
accordance with the rules of Regulation Section 1.704-2(i)(2).

         "Net Income" means for any taxable period, the excess, if any, of the
Company's items of income and gain for such taxable period over the Company's
items of loss and deduction for such taxable period. The items included in the
calculation of Net Income shall be determined in accordance with Section 4.3.
Once an item of income, gain, loss or deduction that has been included in the
initial computation of Net Income is subjected to the special allocation rules
in Sections 6.2 and 6.3, Net Income or the resulting Net Loss, whichever the
case may be, shall be recomputed without regard to such item.

         "Net Loss" means for any taxable period, the excess, if any, of the
Company's items of loss and deduction for such taxable period over the Company's
items of income and gain for such taxable period. The items included in the
calculation of Net Loss shall be determined in accordance with Section 4.3. Once
an item of income, gain, loss or deduction that has been included in the initial
computation of Net Loss is subjected to the special allocation rules in Section
6.2 and 6.3, Net Loss or the resulting Net Income, whichever the case may be,
shall be recomputed without regard to such item.

         "Nonrecourse Deductions" has the meaning set forth in Regulation
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal
Year shall be determined in accordance with the rules of Regulation Section
1.704-2(c).

         "Nonrecourse Liability" has the meaning set forth in Regulation Section
1.752-1(a)(2).

         "Percentage Interest" means, as to a Class A Member, Class B Member,
Class C Member or Class D Member, its interest in such class of interest in the
Company as set forth on Exhibit A as amended from time to time.

         "Person" means an individual or a corporation, Company, trust,
unincorporated organization, association or other entity.

         "Preferred Allocation Account" means a separate account that shall be
maintained with respect to each Class A Member and Class B Member, the initial
amount of which shall be zero and which shall be increased by each Preferred
Return that is credited to such Member and which

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shall be reduced by all allocations of Net Income to such Member pursuant to
Section 6.1 of this Agreement.

         "Preferred Distribution Account" means a separate account that shall be
maintained with respect to each Class A Member and Class B Member, the initial
amount of which shall be zero and which shall be increased quarterly by the
amount of the Preferred Return that is credited to such Member for such quarter
and which shall be reduced by the amounts of all distributions to such Member
pursuant to Sections 5.1(a) of this Agreement for such year.

         "Preferred REIT Shares" means the preferred stock of the Managing
Member; provided, however, that notwithstanding the terms of Preferred REIT
Shares at any time or in the event Preferred REIT Shares are not in existence,
each Preferred REIT Share shall be deemed to have a liquidation preference of
$10 and shall be deemed to have a dividend equal to five (5%) per cent of the
face value thereof for the first and second year after the date of issuance, a
dividend equal to six (6%) per cent of the face value thereof for the third year
after the date of issuance, a dividend equal to seven (7%) per cent of the face
value thereof for the fourth year after the date of issuance, a dividend equal
to eight (8%) per cent of the face value thereof for the fifth year after the
date of issuance, a dividend equal to nine (9%) per cent of the face value
thereof for the sixth year after the date of issuance, a dividend equal to ten
(10%) per cent of the face value thereof for the sixth seventh year after the
date of issuance and for every year thereafter.

         "Preferred Return" means (i) with respect to a Class A Member, an
amount equal to the dividends which would have been payable to a Class A Member
during the applicable period assuming such Class A Member held Preferred REIT
Shares during such period equal in number to the amount of Class A Member Units
issued to such Member as of the beginning of such fiscal quarter provided,
however, in the event that Class A Member Units are issued during a fiscal
quarter, the dividends payable to such Class A Member shall be determined on a
daily basis; and (ii) with respect to a Class B Member, an amount equal to the
dividends which would be payable to a Class B Member assuming such Class B
Member held Common REIT Shares equal in number to the product of (1) the amount
of Class B Member Units issued to such Member, and (2) the Unit Adjustment
Factor.

         "Property" shall mean the membership interests in the limited liability
companies and partnership interests in the limited partnerships set forth on
Exhibit D to this Agreement and any other property, real or personal
subsequently acquired by the Company.

         "Recapture Income" means any gain recognized by the Company (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Company, which gain
is characterized under Code Sections 751, 1245 and 1250 as ordinary income
because it represents the recapture of deductions previously taken with respect
to such property or asset.

         "Recourse Liabilities" has the meaning set forth in Regulation Section
1.752-1(a)(1).

         "REIT Shares" means Common REIT Shares and/or the Preferred REIT Shares
as the context may require.

                                       8
<PAGE>   15

         "Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

         "Securities Act" means the Securities Act of 1933, as amended.

         "704(c) Value" of any Contributed Property means the fair market value
of such Contributed Property or other consideration at the time of contribution
as determined by the Members using such reasonable method of valuation as they
may adopt or as otherwise set forth herein.

         "Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (a) the voting power of the voting equity
securities or (b) the outstanding equity interests is owned, directly or
indirectly, by such Person.

         "Substituted Member" means a Person who is admitted as a Member to the
Company pursuant to Section 11.4.

         "Unit Adjustment Factor" means initially 1.0; provided (a) that in the
event that the Managing Member (i) declares or pays a dividend on its
outstanding REIT Shares in REIT Shares or makes a distribution to all holders of
its outstanding REIT Shares in REIT Shares, (ii) subdivides its outstanding REIT
Shares, or (iii) combines its outstanding REIT Shares into a smaller number of
REIT Shares, the Unit Adjustment Factor shall be adjusted by multiplying the
Unit Adjustment Factor then in effect by a fraction, the numerator of which
shall be the number of REIT Shares issued and outstanding on the record date for
such dividend, distribution, subdivision or combination (assuming for such
purposes that such dividend, distribution, subdivision or combination has
occurred as of such time), and the denominator of which shall be the actual
number of REIT Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination; and (b) provided, if the Managing Member issues rights, options or
warrants or other securities to all holders of REIT Shares entitling them to
subscribe for or purchase REIT Shares (including securities to purchase, or
which are convertible into, or exchangeable for, REIT Shares) at a price per
REIT Share less than 94% (100% if a stand-by underwriter is used and charges the
Managing Member a commission) of the Value of a REIT Share on the record date
for the determination of shareholders entitled to receive such rights, options
or warrants, then the Unit Adjustment Factor shall be to equal the number
determined by multiplying (I) the Unit Adjustment Factor in effect immediately
prior to the opening of business on the date fixed for such determination by
(II) a fraction, the numerator of which shall be the sum of (A) the number of
REIT Shares outstanding on the close of business on such date and (B) the number
of additional REIT Shares offered for subscription or purchase pursuant to such
rights, options or warrants, and the denominator of which shall be the sum of
(A) the number of REIT Shares outstanding on the close of business on such date
and (B) the number of REIT Shares that the aggregate proceeds to the Managing
Member from the exercise of such rights, option or warrants for REIT Shares
would purchase at 94% of such Value (or 100% in the case of a stand-by
underwriting). In determining whether any rights, options or warrants entitle
the holders of REIT Shares to subscribe for or purchase

                                       9
<PAGE>   16

REIT Shares at less than 94% of such Value (or 100% in the case of a stand-by
underwriting), there shall be taken into account any consideration received by
the Managing Member upon issuance and upon exercise of such rights, options or
warrants, the value of such consideration, if other than cash, to be fairly and
reasonably determined by the Board of Directors of the Managing Member. Any
adjustment to the Unit Adjustment Factor shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such event.

         "Unrealized Gain" attributable to any item of Company Property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such Property (as determined under Section 4.3 hereof) as of such date,
over (b) the Carrying Value of such Property (prior to any adjustment to be made
pursuant to Section 4.3 hereof) as of such date.

         "Unrealized Loss" attributable to any item of Company Property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such Property (prior to any adjustment to be made pursuant to Section 4.3
hereof) as of such date, over (b) the fair market value of such Property (as
determined under Section 4.3 hereof) as of such date.

         "Value" means, with respect to a REIT Share, the average of the daily
market price for the twenty (20) consecutive trading days immediately preceding
the valuation date. The market price for each such trading day shall be: (a) if
the REIT Shares are listed or admitted to trading on any securities exchange or
the NASDAQ-National Market System, the closing price, regular way, on such day,
or if no such sale takes place on such day, the average of the closing bid and
asked prices on such day, (b) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the NASDAQ-National Market System, the
last reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the Managing Member, or (c) if the REIT
Shares are not listed or admitted to trading on any securities exchange or the
NASDAQ-National Market System and no such last reported sale price or closing
bid and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reliable quotation source designated
by the Managing Member, or if there shall be no bid and asked prices on such
day, the average of the high bid and low asked prices, as so reported on the
most recent day (not more than 20 days prior to the date in question) for which
prices have been so reported; provided, that if there are no bid and asked
prices reported during the 20 days prior to the date in question, the Value of
the REIT Shares shall be determined by the board of directors of the Managing
Member acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.

                                       10
<PAGE>   17

                                   ARTICLE II
                             ORGANIZATIONAL MATTERS

         Section 2.1       Formation; Application of Act.

                  (a) Form of the Company. The Members do hereby form the
Company as a limited liability company according to all of the terms and
provisions of this Agreement and otherwise in accordance with the Act.

                  (b) Application of Act. The Company is a limited liability
company pursuant to the provisions of the Act and upon the terms and conditions
set forth in this Agreement. Except as expressly provided herein to the
contrary, the rights and obligations of the Members and the administration and
termination of the Company shall be governed by the Act. No Member has any
interest in any Company property, and the Member Interest of each Member shall
be personal property for all purposes.

         Section 2.2 Name. The name of the Company is Tarragon Development
Company LLC. The Company's business may be conducted under any other name or
names deemed advisable by the Managing Member. The words "Limited Liability
Company", "LLC" or similar words or letters shall be included in the Company's
name where necessary for the purposes of complying with the laws of any
jurisdiction that so requires. The Managing Member in its sole and absolute
discretion may change the name of the Company at any time and from time to time
and shall promptly notify the Members of such change; provided that the name of
the Company may not be changed to include the name, or any variant thereof, of
any Member without the written consent of that Member.

         Section 2.3 Registered Office and Agent; Principal Office. The address
of the registered office of the Company in the State of Delaware is located at 9
East Loockerman Street, Dover, Delaware 19901, and the registered agent for
service of process on the Company in the State of Delaware at such registered
office is National Registered Agents, Inc. The principal office of the Company
is located at 280 Park Avenue, East Building, 20th Floor, New York, New York
10017, or such other place as the Managing Member may from time to time
designate by notice to the Members. The Company may maintain offices at such
other place or places within or outside the State of New York as the Managing
Member deems advisable.

         Section 2.4 Term. The term of the Company shall commence on the date of
the filing of the Certificate of Formation with the Delaware secretary of State
and shall continue until it is dissolved pursuant to the provisions of Article
XIII or as otherwise required by law.

                                   ARTICLE III
                                     PURPOSE

         Section 3.1 Purpose and Business. The purpose and nature of the
business to be conducted by the Company is (a) acquire, own, operate, administer
and sell or otherwise dispose of the Property; (b) to conduct any business that
may be lawfully conducted by a limited liability

                                       11
<PAGE>   18

company organized pursuant to the Act; and (c) to do anything necessary or
incidental to the foregoing in accordance with the terms of this Agreement.

         Section 3.2 Powers. The Company is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Company.

                                   ARTICLE IV
                    CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
                                CAPITAL ACCOUNTS

         Section 4.1       Capital Contributions of the Members.

                  (a) Initial Capital Contributions. At the time of the
execution of this Agreement, the Members shall make or shall have made the
Capital Contributions set forth in Exhibit A to this Agreement. The Members
shall have the Member Interests, Class A Member Units, Class B Member Units,
Class C Member Units, Class D Member Units and/or Percentage Interests in the
Company as set forth in Exhibit A as a result of such contributions.

                  (b) Additional Capital Contributions or Assessments.

                           (i) Except as required by law or as set forth in
         subsections (ii) below, no Member shall be assessed or be required to
         contribute additional funds or other property to the Company. Any
         additional funds required by the Company, as reasonably determined by
         the Managing Member to not be available from operations or from lenders
         on commercially reasonable terms, may, at the option of the Managing
         Member and without an obligation to do so, be contributed by the
         Managing Member as additional Capital Contributions.

                           (ii) The Managing Member shall contribute to the
         capital of the Company each year, at the time distributions will be
         made in accordance with Section 5.1, an amount of cash equal to the
         excess, if any, of the amount described in Section 5.1(a) and Section
         5.1 (b) at such time over the amount of Available Cash at such time.

                  (c) Return of Capital Contributions. Except as otherwise
expressly provided herein, the Capital Contribution of each Member will be
returned to that Member only in the manner and to the extent provided in Article
V and Article XIII hereof, and no Member may withdraw from the Company or
otherwise have any right to demand or receive the return of its Capital
Contribution to the Company (as such), except as specifically provided herein.
Under circumstances requiring a return of any Capital Contribution, no Member
shall have the right to receive property other than cash, except as specifically
provided herein. No Member shall be entitled to interest on any Capital
Contribution or Capital Account notwithstanding any disproportion therein as
between the Members. Except as specifically provided herein, the

                                       12
<PAGE>   19

Managing Member shall not be personally liable for the return of any portion of
the Capital Contribution of any Member, and the return of such Capital
Contributions shall be made solely from Company assets.

                  (d) Liability of Members. No Member shall have any personal
liability to contribute money to, or in respect of, the liabilities or the
obligations of the Company, nor shall any Member be personally liable for any
obligations of the Company. No Member shall be required to make any
contributions to the capital of the Company other than its Capital Contribution
or to restore a negative balance in its Capital Account or otherwise.

         Section 4.2 No Preemptive Rights. Except as specifically provided in
this Agreement no Person shall have any preemptive, preferential or other
similar right with respect to (a) additional Capital Contributions or loans to
the Company or (b) issuance or sale of any Membership Interests.

         Section 4.3       Capital Accounts of the Members.

                  (a) General. The Company shall maintain for each Member a
separate Capital Account in accordance with the rules of Regulation Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions made by such Member to the Company pursuant to this
Agreement and (ii) all items of company income and gain (including income and
gain exempt from tax) computed in accordance with Section 4.3(b) hereof and
allocated to such Member pursuant to Sections 6.1 and 6.2 of this Agreement and
decreased by (x) the amount of cash or Agreed Value of all actual and deemed
distributions of cash or property made to such Member pursuant to this Agreement
and (y) all items of Company deduction and loss computed in accordance with
Section 4.3(b) hereof and allocated to such Member pursuant to Section 6.1 and
6.2 of this Agreement.

                  (b) Income, Gains, Deductions, and Losses. For purposes of
computing the amount of any item of income, gain, loss or deduction to be
reflected in the Members' Capital Accounts, unless otherwise specified in this
Agreement, the determination, recognition and classification of any such item
shall be the same as its determination, recognition and classification for
federal income tax purposes determined in accordance with Section 703(a) of the
Code (for this purpose all items of income, gain, loss or deduction required to
be stated separately pursuant to Section 703(a)(1) of the Code shall be included
in taxable income or loss), with the following adjustments:

                           (1) Except as otherwise provided in Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Company; provided, that the amounts of any
adjustments to the adjusted bases of the assets of the Company made pursuant to
Section 734 of the Code as a result of the distribution of property by the
Company to a Member (to the extent that such adjustments have not previously
been reflected in the Members' Capital Accounts) shall be reflected in the
Capital Accounts of the Members in the manner and subject to the limitations
prescribed in Regulation Section 1.704-1(b)(2)(iv)(m).

                                       13
<PAGE>   20

                           (2) The computation of all items of income, gain,
loss and deduction shall be made without regard to the fact that items described
in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not includible in gross
income or are neither currently deductible nor capitalized for federal income
tax purposes.

                           (3) Any income, gain or loss attributable to the
taxable disposition of any Company property shall be determined as if the
adjusted basis of such property as of such date of disposition were equal in
amount to the Company's Carrying Value, with respect to such property as of such
date.

                           (4) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such fiscal
year.

                           (5) In the event the Carrying Value of any Company
asset is adjusted pursuant to Section 4.3(d) hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the disposition of
such asset.

                           (6) Any items specially allocated under Section 6.3
hereof shall not be taken into account.

                  (c) Transfer of Member Interests. A transferee of a Member
Interest shall succeed to a pro rata portion of the Capital Account of the
transferor.

                  (d) Unrealized Gains and Losses.

                           (1) Consistent with the provisions of Regulation
Section 1.704-1(b)(2)(iv)(f), and as provided in Section 4.3(d)(2), the Carrying
Values of all Company assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Company property, as of
the times of the adjustments provided in Section 4.3(d)(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property and allocated pursuant to Section 6.1 of this Agreement.

                           (2) Such adjustments shall be made as of the
following times: (i) immediately prior to the acquisition of an additional
interest in the Company by any new or existing Member in exchange for more than
a deminimis Capital Contribution; (ii) immediately prior to the distribution by
the Company to a Member of more than a deminimis amount of property as
consideration for an interest in the Company; and (iii) immediately prior to the
liquidation of the Company or the Managing Member's interest in the Company
within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g).

                           (3) In accordance with Regulation Section
1.704-1(b)(2)(iv)(e), the Carrying Value of Company assets distributed in kind
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Company property, as of the time any such
asset is distributed.

                                       14
<PAGE>   21

                           (4) In determining such Unrealized Gain or Unrealized
Loss the aggregate cash amount and fair market value of all Company assets
(including cash or cash equivalent) shall be determined by the Managing Member
using such fair and reasonable method of valuation as it may adopt or in the
case of a liquidating distribution pursuant to Article XIII of this Agreement,
be determined and allocated by the Liquidator using such reasonable methods of
valuation as it may adopt. The Managing Member, or the Liquidator, as the case
may be, shall allocate such aggregate value among the assets of the Company (in
such fair and reasonable manner as it determines to arrive at fair market value
for individual properties).

                  (e) Modification by Managing Member. The provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulation Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations.

                                    ARTICLE V
                                  DISTRIBUTIONS

         Section 5.1 Requirement and Characterization of Distribution. On the
last Business Day of December of each fiscal year, the Company shall distribute
Available Cash generated by the Company during the preceding twelve month
period, together with the amount of cash described in Section 4.1(b)(ii), in the
following order of priority:

                           (a) First, to the Class A Members, pro rata, to the
                  extent of the balance in each Class A Member's Preferred
                  Distribution Account;

                           (b) Next, to the Class B Members, pro rata, to the
                  extent of the balance in each Class B Member's Preferred
                  Distribution Account; and

                           (c) Next, the balance if any, pro rata, to the Class
                  C Members in accordance with their Percentage Interests.

         Section 5.2 Amounts Withheld. All amounts withheld pursuant to the Code
or any provisions of any state or local tax law and Section 10.5 hereof with
respect to any allocation, payment or distribution to the Managing Member, or
any other Members or Assignees shall be promptly paid, solely out of funds of
the Company, by the Managing Member to the appropriate taxing authority and
treated as amounts distributed to the Managing Member or such Members, or
Assignees pursuant to Section 5.1 for all purposes under this Agreement.

         Section 5.3 Distribution Upon Liquidation. Proceeds from a Liquidating
Transaction shall be distributed to the Members in accordance with Section 13.2.

                                   ARTICLE VI
                                   ALLOCATIONS

         Section 6.1 Allocations For Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Members
among themselves, the Company's items of income, gain, loss and deduction
(computed in accordance with Section 4.3

                                       15
<PAGE>   22

hereof) shall be allocated among the Members for each taxable year (or portion
thereof) as provided herein below.

                  (a) Net Income. After giving effect to the, special
allocations set forth in Section 6.2 below, Net Income shall be allocated:

                           (i) First, to the Class C Members to the extent that,
                  on a cumulative basis, Net Losses previously allocated to the
                  Class C Members pursuant to Section 6.1(b) exceed Net Income
                  previously allocated to the Class C Members pursuant to this
                  Section 6.1(a);

                           (ii) Second, to the Class A Members, pro rata, in an
                  amount equal to their Preferred Allocation Account and to the
                  Class B Members, pro rata, in an amount equal to their
                  Preferred Allocation Account.

                           (iii) Third, to the Class C Members, pro rata, in
                  accordance with their Percentage Interests.

                  (b) Net Losses. After giving effect to the special allocations
set forth in Section 6.2 below, Net Losses shall be allocated:

                           (i) First to the Class C Members to the extent of any
                  prior allocation of Net Income pursuant to Section 6.1 (a);

                           (ii) Second, to the Class C Members until the balance
                  of the Capital Accounts of the Class B Members shall equal
                  zero;

                           (iii) Third, to the Class C Members in accordance
                  with their Percentage Interests.

                  (c) Nonrecourse Liabilities. For purposes of Regulation
Section 1.752-3(a)(3), the Members agree that excess Nonrecourse Liabilities of
the Company shall be allocated to the Members in accordance with their
Percentage Interests. Notwithstanding the foregoing, the Managing Member agrees
to use its reasonable efforts consistent with the business plan of the Company
to keep sufficient indebtedness outstanding encumbering the assets of the
Company to maintain the present allocation and ratio of such indebtedness among
the Members for Federal income tax purposes.

                  (d) Gains. Any gains allocated to the Members upon the sale or
other taxable disposition of any Company asset shall to the extent possible,
after taking into account other required allocations of gain pursuant to Section
6.2 below, be characterized as Recapture Income in the same proportions and to
the same extent as such Members have been allocated any deduction directly or
indirectly giving rise to the treatment of such gains as Recapture Income
pursuant to the principles of Regulation Sections 1.1245-1(e) and 1.1250-1(f).

                                       16
<PAGE>   23

         Section 6.2 Special Allocation Rules. Notwithstanding any other
provision of the Agreement, the following special allocations shall be made in
the following order:

                  (a) Minimum Gain Chargeback. Notwithstanding any other
provisions of Article VI, if there is a net decrease in Company Minimum Gain
during any Fiscal Year, each Member shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Member's share of the net decrease in Company Minimum
Gain, as determined under Regulation Section 1.704-2(g). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Regulation Section
1.704-2(f)(6). This Section 6.2 is intended to comply with the minimum gain
chargeback requirements in Regulation Section 1.704-2(f) and for purposes of
this Section 6.2(a) only, each Member's Adjusted Capital Account Deficit shall
be determined prior to any other allocations pursuant to Section 6.1 of the
Agreement with respect to such fiscal year and without regard to any decreasing
Member Minimum Gain during such fiscal year.

                  (b) Member Minimum Gain Chargeback. Notwithstanding any other
provision of Article VI (except Section 6.2(a) hereof), if there is a net
decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during
any Company fiscal year, each Member who has a share of the Member Minimum Gain
attributable to such Member Non-recourse Debt determined in accordance with
Regulation Section 1.704-2(i)(5), shall be specially allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Member's share of the net decrease in Member Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Regulation Section 1.704-2(i)(5). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulation Section 1.704-2(i)(4). This Section
6.2(b) is intended to comply with the minimum gain chargeback requirement in
such Section of the Regulation, and shall be interpreted consistently therewith.
Solely for purposes of this Section 6.2(b) each Member's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant to
Article VI with respect to such fiscal year, other than allocations pursuant to
Section 6.2(a) hereof,

                  (c) Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations or distributions described in
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 6.2(a) and 6.2(b) hereof, such Member has an Adjusted Capital
Account Deficit, items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit created by
such adjustments, allocations or distributions as quickly as possible.

                  (d)      [Intentionally Left Blank]

                                       17
<PAGE>   24

                  (e) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Nonrecourse Debt to
which such Member Nonrecourse Deductions are attributable in accordance with
Regulation Section 1.704-2(i)(2).

                  (f) Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Company asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment decreases the basis of the asset) or loss (if
the adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.

         Section 6.3 Allocation for Tax Purposes.

                  (a) General. Except as otherwise provided in this Section 6.3,
for federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Members in the same manner as its correlative item
of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.1
and 6.2 of this Agreement.

                  (b) To Eliminate Book-Tax Disparities. In an attempt to
eliminate Book-Tax Disparities attributable to a Contributed Property or
Adjusted Property, items of income, gain, loss, and deduction shall be allocated
for federal income tax purposes among the Members using the remedial method
described in Regulation Section 1.704-3(d).

                                   ARTICLE VII
                      MANAGEMENT AND OPERATIONS OF BUSINESS

         Section 7.1 Management.

                  (a) Powers of Managing Member. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Company are exclusively vested in the Managing Member, and no other
Member shall have any right to participate in or exercise control or management
power over the business and affairs of the Company in its capacity as a Member.

                  (b) No Approval Required for Powers. Except as set forth
herein, each of the Members agrees that the Managing Member is authorized to
execute, deliver and perform agreements and transactions on behalf of the
Company without any further act, approval or vote of the Members.

                  (c) Insurance. At all times from and after the date hereof,
the Managing Member may cause the Company to obtain and maintain casualty,
liability and other insurance on the properties of the Company and liability
insurance for the Indemnitees hereunder,

                                       18
<PAGE>   25

                  (d) Reserves. At all times from and after the date hereof, the
Managing Member may cause the Company to establish and maintain reserves
(including any reserves required by the terms of any management agreement
relating to any Company property) in such amounts as the Managing Member in its
sole and absolute discretion, deems appropriate and reasonable from time to
time.

         Section 7.2 Certificate of Formation. To the extent that such action is
determined by the Managing Member to be reasonable and necessary or appropriate,
the Managing Member shall file amendments to and restatements of the Certificate
of Formation and do all the things to maintain the Company as a limited
liability company (or other entity in which the Members have limited liability)
under the laws of the State of Delaware and each other jurisdiction in which the
Company may elect to do business or own property. Within five Business Days
after filing, the Managing Member will deliver or mail a copy of the Certificate
of Formation, as it may be amended or restated from time to time, to each
Member. The Managing Member shall use all reasonable efforts to cause to be
filed such other certificates or documents as may be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited liability company (or other entity in which the Members have limited
liability) in the State of Florida and any other jurisdiction in which the
Company may elect to do business or own property.

         Section 7.3 Restriction on Managing Member's Authority. The Managing
Member may not, without Member Consent, take any action in contravention of this
Agreement including, without limitation:

                  (a) take any action that would make it impossible to carry on
the ordinary business of the Company, except as expressly provided elsewhere in
this Agreement;

                  (b) possess Company property, or assign any rights in specific
Company property, for other than a Company purpose except as otherwise provided
in this Agreement;

                  (c) admit a Person as a Member, except otherwise provided in
this Agreement; or

                  (d) sell or approve the sale of property in which the Company
has a direct or indirect interest, in a taxable transaction, until the earlier
of (i) five (5) years from the date the property met the Completion Date; or
(ii) the death of Robert C. Rohdie. Notwithstanding any provision of this
Agreement to the contrary, the Managing Member shall not be required to obtain
Member Consent of sales of property having a value of less than $1,000,000 or
pursuant to a condemnation or threat thereof.

                  (e) The Members acknowledge that the Managing Member may admit
additional members into any subsidiary entity owned by the Company provided that
the admittance of such member is not a sale and is not taxable to the Company or
the Members.

                                       19
<PAGE>   26

         Section 7.4 Responsibility for Expenses.

                  (a) No Compensation. Except as provided in this Section 7.4
and elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments, and allocations to which it may be entitled),
the Managing Member shall not be compensated for its services as Managing Member
of the Company.

                  (b) Responsibility for Ownership and Operation Expenses. The
Company shall be responsible for and shall pay all expenses relating to the
Company's ownership of its assets, and the operation of, or for the benefit of,
the Company. The Managing Member shall be reimbursed on a monthly basis, or such
other basis as the Managing Member may determine in its sole and absolute
discretion, for all expenses it incurs relating to the Company's ownership of
its assets and the operation of, or for the benefit of, the Company. Such
reimbursements shall be in addition to any reimbursement to the Managing Member
as a result of indemnification pursuant to Section 7.7 hereof.

         Section 7.5 Outside Activities of the Managing Member. Nothing herein
contained shall prevent or prohibit the Managing Member or any employee or other
Affiliate of the Managing Member from entering into, engaging in or conducting
any other activity or performing for a fee any service including (without
limiting the generality of the foregoing) engaging in any business dealing with
real property of any type or location, including, without limitation, property
of a type similar to those properties owned by the Company, its Subsidiaries,
and/or its Affiliates or any other Person in which the Company has an equity
investment; acting as a director, officer or employee of any corporation, as a
trustee of any trust, as a general partner of any partnership, or as an
administrative official of any other business entity; or receiving compensation
for services to, or participating in profits derived from, the investments of
any such corporation, trust, partnership or other entity, regardless of whether
such activities are competitive with the Company, and nothing herein shall
require the Managing Member or any employee or Affiliate thereof to offer any
interest in such activities to the Company or any Member.

         Section 7.6 Contracts with Affiliates. Except as contemplated herein,
neither the Managing Member nor any of its Affiliates shall (i) sell, transfer
or convey any property to, or purchase any property from, the Company, directly
or indirectly, or (ii) enter into any agreement for the provision of services to
the Company, except in both such cases, pursuant to transactions or agreements
that are on terms that are fair and reasonable to the Company and on terms no
less favorable to the Company than those which could be obtained from
unaffiliated third parties. In entering into such transactions with Affiliates,
the Managing Member shall not allocate expenses and similar items
disproportionately between the Managing Member and the Company.

         Section 7.7 Indemnification.

                  (a) General. The Company shall indemnify each Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate

                                       20
<PAGE>   27

to the Company in which any Indemnitee may be involved, or is threatened to be
involve as a party or otherwise, unless it is established that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. The termination of any proceeding by judgment, order
or settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 7.7(a). The termination
of any proceeding by conviction or upon a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment creates a
rebuttable presumption that the Indemnitee acted in a manner contrary to that
specified in this Section 7.7(a). Any indemnification pursuant to this Section
7.7 shall be made only out of the assets of the Company.

                  (b) In Advance of Final Disposition. Reasonable expenses
incurred by an Indemnitee who is a party to a proceeding may be paid or
reimbursed by the Company in advance of the final disposition of the proceeding
upon receipt by the Company of (i) a written affirmation by the Indemnitee of
the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Company as authorized in this Section 7.7 has been met;
and (ii) a written undertaking by or on behalf of the Indemnitee to repay the
amount if it shall ultimately be determined that the standard of conduct has not
been met.

                  (c) Other Than by This Section. The indemnification provided
by this Section 7.7 shall be in addition to any other rights to which an
Indemnitee or any other Person may be entitled under any agreement, pursuant to
any vote of the Members, as a matter of law or otherwise, and shall continue as
to an Indemnitee who has ceased to serve in such capacity.

                  (d) Insurance. The Company may purchase and maintain
insurance, on behalf of the Indemnitees and such other Persons as the Managing
Member shall determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the Company's
activities, regardless of whether the Company would have the power to indemnify
such Person against such liability under the provisions of this Agreement.

                  (e) No Personal Liability for Members. In no event may an
Indemnitee subject the Members to personal liability by reason of the
indemnification provisions set forth in this Agreement.

                  (f) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.

                  (g) Binding Effect. The provisions of this Section 7.7 are for
the benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the benefit of
any other Persons.

                                       21
<PAGE>   28

         Section 7.8 Liability of the Managing Member.

                  (a) General. Notwithstanding anything to the contrary set
forth in this Agreement, the Managing Member shall not be liable for monetary
damages to the Company, any other Members or any Assignees for losses sustained
or liabilities incurred as a result of errors in judgment or of any act or
omission if the Managing Member acted in good faith; provided, however, that the
Managing Member shall be so liable to the Company for losses sustained or
liabilities incurred as a result of the Managing Member's gross negligence,
fraud or willful misconduct.

                  (b) No Obligation to Consider Interests of Members. The
Members expressly acknowledge that the Managing Member is acting on behalf of
the Company and the Managing Member collectively, that the Managing Member is
under no obligation to consider the separate interests of the other Members in
deciding whether to cause the Company to take (or decline to take) any actions
which the Managing Member has undertaken in good faith on behalf of the Company,
and that the Managing Member shall not be liable for monetary damages for losses
sustained, liabilities incurred, or benefits not derived by Members in
connection with such decisions. Nothing contained herein shall be deemed to
waive the Managing Member's obligation to act in good faith and with loyalty to
the Members.

                  (c) Acts of Agents. Subject to its obligations and duties as
Managing Member set forth in Section 7.1(a) hereof, the Managing Member may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents. The Managing Member shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by it in good faith.

                  (d) Effect of Amendment. Any amendment, modification or repeal
of this Section 7.8 or any provision hereof shall be prospective only and shall
not in any way affect the limitations on the Managing Member's liability to the
Company and the Members under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.

         Section 7.9 Other Matters Concerning the Managing Member.

                  (a) Reliance on Documents. The Managing Member may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.

                  (b) Reliance on Consultants and Advisers. The Managing Member
may consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisers selected by it, and any
act taken or omitted to be taken in reliance upon and in accordance with the
opinion of such Persons as to matters which such Managing Member reasonably
believes to be within such Person's professional or expert

                                       22
<PAGE>   29

competence shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.

                  (c) Action Through Officers and Attorneys. The Managing Member
shall have the right, in respect of any of its powers or obligations hereunder,
to act through any of its duly authorized officers and a duly appointed attorney
or attorneys-in-fact. Each such attorney shall, to the extent provided by the
Managing Member in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the Managing Member hereunder.

         Section 7.10 Title to Company Assets. Title to Company assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Company as an entity, and no Member, individually or
collectively, shall have any ownership interest in such Company assets or any
portion thereof.

         Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Company shall be
entitled to assume that the Managing Member has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the Company
and to enter into any contracts on behalf of the Company, and such Person shall
be entitled to deal with the Managing Member as if it were the Company's sole
party in interest, both legally and beneficially. Each Member hereby waives any
and all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the Managing Member in connection
with any such dealing. In no event shall any Person dealing with the Managing
Member or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the Managing Member or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Company by the Managing Member or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (a) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in fall force and effect, (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Company and (c) such
certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Company.

                                  ARTICLE VIII
                 RIGHTS AND OBLIGATIONS OF NON-MANAGING MEMBERS

         Section 8.1 Management of Business. Except as otherwise expressly
provided herein, no Member or Assignee (other than the Managing Member, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the Managing Member, the Company or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the Act) of the Company's business, transact any business in the
Company's name or have the power to sign documents for or otherwise bind the
Company. The

                                       23
<PAGE>   30

transaction of any such business by the Managing Member, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the Managing
Member, the Company or any of its Affiliates, in their capacity as such, shall
not affect, impair or eliminate the limitations on the liability of the Members
or Assignees in their capacities as such under this Agreement.

         Section 8.2 Outside Activities of Members. Subject to any agreements
entered into by a Member or its Affiliates with the Managing Member, the Company
or a Subsidiary, the following rights shall govern outside activities of
Members: (a) any Member (other than the Managing Member) and any officer,
director, employee, agent, trustee, Affiliate, partner, member, beneficiary or
shareholder of any such Member shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Company, including business interests and activities in direct competition with
the Company, the Managing Member or their Affiliates; (b) neither the Company
nor any Members shall have any rights by virtue of this Agreement in any
business ventures of any Member or Assignee; (c) none of the Members nor any
other Person shall have any rights by virtue of this Agreement or the Company
relationship established hereby in any business ventures of any other Person,
and such Person shall have no obligation pursuant to this Agreement, to offer
any interest in any such business ventures to the Company, any Member or any
such other Person, even if such opportunity is of a character which, if
presented to the Company, any Member or such other Person, could be taken by
such Person; (d) the fact that a Member may encounter opportunities to purchase,
otherwise acquire, lease, sell or otherwise dispose of real or personal property
and may take advantage of such opportunities himself or introduce such
opportunities to entities in which it has or has not any interest shall not
subject such Member to liability to the Company or any of the other Members on
account of the lost opportunity, and (e) except as otherwise specifically
provided herein, nothing contained in this Agreement shall be deemed to prohibit
a Member or any Affiliate of a Member from dealing or otherwise engaging in
business, with Persons transacting business with the Company or from providing
services relating directly or indirectly to the purchase, sale, rental,
management or operation of real or personal property (including real estate,
brokerage services) and receiving compensation therefor, from any Persons who
have transacted business with the Company or other third parties.

         Section 8.3 Priority Among Members. Except as expressly provided in
this Agreement (including the Exhibits hereto), no Member or Assignee shall have
priority over any other Member or Assignee as to the return of Capital
Contributions or, except to the extent provided by Sections 6.2 or 6.3 hereof,
or otherwise expressly provided in this Agreement as to profits, losses or
distributions.

         Section 8.4 Rights of Members Relating to the Company. In addition to
other rights provided by this Agreement or by the Act, each Member shall be
provided the following without demand, except as otherwise provided below, at
the Company's expense:

                           (1) promptly after becoming available, a copy of the
Company's federal state and local income tax returns for each Fiscal Year,

                                       24
<PAGE>   31

                           (2) upon demand and for a purpose reasonably related
to such Member's interest as a Member in the Company, a current list of the name
and last known business, residence or mailing address of each Member;

                           (3) a copy of this Agreement and the Certificate of
Formation and all amendments hereto and thereto, together with executed copies
of all powers of attorney pursuant to which this Agreement, the Certificate of
Formation and all amendments hereto and thereto have been executed; and

                           (4) upon demand, true and full information regarding
the amount of cash and a description and statement of any other property or
services contributed by each Member and which each Member has agreed to
contribute in the future, and the date on which each became a Member.

         Section 8.5 ERISA Matters. Each of the Members hereby covenants that it
will conduct its operations and limit its ownership such that such party will
not be deemed to hold "plan assets" within the meaning of 29 C.F.R. Section
2510.3-101 or otherwise under the Employee Retirement Income Security Act of
1974, as amended ("ERISA").

                                   ARTICLE IX
                     BOOKS, RECORDS, ACCOUNTING AND REPORTS

         Section 9.1 Records and Accounting.

                  (a) The Managing Member shall keep or cause to be kept at the
principal office of the Company appropriate books and records with respect to
the Company's business, including, without limitation, all books and records
necessary to provide to the Members any information, lists and copies of
documents required to be provided pursuant to Sections 8.4 or 9.3 hereof. Any
records maintained by or on behalf of the Company in the regular course of its
business may be kept on, or be in the form of, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the
records so maintained are convertible into clearly legible written form within a
reasonable period of time. The books of the Company shall be maintained for
financial purposes on an accrual basis in accordance with generally accepted
accounting principles and for tax reporting purposes on the accrual basis.

                  (b) Each Member shall have the right, upon reasonable request,
to inspect and copy during normal business hours, at such Member's expense, any
of the Company's records and to obtain a copy of the Company's Federal, state,
and local income tax or information returns for each year.

         Section 9.2 Fiscal Year. The fiscal year of the Company shall be the
calendar year.

         Section 9.3 Annual Reports. As soon as practicable, but in no event
later than March 31 of each year, the Managing Member shall cause to be mailed
to each Member as of the close of the Fiscal Year, an annual report containing
financial statements of the Company presented in

                                       25
<PAGE>   32

accordance with generally accepted accounting principles consistently applied,
audited by a nationally recognized firm of independent public accountants.

                                    ARTICLE X
                                   TAX MATTERS

         Section 10.1 Preparation of Tax Returns. The Managing Member shall
arrange for the preparation and timely filing of all returns of Company income,
gains, deductions, losses and other items required of the Company for federal
and state income tax purposes and shall use all reasonable efforts to furnish,
within 90 days of the close of each taxable year, the tax information required
and such other tax information reasonably requested by Members for federal and
state income tax reporting purposes and a copy of the Company's tax return.

         Section 10.2 Tax Elections. Except as otherwise provided herein, the
Managing Member shall, in its reasonable discretion, determine whether to make
any available election pursuant to the Code based upon the Managing Members
determination as to whether such election is in the best interests of the
Members; provided, however, that the Managing Member shall make the election
under Section 754 of the Code in accordance with applicable regulations
thereunder and shall do so effective for its first taxable year if so requested
by a Member or if the Managing Member determines such election to be in its
interests.

         Section 10.3 Tax Matters Partner.

                  (a) General. The Managing Member shall be the "Tax Matters
Partner" of the Company for federal income tax purposes. Pursuant to Section
6223(c) of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Company, the Tax Matters Partner
shall provide the Members notice of such receipt and shall furnish the IRS with
the name, address and profit interest of each of the Members; provided, however,
that such information is provided to the Company by the Members.

                  (b) Powers. The Tax Matters Partner is authorized upon prior
written consent of the Members, but not required:

                           (1) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings for the adjustment of
Company items required to be taken into account by a Member for income tax
purposes (such administrative proceedings being referred to as a "tax audit" and
such judicial proceedings being referred to as "judicial review"), and in the
settlement agreement the Tax Matters Partner may expressly state that such
agreement shall bind all Members, except that such settlement agreement shall
not bind any Member (i) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the Tax Matters
Partner shall not have the authority to enter into a settlement agreement on
behalf of such Member or (ii) who is a "notice Member" (as defined in Section
6231 of the Code) or a member of a "notice group" (as defined in Section
6223(b)(2) of the

                                       26
<PAGE>   33

Code), and, to the extent provided by law, the Managing Member shall cause each
Member to be designated a notice Member;

                           (2) in the event that a notice of a final
administrative adjustment at the Company level of any item required to be taken
into account by a Member for tax purposes (a "final adjustment") is mailed or
otherwise given to the Tax Matters Partner, to seek judicial review of such
final adjustment, including the filing of a petition for readjustment with the
Tax Court or the United States Claims Court, or the filing of a complaint for
refund with the District Court of the United States for the district in which
the Company's principal place of business is located;

                           (3) to intervene in any action brought by any other
Member for judicial review of a final adjustment;

                           (4) to file a request for an administrative
adjustment with the IRS at any time and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading (petition, complaint or
other document) for judicial review with respect to such request;

                           (5) to enter into an agreement with the IRS to extend
the period for assessing any tax which is attributable to any item required to
be taken into account by a Member for tax purposes, or an item affected by such
item; and

                           (6) to take any other action on behalf of the Members
of the Company in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.

                  The taking of any action and the incurring of any expense by
the Tax Matters Partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
Tax Matters Partner, and the provisions relating to indemnification of the
Managing Member set forth in Section 7.7 of this Agreement shall be fully
applicable to the Tax Matters Partner in its capacity as such.

                  (c) Tax Returns. The Tax Matters Partner shall, upon the
request of any Member, provide such Member with copies of any tax returns,
elections, or any returns or documents to be filed with the IRS at least ten
business days prior to the date such filing is required.

                  (d) Reimbursement. The Tax Matters Partner shall receive no
compensation for its services. All third-party costs and expenses incurred by
the Tax Matters Partner in performing its duties as such (including legal and
accounting fees) shall be borne by the Company. Nothing herein shall be
construed to restrict the Company from engaging an accounting firm and a law
firm to assist the Tax Matters Partner in discharging his duties hereunder, so
long as the compensation paid by the Company for such services is reasonable.

                                       27
<PAGE>   34

         Section 10.4 Organizational Expenses. The Company shall elect to deduct
expenses, if any, incurred by it in organizing the Company ratably over a sixty
(60) month period as provided in Section 709 of the Code.

         Section 10.5 Withholding. Each Member hereby authorizes the Company to
withhold from or pay on behalf of or with respect to such Member any amount of
federal, state, local, or foreign taxes that the Company is required to withhold
or pay with respect to any amount distributable or allocable to such Member
pursuant to this Agreement including, without limitation, any taxes required to
be withheld or paid by the Company pursuant to Section 1441, 1442, 1445, or 1446
of the Code. Any such amount paid on behalf of or with respect to a Member shall
constitute a loan by the Company to such Member, which loan shall be repaid by
such Member within 15 days after notice from the Managing Member that such
payment must be made unless (a) the Company withholds such payment from a
distribution which would otherwise be made to the Member or (b) the Managing
Member determines, in its sole and absolute discretion, that such payment may be
satisfied out of the available funds of the Company which would, but for such
payment, be distributed to the Member. Any amounts withheld pursuant to the
foregoing clauses (a) or (b) shall be treated as having been distributed to such
Member and shall be promptly paid, solely out of funds of the Company, by the
Managing Member to the appropriate taxing authority.

                                   ARTICLE XI
                            TRANSFERS AND WITHDRAWALS

         Section 11.1 Transfer.

                  (a) Definition. The term "transfer " when used in this Article
XI with respect to a Member Interest shall be deemed to refer to a transaction
by which the Member purports to assign its Member Interest to another Person,
and includes a sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise. The term
"transfer" when used in this does not include any conversion of all or a portion
of a Class A Member Interest pursuant to Section 11.7 hereof.

                  (b) Requirements. No Member Interest shall be transferred, in
whole or in part, except in accordance, with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Member Interest not
made in accordance with this Article XI shall be null and void.

         Section 11.2 Transfer of Class C Units. At any time and from time to
time after the date which is one (1) year after the date of this Agreement, the
Managing Member may freely transfer any of its Class C Member Units or withdraw
as Managing Member; provided, however, that for a period of five (5) years from
the date of this Agreement the Managing Member shall be prohibited from
transferring any of its Class C Member Units if such transfer results in a
termination of the Company for Federal income tax purposes pursuant to Code
Section 708(b). Notwithstanding the foregoing, the Managing Member may, from and
after the date of this Agreement, freely transfer any of its Class C Member
Units to a wholly owned subsidiary of the

                                       28
<PAGE>   35

Managing Member or to an Affiliate of the Managing Member. Any transfer or
purported transfer of the Managing Member's Class C Member Units not made in
accordance with this Section 11.2 shall be null and void. Notwithstanding any
permitted transfer of its Class C Member Units or withdrawal as Managing Member
hereunder, the Managing Member shall remain subject to Section 7.7, Section 7.8
and Section 12.1 of this Agreement unless such transferee Managing Member
provides substantially similar rights to the other Members and the other Members
expressly approve such rights in writing. Nothing contained in this Section 11.2
shall entitle the Managing Member to withdraw as Managing Member unless a
successor Managing Member has been appointed and approved by the other Members.

         Section 11.3 Non-Managing Members' Rights to Transfer.

                  (a) General. Member Interests owned by Members other than the
Managing Member may be freely transferred. In order to effect any transfer under
this Section 11.3 the transferring Member must deliver to the Managing Member a
duly executed copy of the instrument making such transfer and such instrument
must evidence the written acceptance, by the assignee of all of the terms and
conditions of this Agreement and represent that such assignment was made in
accordance with all applicable Laws and regulations.

                  (b) Incapacitated Members. If a Member is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Member's estate shall have all the rights of a
Member, but not more rights than those enjoyed by other Members for the purpose
of settling or managing the estate and such power as the Incapacitated Member
possessed to transfer all or any part of his or its interest in the Company. The
Incapacity of a Member, in and of itself, shall not dissolve or terminate the
Company.

                  (c) Transfers Causing Termination. Regardless of whether the
Managing Member is required to provide or has provided its consent under Section
11.3(a), no transfer of any Member Interests shall be effective if such transfer
would, in the opinion of counsel for the Company, result in the termination of
the Company for federal income tax purposes, in which event such transfer shall
be made effective as of the first fiscal quarter in which such termination would
not occur, if the Member making such transfer continues to desire to effect the
transfer. The foregoing sentence shall only apply if the Managing Member
reasonably determines that such termination will have a material adverse effect
on the Company or any Member and shall not apply to transfers of Class C Member
Units by the Managing Member after the fifth anniversary of the date of this
Agreement.

         Section 11.4 Substituted Members.

                  (a) Substitution of Transferee. A Member shall have the right
to substitute a transferee as a Member in his place but only if such transferee
is a permitted transferee under Section 11.3, in which event such substitution
shall occur if the Member so provides.

                  (b) Rights and Duties of Substituted Members. A transferee who
has been admitted as a Substituted Member in accordance with this Article XI
shall have all the rights and powers and be subject to all the restrictions and
liabilities of a Member under this Agreement.

                                       29
<PAGE>   36

                  (c) Amendment of Exhibit A. Upon the admission of a
Substituted Member, the Managing Member shall amend Exhibit A to reflect the
name, address, the class of Member Interest and the Percentage Interest of such
Substituted Member and to eliminate or adjust if necessary, the name, address
and interest of the predecessor of such Substituted Member.

         Section 11.5 Assignees. If a transferee under Section 11.4(a) is not a
Substituted Member, such transferee shall be considered an Assignee for purposes
of this Agreement. An Assignee shall be entitled to all the rights of an
assignee of a membership interest under the Act, the right to receive
distributions from the Company and the share of Net Income, Net Losses, gain,
loss and Recapture Income attributable to the Member Interests assigned to such
transferee, but shall not be, deemed to a holder of a Member Interest for any
other purpose under this Agreement and shall not be entitled to vote such Member
Interest in any manner presented to the Members for a vote (such Member Interest
being deemed to have been voted on such matter in the same proportion as all
Member Interests held by Members are voted). In the event any such transferee
desires to make a further assignment of any such Member Interest, such
transferee shall be subject to all the provisions of this Article XI to the same
extent and in the same manner as any Member desiring to make an assignment of
Member Interest.

         Section 11.6 General Provisions.

                  (a) Withdrawal of Member. No Member may withdraw from the
Company other than as a result of a permitted transfer of all of such Member's
Interest in accordance with this Article XI.

                  (b) Transfer of All Units by Member. Any Member who shall
transfer all of his Member Interest in a transfer permitted pursuant to this
Article XI shall cease to be a Member.

                  (c) Timing of Transfers. Transfers pursuant to this Article XI
may only be made on the first day of a calendar month, unless the Managing
Member otherwise agrees.

                  (d) Allocation When Transfer Occurs. If any Member Interest is
transferred during any quarterly segment of the Company's fiscal year in
compliance with the provisions of this Article XI, Net Income, Net Losses, each
item thereof and all other items attributable to such interest for such fiscal
year shall be divided and allocated between the transferor Member and the
transferee Member by taking into account their varying interests during the
fiscal year in accordance with Section 706(d) of the Code, using the interim
closing of the books method. Solely for purposes of making such allocations,
each of such items for the calendar month in which the transfer or conversion
occurs shall be allocated to the Person who is a Member as of midnight on the
last day of said month. All distributions of Available Cash with respect to
which the Company Record Date is before the date of such transfer or conversion
shall be made to the transferor Member, and all distributions of Available Cash
thereafter shall be made to the transferee Member.

                                       30
<PAGE>   37

         Section 11.7 Conversion Rights of the Class A Members.

                  (a) Delivery of Conversion Notices. Any one or more Class A
Members may, subject to the limitations set forth in this Section 11.7, deliver
to the Managing Member written notice(s) (the "Exercise Notice(s)") that such
Class A Member elects to exercise the conversion right set forth in this Section
11.7 with respect to all of its Class A Member Units. The Exercise Notice shall
specify the specific number of Class A Member Units that the Class A Member
intends to convert into Preferred REIT Shares or into cash; provided, however,
that a Class A Member may not elect to convert its Class A Member Units into
cash until a date that is at least six (6) years from the date hereof. Once
delivered, the Exercise Notice shall be irrevocable, subject to payment by the
Managing Member of Preferred REIT Shares and/or cash in respect of such Class A
Member Units in accordance with the terms hereof.

                  (b) Limitation on Exercise of Conversion Rights. The
conversion right of the Class A Members may be exercised at any time and from
time to time after the date which is one (1) year after the date of this
Agreement, subject to the following limitations:

                           (i) A Class A Member shall not have the right to
                  exercise its conversion right hereunder into Preferred REIT
                  Shares but shall be paid in cash for its Class A Member Units
                  as hereinafter set forth if, in the opinion of counsel
                  selected by the Managing Member, in its sole and absolute
                  discretion, such exercise and/or issuance of any Preferred
                  REIT Shares may or would (A) violate the Managing Member's
                  Articles of Incorporation, as amended from time to time, (B)
                  cause the Managing Member to fail any one or more of the REIT
                  Requirements or (C) constitute a violation of applicable
                  securities laws; and

                           (ii) The conversion rights of the Class A Members
                  shall be subject to a Registration Rights Agreement (attached
                  hereto as Exhibit C-1) which shall (A) include a one time
                  demand right and piggyback registration rights and (B) provide
                  for the reimbursement of such Class A Member's fair share of
                  expenses.

                  (c) Computation of Number of Preferred REIT Shares or Amount
                  of Cash.

                           (i) A Class A Member shall be entitled to convert its
                  Class A Member Units, increased by the amount of Class A
                  Member Units it would receive if the Class D Member Units
                  owned by such Member had been converted in part into Class A
                  Member Units pursuant to Section 11.9, into the amount of
                  Preferred Common REIT Shares equal to the product of (A) the
                  number of Class A Units held by such Member plus the amount of
                  Class A Member Units it would receive if the Class D Member
                  Units owned by such Member had been converted into Class A
                  Member Units, and (B) the quotient of (i) 10, divided by (ii)
                  the liquidation preference of a Preferred REIT Share.
                  Notwithstanding the foregoing, if and to the extent the Class
                  A Member is entitled to a Preferred Return of 10% per annum at
                  the time of conversion with respect to all or a portion of its
                  Class A Member Units and if the Preferred REIT Shares to be
                  issued pursuant hereto to

                                       31
<PAGE>   38

                  the Class A Member have a dividend rate of less than 10%, then
                  the Class A Member shall be issued that number of Preferred
                  REIT Shares so that its cumulative annual dividend will be
                  equal to the Preferred Return previously received with respect
                  to such Class A Member Units; provided, however, if the
                  Preferred REIT Shares have a dividend rate of 8% or less at
                  the time of conversion, the Preferred REIT Shares shall be
                  deemed for purposes hereof to have a dividend rate of 8%.
                  Notwithstanding the foregoing, if and to the extent the Class
                  A Member is entitled to a Preferred Return of less than 10%
                  per annum with respect to all or a portion of its Class A
                  Member Units, then the Class A Member shall be issued that
                  number of Preferred REIT Shares so that its cumulative annual
                  dividend will be equal to the Preferred Return previously
                  received with respect to such Class A Member Units; provided,
                  however, if the Preferred REIT Shares have a dividend rate of
                  10% or more, the Preferred REIT Shares shall be deemed for
                  purposes hereof to have a dividend rate of 10%.

                           (ii) If any fraction of a Preferred REIT Share would,
                  except for the provisions of this Section 11.7(c), be issuable
                  on the conversion of any Class A Member Units (or specified
                  portion thereof), the Managing Member shall pay an amount in
                  cash equal to the Value (determined as of the trading day
                  immediately preceding the date upon the closing of the
                  conversion is to occur), multiplied by such fraction.

                           (iii) Notwithstanding anything to the contrary
                  herein, the Managing Member shall have the right, in lieu of
                  issuing Preferred REIT Shares to the Class A Member, to pay
                  cash to the Class A Member. If the Class A Member is entitled
                  to receive cash on conversion pursuant to this Section 11.7,
                  the Class A Member shall receive cash in an amount equal to
                  the aggregate liquidation preference of the Preferred REIT
                  Shares that would be issued to the Class A Member if the Class
                  A Member had converted into Preferred REIT Shares pursuant to
                  this Section 11.7 plus accrued and unpaid dividends. If the
                  Managing Member elects or is required to pay cash to the Class
                  A Member pursuant to this Section 11.7, such cash shall be
                  paid 25% ninety (90) after the closing described in subsection
                  (d) below, 25% on the one year anniversary thereof, 25% of the
                  two year anniversary thereof and the balance thereof on the
                  three year anniversary thereof, in each case with all interest
                  accrued and unpaid to date on such amounts determined at the
                  rate then applicable to the Preferred REIT Shares. Interest
                  shall be payable annually on each anniversary thereof until
                  the balance is paid in full.

                           (iv) In the event that Preferred REIT Shares are not
                  in existence at the time that the Conversion Notice is
                  delivered, the Managing Member shall notify the Class A Member
                  within thirty (30) days of delivery of the Conversion Notice
                  whether the Managing Member elects to (1) pay to the Class A
                  Member cash in exchange for its Class A Membership Units as
                  aforesaid (assuming that the Preferred REIT Shares had the
                  terms and conditions of the preferred stock described in the
                  Certificate of Designation attached hereto as Exhibit E), or
                  (2)

                                       32
<PAGE>   39

                  register within six (6) months from the date thereof Preferred
                  REIT Shares having substantially the terms and conditions of
                  the preferred stock described in the Certificate of
                  Designation attached hereto as Exhibit E. If the Managing
                  Member elects to register Preferred REIT Shares as aforesaid,
                  the Managing Member shall use reasonable efforts to consummate
                  such registration as promptly as possible within such six
                  month period, and, upon such registration, shall issue
                  Preferred REIT Shares to the Class A Member on the terms and
                  conditions set forth herein as if the Conversion Notice were
                  tendered on the date of such registration.

                           (v) If and when Preferred REIT Shares exist, the
                  Managing Member shall reserve an amount of such stock as
                  treasury shares as necessary to fulfill its obligations
                  hereunder.

                  (d) Closing; Delivery of Election Notice. The closing of the
conversion of the Class A Member Units shall, unless otherwise mutually agreed,
be held at the principal offices of the Managing Member, on the date agreed to
by the Managing Member and the exercising Class A Member, which date shall in no
event be later than: (i) ten (10) business days after the date of delivery of
the Exercise Notice to the Managing Member or (ii) the first date upon which all
legal and other conditions with respect to such conversion have been satisfied
(which shall include the expiration or termination of any applicable waiting
periods).

                  (e) Closing Deliveries. At the closing of the conversion of
the Class A Member Units, (i) the exercising Class A Members shall execute and
deliver (A) proper instruments of transfer and assignment of the applicable
Class A Member Units and (B) representations and warranties with respect to
their due authority to transfer all of the right, title and interest in and to
such Class A Member Units to the Managing Member and, with respect to the status
of the Class A Member Units, that such Class A Member Units are free and clear
of all liens, claims and encumbrances whatsoever, and (ii) the Managing Member
shall (A) if Preferred REIT Shares are to be issued, execute and deliver
representations and warranties with respect to its due authority to issue the
Preferred REIT Shares to be received in the conversion; and deliver a stock
certificate or certificates evidencing the Preferred REIT Shares to be issued
and registered in the name(s) of the Exercising Class A Member (s) or its or
their designee(s), and (B) if any cash is to be paid, deliver a check in the
amount of any cash due to the Exercising Class A Member (s) at such closing.

         Section 11.8 Conversion Rights of the Class B Members.

                  (a) Delivery of Conversion Notices. Any one or more Class B
Members may, subject to the limitations set forth in this Section 11.8, deliver
to the Managing Member Exercise Notice(s) that such Class B Members elect to
exercise the conversion right set forth in this Section 11.8 with respect to all
or any portion of their Class B Member Units. The Exercise Notice shall specify
the specific number of Class B Member Units that the Class B Member intends to
convert into Common REIT Shares or into cash; provided, however, that a Class B
Member may not elect to convert its Class B Member Units into cash until a date
that is at least six (6) years from the date hereof. Once delivered, the
Exercise Notice shall be irrevocable,

                                       33
<PAGE>   40

subject to payment by the Managing Member of Common REIT Shares and/or cash in
respect of such Class B Member Units in accordance with the terms hereof.

                  (b) Limitation on Exercise of Conversion Rights. The
conversion right of the Class B Members may be exercised at any time and from
time to time after the date which is one (1) year after the date of this
Agreement, subject to the following limitations:

                           (i) A Class B Member shall not have the right to
                  exercise its conversion right hereunder but shall be paid in
                  cash for its Class B Member Units as hereinafter set forth if,
                  in the opinion of counsel selected by the Managing Member, in
                  its sole and absolute discretion, such exercise and/or
                  issuance of any REIT Shares may or would (A) violate the
                  Managing Member's Articles of Incorporation, as amended from
                  time to time, (B) cause the Managing Member to fail any one or
                  more of the REIT Requirements or (C) constitute a violation of
                  applicable securities laws; and

                           (ii) The conversion rights of the Class B Members
                  shall be subject to a Registration Rights Agreement (attached
                  hereto as Exhibit C-2) which shall (A) include unlimited
                  demand rights and piggyback registration rights and (B)
                  provide for the reimbursement of such Class B Member's fair
                  share of expenses.

                  (c) Computation of Number of REIT Shares.

                           (i) A Class B Member shall be entitled to convert
                  each Class B Member Units then held by it, plus the amount of
                  Class B Member Units it would receive if the Class D Member
                  Units owned by such Member had been converted in part into
                  Class B Member Units pursuant to Section 11.9, into the amount
                  of Common REIT Shares equal to the product of (x) one, and (y)
                  the Unit Adjustment Factor.

                           (ii) If any fraction of a Common REIT Share would,
                  except for the provisions of this Section 11.8(c), be issuable
                  on the conversion of any Class B Member Units (or specified
                  portion thereof), the Managing Member shall pay an amount in
                  cash equal to the Value (determined as of the trading day
                  immediately preceding the date upon the closing of the
                  conversion is to occur), multiplied by such fraction.

                           (iii) The Managing Member shall reserve an amount of
                  Common REIT Shares as treasury shares as necessary to fulfill
                  its obligations hereunder.

                           (iv) Notwithstanding anything to the contrary herein,
                  if the Class B Member is entitled to cash under this Section
                  11.8, the Managing Member shall be required to pay cash to the
                  Class B Member in an amount equal to the product of the (i)
                  Value and (ii) the number of Common REIT Shares that would be
                  issued to the Class B Member but for the requirement to pay
                  cash. If the Managing

                                       34
<PAGE>   41

                  Member is required to pay cash to the Class B Member pursuant
                  to this Section 11.8, such cash shall be paid 25% ninety (90)
                  after the closing described in subsection (d) below, 25% on
                  the one year anniversary thereof, 25% of the two year
                  anniversary thereof and the balance thereof on the three year
                  anniversary thereof, in each case with all interest accrued to
                  date on such amounts determined at the rate then applicable to
                  the Preferred REIT Shares.

                  (d) Closing; Delivery of Election Notice. The closing of the
conversion of the Class B Member Units shall, unless otherwise mutually agreed,
be held at the principal offices of the Managing Member, on the date agreed to
by the Managing Member and the exercising Class B Member, which date shall in no
event be later than: (i) ten (10) business days after the date of delivery of
the Exercise Notice to the Managing Member or (ii) the first date upon which all
legal and other conditions with respect to such conversion have been satisfied
(which shall include the expiration or termination of any applicable waiting
periods).

                  (e) Closing Deliveries. At the closing of the conversion of
the Class B Member Units, (i) the exercising Class B Members shall execute and
deliver (A) proper instruments of transfer and assignment of the applicable
Class B Member Units and (B) representations and warranties with respect to
their due authority to transfer all of the right, title and interest in and to
such Class B Member Units to the Managing Member and, with respect to the status
of the Class B Member Units, that such Class B Member Units are free and clear
of all liens, claims and encumbrances whatsoever, and (ii) the Managing Member
shall (A) if Common REIT Shares are to be issued, execute and deliver
representations and warranties with respect to its due authority to issue the
Common REIT Shares to be received in the conversion; and deliver a stock
certificate or certificates evidencing the Common REIT Shares to be issued and
registered in the name(s) of the Exercising Class B Member (s) or its or their
designee(s), and (B) if any cash is to be paid for any fraction of an Equivalent
Share Amount, deliver a check in the amount of any cash due to the Exercising
Class B Member (s) at such closing.

         Section 11.9 Conversion Rights of the Class D Members. At the time the
Completion Date occurs with respect to each respective apartment property owned
by each of the entities set forth on Exhibit B, the Class D Member Units shall
automatically convert into the number of Class A Member Units and Class B Member
Units set forth on Exhibit B without any affirmative action by the Class D
Member holding such Class D Member Units. The Completion Date shall be deemed to
be the date such Class A Member Units and Class B Member Units are issued with
respect to the provisions of this Agreement, including, without limitation, the
definition of "Preferred REIT Share," "Preferred Return" and "Preferred
Distribution Account." Upon the date of such conversion, Exhibit A attached
hereto shall automatically be amended to reflect the issuance of the Class A
Member Units and Class B Member Units without any affirmative action by the
Class D Member. If there is a dispute between the Managing Member and the Class
D Member as to when the Completion Date occurs, the Class D Member or its
representative shall have the right to review the books and records of the
Company as contemplated by Article IX hereof, and the Managing Member shall
cooperate with the Class D Members in connection with

                                       35
<PAGE>   42

such review including, without limitation, providing the Class D Member with
copies of all documentation reasonably requested by the Class D Member.

                                   ARTICLE XII
                              ADMISSION OF MEMBERS

         Section 12.1 Admission of Successor Managing Member. A successor to all
of the Managing Member's Class C Units pursuant to Section 11.2 hereof who is
proposed to be admitted as a successor Managing Member shall be admitted to the
Company as the Managing Member, effective upon such transfer. Any such
transferee shall carry on the business of the Company without dissolution. In
each case, the admission shall be subject to the successor Managing Member
executing and delivering to the Company an acceptance of all of the terms and
conditions of this Agreement and such other documents or instruments as may be
required to effect the admission. Notwithstanding the foregoing, during the one
(1) year period in which the Class A Members and/or Class B Members have no
right to convert their Membership Units pursuant to Sections 11.7 and 11.8,
respectively, such Members shall have the right to consent to the admission of
the successor Managing Member, provided, however, that such consent shall not be
unreasonably withheld or denied.

         Section 12.2 [Intentionally Left Blank].

         Section 12.3 Amendment of Agreement and Certificate of Formation. For
the admission to the Company of any Member, the Managing Member shall take all
steps necessary and appropriate under the Act to amend the records of the
Company and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate of Formation and may for this
purpose exercise the power of attorney granted pursuant to Article XVI hereof.

                                  ARTICLE XIII
                           DISSOLUTION AND LIQUIDATION

         Section 13.1 Dissolution. The Company shall not be dissolved by the
admission of Substituted Members or by the admission of a successor Managing
Member in accordance with the terms of this Agreement. The Company shall
dissolve, and its affairs shall be wound up, upon the first to occur of any of
the following (each an "Event of Dissolution"):

                  (a) Judicial Dissolution Decree - Entry of a decree of
judicial dissolution of the Company pursuant to the provisions of the Act; and

                  (b) Sale of Company's Assets - the sale or disposition of all
or substantially all of the assets and properties of the Company in accordance
with this Agreement.

         Section 13.2 Winding Up.

                  (a) General. Immediately prior to the occurrence of an Event
of Dissolution or as soon as possible immediately thereafter, the Company shall
be required to issue a notice of

                                       36
<PAGE>   43

pending liquidation of the Company to the Members. Upon the occurrence of an
Event of Dissolution, the Company shall continue solely for the purposes of
winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors and Members. No Member shall take any
action that is inconsistent with or not necessary to or appropriate for, the
winding up of the Company's business and affairs. The Managing Member (or, in
the event there is no remaining Managing Member, any Person elected by Member
Consent (the "Liquidator")) shall be responsible for overseeing the winding up
and dissolution of the Company and shall take full account of the Company's
liabilities and property and the Company property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom shall be applied and distributed in the following order:

                           (1) First, to the payment and discharge of all of the
Company's debts and liabilities to creditors other than the Members;

                           (2) Second, to the payment and discharge of all of
the Company's debts and liabilities to the Members, pro rata in accordance with
amounts owed to each such Member;

                           (3) Third, to the Class A Member in an amount equal
to the aggregate liquidation preference of the Preferred REIT Shares that would
be issued to the Class A Member if the Class A Member had converted into
Preferred REIT Shares pursuant to Section 11.7 plus accrued and unpaid
dividends; and

                           (4) The balance, if any, to the Members in accordance
with the provisions of Section 4.1.

                  The Managing Member shall not receive any additional
compensation for any services performed pursuant to this Article XIII.

                  (b) Where Immediate Sale of Company's Assets Impractical.
Notwithstanding the provisions of Section 13.2(a) hereof which require
liquidation of the assets of the Company, but subject to the order of priorities
set forth therein, if, prior to or upon dissolution of the Company, the
Liquidator determines that an immediate sale of part or all of the Company's
assets would be impractical or would cause undue loss to the Members, the
Liquidator may, in its fair and reasonable discretion, defer for a reasonable
time the liquidation of any assets except those necessary to satisfy liabilities
of the Company (including to those Members that are creditors) or, with the
consent of all Members, distribute to the Members, in lieu of cash, as tenants
in common and in accordance with the provisions of Section 13.2(a) hereof,
undivided interests in such Company assets as the Liquidator deems not suitable
for liquidation. Any such distributions in kind shall be made only if, in the
good faith judgment of the Liquidator, such distributions in kind are in the
best interest of the Members, and shall be subject to such conditions relating
to the disposition and management of such properties as the Liquidator deems
reasonable and equitable and to any agreements governing the operation of such
properties at such time. The Liquidator shall determine the fair market value of
any property distributed in kind using such reasonable method of valuation as it
may adopt.

                                       37
<PAGE>   44

         Section 13.3 Compliance with Timing Requirements of Regulations;
Allowance for Contingent or Unforeseen Liabilities or Obligation.
Notwithstanding anything to the contrary in this Agreement in the event the
Company is "liquidated" within the meaning of Regulation Section
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XIII
to the Managing Member and Members who have positive Capital Accounts in
compliance with Regulation Section 1.704-1(b)(2)(ii)(b) (including any timing
requirements therein). In the discretion of the Managing Member, a pro rata
portion of the distributions that would otherwise be made to the Members
pursuant to this Article XIII may be: (i) distributed to a liquidating trust
established for the benefit of the Members for the purposes of liquidating
Company assets, collecting amounts owed to the Company, and paying any
contingent or unforeseen liabilities or obligations of the Company or of the
Managing Member arising out of or in connection with the Company (the assets of
any such trust shall be distributed to the Members from time to time, in the
reasonable discretion of the Managing Member, in the same proportions as the
amount distributed to such trust by the Company would otherwise have been
distributed to the Members pursuant to this Agreement); or (ii) withheld to
provide a reasonable reserve for Company liabilities (contingent or otherwise)
and to reflect the unrealized portion of any installment obligations owed to the
Company; provided, that such withheld amounts shall be distributed to the
Members as soon as practicable.

         Section 13.4 Deemed Distribution and Recontribution. Notwithstanding
any other provision of this Article XIII (but subject to Section 13.3), in the
event the Company is liquidated within the meaning of Regulation Section
1.704-l(b)(2)(ii)(g) but if no Event of Dissolution has occurred, the Company's
property shall not be liquidated, the Company's liabilities shall not be paid or
discharged, and the Company's affairs shall not be wound up. Instead the Company
shall be deemed to have distributed the Property in kind to the Members, who
shall be deemed to have assumed and taken such property subject to all Company
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the Members shall be deemed to have recontributed the
Company property in kind to the Company, which shall be deemed to have, assumed
and taken such property subject to all such liabilities.

         Section 13.5 Rights of Members. Except as specifically provided in this
Agreement each Member shall look solely to the assets of the Company for the
return of his Capital Contribution and shall have no right or power to demand or
receive property other than cash from the Company. Except as specifically
provided in this Agreement, no Member shall have priority over any other Member
as to the return of his Capital Contributions, distributions, or allocations.

         Section 13.6 Notice of Dissolution. In the event an Event of
Dissolution or an event occurs that would, but for provisions of Section 13.1
result in a dissolution of the Company, the Managing Member shall, within 30
days thereafter, provide written notice thereof to each of the Members and to
all other parties with whom the Company regularly conducts business (as
determined in the discretion of the Managing Member) and shall publish notice
thereof in a newspaper of general circulation in each place in which the Company
regularly conducts business (as determined in the discretion of the Managing
Member).

                                       38
<PAGE>   45

         Section 13.7 Cancellation of Certificate of Formation. Upon the
completion of the liquidation of the Company as provided in Section 13.2 hereof,
the Company shall be terminated and the Certificate of Formation and all
qualifications of the Company as a foreign entity in jurisdictions other than
the State of Delaware shall be canceled and such other actions as may be
necessary to terminate the Company shall be taken.

         Section 13.8 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the Company
and the liquidation of its assets pursuant to Section 13.2 hereof, in order to
minimize any losses otherwise attendant upon such winding-up, and the provisions
of this Agreement shall remain in effect between the Members during the period
of liquidation.

                                   ARTICLE XIV
                            MISCELLANEOUS PROVISIONS

         Section 14.1 Board of Directors of the Managing Member. For so long as
Rohdie LLC and/or Robert C. Rohdie, personally, owns, directly or indirectly, a
Membership Interest in the Company, William S. Friedman agrees to commit to vote
his stock ownership in the Managing Member to have Robert C. Rohdie appointed to
a seat on the Board of Directors of the Managing Member.

         Section 14.2 Default. In the event that the Managing Member does not
deliver the required shares upon conversion pursuant to the terms of Sections
11.7 and 11.8 hereof or the Common REIT Shares issued pursuant to Section 11.8
are not timely registered pursuant to the Registration Rights Agreement attached
hereto as Exhibits C-1 and C-2, an event of default shall be deemed to occur for
which the Class A Member Units and/or Class B Member Units tendered for
conversion shall be purchased by the Managing Member for cash in an amount equal
to the aggregate liquidation preference of the Preferred REIT Shares and/or
Value of the Common REIT Shares that would be issued to the Class A Member or
Class B Member if such Class A Member Units or Class B Member Units had
converted, plus accrued and unpaid dividends plus an amount equal to one (1%)
percent of the aggregate amount owed to the Members for each month that the
amount remains unpaid. If the Managing Member is required to pay cash pursuant
to this Section 14.2, such cash shall be paid 25% ninety (90) after the closing,
25% on the one year anniversary thereof, 25% of the two year anniversary thereof
and the balance thereof on the three year anniversary thereof, in each case with
all interest accrued and unpaid to date on such amounts determined at the rate
then applicable to the Preferred REIT Shares. Interest shall be payable annually
on each anniversary thereof until the balance is paid in full.

                                       39
<PAGE>   46

                                   ARTICLE XV
                               GENERAL PROVISIONS

         Section 15.1 Address and Notice. All notices and demands, under this
Agreement shall be in writing, and may be either delivered personally (which
shall include deliveries by courier) by U.S. mail or a nationally recognized
overnight courier, by telefax, telex or other wire transmission (with request
for assurance of receipt in a manner appropriate with respect to communications
of that type; provided that a confirmation copy is concurrently sent by a
nationally recognized express courier for overnight delivery) or mailed, postage
prepaid, by certified or registered mail, return receipt requested, directed to
the parties at their respective addresses set forth on Exhibit A attached
hereto, as it may be amended from time to time, and, if to the Company, such
notices and demands sent in the aforesaid manner must be delivered at its
Principal place of business set forth above. Unless delivered personally or by
telefax, telex or other wire transmission as above (which shall be effective on
the date of such delivery or transmission), any notice shall be deemed to have
been made three (3) days following the date so mailed. Any party hereto may
designate a different address to which notices and demands shall thereafter be
directed by written notice given in the same manner and directed to the Company
at its office hereinabove set forth.

         Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.

         Section 15.3 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.

         Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.

         Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.

         Section 15.6 Waiver of Partition. The Members hereby agree that the
Company properties are not and will not be suitable for partition. Accordingly,
each of the Members hereby irrevocably waives any and all rights (if any) that
it may have to maintain any action for partition of any of the Company
properties.

         Section 15.7 Dispute Resolution.

                  (a) Mediation. In the event of a dispute, any dissatisfied
Member will provide notice of the dispute to all of the other Members. The
Members will then arrange a meeting to

                                       40
<PAGE>   47

discuss the dispute within ten (10) days of receipt of notice of the dispute. If
the dispute cannot be resolved among the Members within thirty (30) days of the
meeting to discuss the dispute, then any Member may submit the dispute to
non-binding mediation by notice to all of the other Members (the "Mediation
Notice"). The Member sending such notice shall then have ten (10) days to make a
request to a reputable and nationally recognized agency in the State of Florida
which specializes in mediation to select a mediator to assist in resolving the
dispute. The costs of the mediator will be shared equally by the Members and all
decisions as to date, time and location of mediation meetings shall be made by
the mediator. If the dispute cannot be resolved through mediation within ninety
(90) days of the Mediation Notice, then, and only then, will the provisions of
sub-Section (b) apply.

                  (b) Initiating Arbitration; Selection of Arbitrators. If the
dispute cannot be resolved pursuant to sub-Section (a), any Member(s) may submit
any dispute to arbitration by giving written notice to the other Member(s) along
with the name of an arbitrator. Within thirty (30) days after receipt of a
request to arbitrate a dispute, the other Member(s) must appoint an arbitrator.
Fifteen (15) days thereafter the two appointed arbitrators will select a third
arbitrator. If a Member(s), who is by this sub-Section (b) is required to
appoint an arbitrator, fails to make such appointment within the thirty (30) day
period, the Member(s) originally instigating the arbitration will be authorized
to appoint the second arbitrator. If the two appointed arbitrators fail to
select a third arbitrator within the fifteen (15) day period, the Members will
mutually select the third arbitrator. If the Members are unable to agree within
fifteen (15) days thereafter as to appointment of the third arbitrator, then any
Member may, upon at least five (5) days prior written notice to the other
Member(s), request the American Arbitration Association to choose such third
arbitrator. All arbitrators will be impartial and unrelated, directly or
indirectly, so far as employment or services is concerned, to any Member or to
any Affiliate or to any Person directly or indirectly related to the Members or
to any Affiliate. In an arbitration proceeding involving the management and
operation of the Company, the arbitrators must have substantial knowledge and
experience in the management and operation of similar real estate ventures. In
any arbitration proceedings involving any other specialized area of knowledge or
competence, the arbitrators must have substantial knowledge and experience in
such specialized area as, for example, in any dispute involving accounting
procedures the arbitrators will be independent certified public accountants. The
arbitration proceeding will otherwise be governed by the International
Commercial Arbitration Rules of the American Arbitration Association then in
force. The place of arbitration will be Orange County, Florida.

                  (c) Procedures; Limitations. The three (3) arbitrators will
investigate the facts and will hold a hearing at which the Members may present
evidence and arguments, be represented by counsel and conduct cross-examination.
In determining any question, matter or dispute before them, the arbitrators will
apply the provisions of this Agreement, without varying therefrom in any
respect. They will not have the power to add to, modify or change any of the
provisions of this Agreement. The three (3) arbitrators will render a written
decision upon the matter presented to them by a majority vote within thirty (30)
days after the date upon which the last arbitrator is appointed, and that
decision will be final and binding on the Members. Judgment upon the decision
rendered in such arbitration may be entered by any court having jurisdiction
thereof. No Member will be considered in default hereunder during the pendency
of arbitration

                                       41
<PAGE>   48

proceedings relating to a disputed default. If the three (3) arbitrators fail to
render a decision within the ninety (90) day period, then, to the extent
permitted by law, any Member will have the right to institute an action or
proceeding in such court as may be appropriate in the circumstances, and, upon
the institution of such action, the arbitration proceeding will be terminated
and will be of no further force and effect. The arbitrators will determine in
what proportion the Members will bear the fees and expenses of the third
arbitrator and each Member will bear the fees and expenses of the arbitrator,
legal counsel and other consultants selected by that Member.

         Section 15.8 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters contained herein; it
supersedes any prior agreements or understandings among them with respect to the
matters contained herein and it may not be modified or amended in any manner
other than pursuant to Article XIV.

         Section 15.9 Remedies Not Exclusive. Any remedies herein contained for
breaches of obligations hereunder shall not be deemed to be exclusive and shall
not impair the right of any party to exercise any other right or remedy, whether
for damages, injunction or otherwise. Each party hereto has the right to demand
specific performance of any obligation of another party hereunder. The
prevailing party in any action hereunder shall be entitled to recover costs and
reasonable attorneys' fees.

         Section 15.10 Time. Time is of the essence of this Agreement.

         Section 15.11 Creditors. None of the provisions of this Agreement shall
be for the benefit of, or shall be enforceable by, any creditor of the Company.

         Section 15.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant duty, agreement or condition of this Agreement or to
exercise any right or remedy consequent upon a breach thereof shall constitute
waiver of any such breach or any other covenant, duty, agreement or condition.

         Section 15.13 Amendment. This Agreement may be amended only with Member
Consent.

         Section 15.14 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that such parties are not signatories to
the original or the same counterpart.

         Section 15.15 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.

                                       42
<PAGE>   49

         Section 15.16 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.

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

                                       TARRAGON REALTY INVESTORS, INC.
                                       (Managing Member)

                                       By: /s/ William S. Friedman
                                          --------------------------------------
                                          Name: William S. Friedman
                                          Title: President

                                       ROHDIE FAMILY LLC

                                       By: /s/ Robert C. Rohdie
                                          --------------------------------------
                                          Name: Robert C. Rohdie
                                          Title: Manager

                                       43
<PAGE>   50

                                    EXHIBIT A
                           MEMBERS, CONTRIBUTIONS AND
                                COMPANY INTERESTS

<TABLE>
<CAPTION>
                                                 Agreed Value of                                                Percentage
Name and Address of Member                    Contributed Property                  Member Units                 Interest
--------------------------                    --------------------                  ------------                ----------
<S>                                           <C>                                   <C>                         <C>
Class A Members:
The Rohdie Family LLC                              $ 4,000,000                         400,000                     100%
433 Hampton Crest
Heathrow, Florida  32746

Class B Members:
The Rohdie Family LLC                              $ 1,000,000                        98,159.51                    100%
433 Hampton Crest
Heathrow, Florida  32746

Class C Members:
Tarragon Realty Investors, Inc.                   $ 10,000,000                        1,000,000                    100%
280 Park Avenue
East Building, 20th Floor
New York, New York  10017

Class D Member
The Rohdie Family LLC                              $ 5,000,000                     (See Exhibit B)                 100%
433 Hampton Crest                                  -----------
Heathrow, Florida  32746

TOTAL                                             $ 20,000,000
                                                  ============
</TABLE>

                                      A-1
<PAGE>   51

                                    EXHIBIT B
                         SCHEDULE OF UNITS TO BE ISSUED
                              UPON COMPLETION DATE

<TABLE>
<CAPTION>
                                                                     Units to be Issued on the
Membership Interest                         Agreed                        Completion Date
     Contributed                            Value                      Class A       Class B
    ------------                            -----                      -------       -------
<S>                                         <C>                         <C>         <C>
1. Tarragon Huntsville                      $500,000                    40,000      9,815.95
       Apartments, L.L.C.

2. Tarragon Savannah LP                   $1,000,000                    80,000     19,631.90

3.  Tarragon Stoneybrook
        Apartments, L.L.C.                $1,750,000                   140,000     34,355.83

4. Lake Lotta Apartments,
         L.L.C.                           $1,250,000                   100,000     24,539.88

5. Vintage At Legacy
         Lakes II, L.P.                     $500,000                    40,000      9,815.95
                                          ----------                   -------     ---------

                  TOTALS:                 $5,000,000                   400,000     98,159.51
                                          ==========                   =======     =========
</TABLE>

                                      B-1
<PAGE>   52

                                   EXHIBIT C-1

                          REGISTRATION RIGHTS AGREEMENT

                                      C-1
<PAGE>   53

                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of February 7, 2000 by and between Tarragon Realty Investors,
Inc., a Nevada corporation (the "Company"), and The Rohdie Family LLC, a
Delaware limited liability company (a "Holder).

         WHEREAS, on the date hereof, the Holder is receiving Class A Member
Units ("Units") in Tarragon Development Company LLC, a Delaware limited
liability company (the "LLC");

         WHEREAS, in connection therewith, the Company has agreed to grant to
Holder the Registration Rights (as defined in Section 1 hereof);

         WHEREAS, the LLC and Holder have agreed that the Holder shall not,
among other things, present Units for conversion during the one-year period
following the issuance of such Units to Holder; and

         NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:

                         SECTION 16. REGISTRATION RIGHTS
         At any time following one year following the issuance of the Units, if
Holder receives shares of preferred stock ("Preferred Stock") of the Company
upon conversion of Units (the "Conversion Shares" which term shall include any,
and all Preferred Stock issued by reason of any stock split, stock dividend or
distribution in respect of Conversion Shares) pursuant to the terms of the
limited liability company agreement of the LLC, as amended (the "LLC
Agreement"), Holder shall be entitled to offer the Conversion Shares for sale
pursuant to a shelf registration statement set forth herein.

                  16.1(a) Registration Procedure. Subject to Sections 1.1(c) and
1.3 hereof, if Holder desires to exercise its one time Registration Rights with
respect to any or all of the Conversion Shares, Holder shall deliver to the
Company a written notice (a "Registration Notice") informing the LLC and the
Company of such exercise and specifying the number of shares to be offered by
Holder (such shares to be offered being referred to herein as the "Registrable
Securities"'). Such notice may be given at any time on or after the date the
notice of conversion is delivered by Holder to the Company pursuant to the LLC
Agreement, but must be given at least ten (10) business days prior to the
consummation of the sale of Registrable Securities. Upon receipt of the
Registration Notice, the Company, if it has not already caused the Registrable
Securities to be included as part of an existing and currently effective shelf
registration statement and related prospectus (the "Shelf Registration
Statement") that the Company then has on file with the Securities and Exchange
Commission (the "SEC") (in which event the Company shall be deemed to have
satisfied its registration obligation under this Section 1.1), will cause to be
filed with the SEC as soon as reasonably practicable after receiving the

                                       1
<PAGE>   54

Registration Notice a new registration statement and related prospectus (a "New
Registration Statement") that complies as to form in with applicable SEC rules
providing for the sale by Holder of the Registrable Securities, and shall
(subject to Section 1.3 hereof) use its best efforts to cause such New
Registration Statement to be declared effective by the SEC as soon as
practicable. (As used herein, "Registration Statement" and "Prospectus" refer to
the Shelf Registration Statement and related prospectus (including any
preliminary prospectus) or the New Registration Statement and related prospectus
(including any preliminary prospectus), whichever is utilized by the Company to
satisfy Holder's Registration Rights pursuant to this Section 1, including in
each case any documents incorporated therein by reference). Holder shall provide
in a timely manner information regarding the proposed distribution by Holder of
the Registrable Securities and such other information reasonably requested by
the Company in connection with the preparation of and for inclusion in the
Registration Statement. The Company shall (subject to Section 1.3 hereof) use
its best efforts to keep the Registration Statement and Prospectus current and
effective (including the preparation and filing of any amendments and
supplements necessary for that purpose) until the earlier of (i) the date on
which Holder consummates the sale of all of the Registrable Securities
registered under the Registration Statement, or (ii) the date on which all of
the Registrable Securities are eligible for sale pursuant to Rule 144(k) (or any
successor provision) under the Securities Act of 1933, as amended (the "Act").
The Company shall provide to Holder a reasonable number of copies of the
Registration Statement and the Prospectus and any amendments or supplements
thereto.

                  1.1(b) Offers and Sales. All offers and sales by Holder under
the Registration Statement referred to in this Section 1.1 shall be completed
within the period during which the Registration Statement is required to remain
effective pursuant to Section 1.1(a), and upon expiration of period Holder will
not offer or sell any Registrable Securities under the Registration Statement.
If directed by the Company, Holder will return all undistributed copies of the
Prospectus in its possession upon the expiration of such period.

                  1.1(c) Limitations on Registration Rights. The Registration
Right of the Holder with respect to the Units shall be a one time right as set
forth in the LLC Agreement. The exercise of the one time Registration Right
shall be with respect to a minimum of the total number of Conversion Shares held
by Holder at such time plus the number of Conversion Shares that may be issued
upon conversion of Units by Holder. Subject to the provision in the LLC
Agreement preventing the conversion before the first anniversary date of the
date of such LLC Agreement, the right of Holder to deliver a Registration Notice
commences upon the date a Holder delivers a notice of conversion pursuant to the
LLC Agreement. The right of Holder to deliver a Registration Notice shall expire
on the date on which all of the Conversion Shares held by Holder or issuable
upon conversion of Units held by Holder are eligible for sale pursuant to Rule
144(k) (or any successor provision) under the Act. The Registration Rights
granted pursuant to this Section 1.1 may not be exercised as part of any
underwritten public offering by the Company or by Holder without the prior
written consent of the Company.

         16.2 Piggy-Back Registration Rights. If the Company, at any time or
from time during the term of the LLC Agreement, authorizes a registration of any
securities under the Securities Act on Form S-1, S-2, or S-3 (or any
registration form promulgated by the SEC in substitution of

                                       2
<PAGE>   55

one of those forms), it shall include in that registration all of the Conversion
Shares that Holder elects to register for public sale, to the extent permitted
by the applicable registration form and any underwriters in the offering. The
Company shall notify Holder of each proposed registration as soon as practicable
prior to filing the registration statement, and, if it receives from Holder a
written request within 15 days after that notice, the Company shall include in
its registration the number of Conversion Shares specified in Holder's
registration request. If the registration will involve an underwritten
distribution of securities by the Company, subject to the provisions of the
following paragraph, (i) the Company shall include in the underwriting all the
Conversion Shares that Holder is entitled to include in the registration, (ii)
the Holder shall sell the registered Conversion Shares through the underwriter
or syndicate of underwriters selected by the Company, and (iii) the Holder shall
enter into an underwriting agreement with the underwriter or syndicate of
underwriters selected by the Company, which will provide (among other things)
for the Company, the Holder, and each underwriter (and each person who controls
each underwriter within the meaning of Section 15 of the Securities Act) to
grant to each other (and to each person who controls each of them within the
meaning of Section 15 of the Securities Act) reciprocal indemnification against
liabilities under the Securities Act, subject to such limitations as are
appropriate to reflect the parties' respective interests in the underwriting.

         In connection with any offering involving an underwriting of shares of
securities being issued by the Company for its own account or for the account of
others, the Company shall not be required to include any of the Conversion
Shares in the registration statement unless the Holder accepts and agrees to the
terms of the underwriters selected by the Company. If the total number of
Conversion Shares the Holder requests to be included in any offering involving
an underwriting of securities being issued by the Company for its own account or
for the account of others (the "Requested Shares") exceeds the number the
underwriters reasonably believe is compatible with the success of the offering,
the Company shall only be required to include in the offering, after the
inclusion of all of the securities the Company desires to sell, so many
Requested Shares as the underwriters believe will not jeopardize the success of
the offering. In such case, the Requested Shares to be included shall be
apportioned among all holders pro rata according to the number of shares owned
by each holder entitled to participate in such offering.

         The Company is not required to include any of the Conversion Shares in
a registration that covers any of the following: (A) securities proposed to be
issued in exchange for assets or securities of another corporation; (B) debt
securities not convertible into, or exchangeable for, shares of Common Stock;
(C) securities to be issued pursuant to a transaction registered on Form S-4 (or
any registration form promulgated by the SEC in substitution of that form); or
(D) a stock option, stock bonus, stock purchase, or other employee benefit or
compensation plan or securities issued or issuable pursuant to any such plan.

         16.3 Suspension of Offering. Upon any notice by the Company, either
before or after a Holder has delivered a Registration Notice, that a negotiation
or consummation of a transaction by the Company or its subsidiaries is pending
or an event has occurred, which negotiation, consummation or event would require
additional disclosure by the Company in the Registration Statement of material
information which the Company has a bona fide business purpose for keeping
confidential and the nondisclosure of which in the Registration Statement might
cause

                                       3
<PAGE>   56

the Registration Statement to fail to comply with applicable disclosure
requirements (a "Materiality Notice"), then the Company will promptly prepare,
file, pursue to effectiveness, and deliver to Holder a supplemented or amended
Prospectus that corrects the misstatement(s) or omission(s) referred to above,
and Holder agrees that it will immediately discontinue offers and sales of the
Registrable Securities under the Registration Statement until Holder receives
copies of, a supplemented or amended Prospectus; provided, that the Company may
delay, suspend or withdraw the Registration Statement for such reason for no
more than ninety (90) days after delivery of the Materiality Notice at any one
time. If so directed by the Company, Holder will deliver to the Company all
copies of the Prospectus covering the Registrable Securities current at the time
of receipt of such notice.

         16.4 Expenses. The Company shall pay all expenses incident to the
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration, listing
and filing fees, (ii) all expenses incurred in connection with the preparation,
printing and distributing of the Registration Statement and Prospectus, and the
preparation of stock certificates, and (iii) fees and disbursements of counsel
for the Company and of the independent public accountants of the Company. Holder
shall be responsible for the payment of any underwriters' fees, discounts or
commissions or any brokerage and sales commissions relating to the Registrable
Securities and the fees and disbursements of Holder's counsel, and any transfer
taxes relating to the sale or disposition of the Registrable Securities by
Holder.

         16.5 Qualification. The Company shall cooperate with the underwriter to
register or qualify the Registrable Securities, by the time the applicable
Registration Statement is declared effective by the SEC, under all applicable
state securities or "blue sky" laws of such jurisdictions as Holder shall
reasonably request in writing, to keep each such registration or qualification
effective during the period such Registration Statement is required to be kept
effective or, during the period offers or sales are being made by Holder after
delivery of a Registration Notice to the Company, whichever is shorter, and to
do any and all other acts and things which may be reasonably necessary or
advisable to enable Holder to consummate the disposition in each such
jurisdiction of the Registrable Securities owned by Holder; provided, however,
that the Company shall not be required to (x) qualify generally to do business
in any jurisdiction or to register as a broker or dealer in such jurisdiction
where it would not otherwise be required to qualify but for this Section 1; (y)
subject itself to taxation in any such jurisdiction; or (z) submit to the
general service of process in any such jurisdiction.

         16.6 Additional Agreements of the Company. If the Company is required
to register any of the Conversion Shares pursuant to this Agreement, the Company
shall:

         (a) If any event occurs that necessitates, in the opinion of Holder's
legal counsel, an amendment or supplement to any prospectus in order to make the
prospectus not misleading in light of the circumstances existing at the time it
is delivered to Holder, (i) amend or supplement the prospectus to the extent
required so that the prospectus, as amended or supplemented, will not contain an
untrue statement of a material fact or omit to state a material fact necessary,
in order to make the statements therein, in light of the circumstances existing
at the time the

                                       4
<PAGE>   57

prospectus is delivered to a purchaser, not misleading, and (ii) furnish to
Holder a reasonable number of copies of both any amendment or supplement to the
prospectus that it prepares, and any filing pursuant to Section 13(a), 13(c), or
14 under Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
it makes, to effectuate the amendment or supplement the prospectus;

         (b) During the period when a prospectus is required to be delivered
under the Securities Act, reasonably promptly provide to the Holder upon request
each document filed by the Company with the SEC pursuant to Section 13(a),
13(c), or 14 of the Exchange Act;

         (c) Promptly notify Holder in writing of the following: (i) the date
when the registration statement or any post-effective amendment to it becomes
effective, and the date when any amendment to the registration statement or
supplement to a prospectus is filed with the SEC; (ii) the issuance by the SEC
of a stop order suspending the effectiveness of the registration statement or
the initial proceedings for that purpose; (iii) the suspension of qualification
of any Conversion Shares for sale in any jurisdiction or the initiation of any
proceedings for that purpose; and (iv) the Company's intention to file an
amendment to the registration statement, or a supplement to any prospectus, that
differs from the prospectus on file when the registration statement became
effective and including documents deemed to be incorporated by reference into a
prospectus;

         (d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction, at the earliest possible moment;

         (e) Within a reasonable time prior to the filing of any registration
statement, any prospectus, any amendment to a registration statement or
amendment or supplement to a prospectus, provide copies of such document to
Holder and to counsel to Holder and to the underwriter or underwriters of any
underwritten offering of Conversion Shares, if any; and

         (f) Use its best efforts to list the Conversion Shares on each
securities exchange or automated quotation system on which such class of
securities are then listed, or if such securities are not already so listed, use
reasonable efforts to list the Conversion Shares on an exchange or automated
quotation system, if such listing is then permitted under the rules of such
exchange or automated quotation system.

         16.7 Lockup Agreement. In consideration of the Company agreeing to its
obligations under this Agreement, the Holder agrees in connection with any
registration of any Registrable Securities, at the request of the Company or the
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities without the
prior written consent of the Company or underwriters (as the case may be) for
such period of time (not to exceed 180 days) from the effective date of such
registration as the Company and the underwriters may specify, so long as the
Holder or unit holders holding more than 1% of the Common Stock of the Company
and all officers and directors of the Company are bound by a comparable
obligation.

                                       5
<PAGE>   58

         16.8 Preferred Stock. The Company represents and warrants to the Holder
that, at the time of issuance thereof, the Conversion Shares will be validly
issued, fully paid and non-assessable, free and clear of any mortgage, pledge,
lien, encumbrance, security interest, claim or rights of any third party of any
nature whatsoever.

                        SECTION 17. INDEMNIFICATION; LLC
         17.1 Indemnification by the Company. The Company shall indemnify and
hold harmless Holder, each member, officer and manager of Holder, and each
person, if any, who controls Holder within the meaning of Section 15 of the Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as follows:

                  (a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Act, including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

                  (b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company; and

                  (c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental, agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability, claim,
damage or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto), or (ii) such Holder's
failure to deliver an amended or supplemental Prospectus provided by the Company
to the Holder for such purpose if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred.

                                       6
<PAGE>   59

         17.2 Indemnification by Holder. Holder (and each permitted assignee of
Holder, on a several basis) severally agrees to indemnify and hold harmless the
Company, and each of its directors and officers (including each director and
officer of the Company who signed a Registration Statement), and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, as follows:

                  (a) against any and. all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which such
Holder's Registrable Securities were Registered under the Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

                  (b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of such
Holder; and

                  (c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage or
expense to the extent arising out of (i) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental Prospectus provided by the Company to such
Holder for such purpose if such loss, liability, claim, damage or expense would
not have arisen had such delivery occurred. Notwithstanding the provisions of
this Section 2.2, Holder and any permitted assignee shall not be required to
indemnify the Company, its officers, directors or control persons with respect
to any amount in excess of the amount of the total proceeds to such Holder or
such permitted assignee, as the case may be, from sales of the Registrable
Securities of such Holder under the Registration Statement, and no Holder shall
be liable under this Section 2.2 for any statements or omissions of any other
Holder.

                                       7
<PAGE>   60

         17.3 Conduct of Indemnification Proceedings. The indemnified party
shall give reasonably prompt notice to the indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity provided in Section
2.1 or 2.2 above, unless and to the extent it did not otherwise learn of such
action and the lack of notice by the indemnified party results in the forfeiture
by the indemnifying party of substantial rights and defenses, and (ii) shall
not, in any event, relieve the indemnifying party from any obligations to the
indemnified party other than the indemnification obligation provided under
Section 2.1 or 2.2 above. If the indemnifying party so elects within a
reasonable time after receipt of such notice, the indemnifying party may assume
the defense of such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
however, that the indemnifying party will not settle any such action or
proceeding without the written consent of the indemnified party unless, as a
condition to such settlement, the indemnifying party secures the unconditional
release of the indemnified party; and provided further, that if the indemnified
party reasonably determines that a conflict of interest exists where it is
advisable for the indemnified party to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the defense
of such action or proceeding as a result of the proviso to the preceding
sentence, the indemnifying party's counsel shall be entitled to conduct the
indemnifying party's defense and counsel for the indemnified party shall be
entitled to conduct the defense of the indemnified party, it being understood
that both such counsel will cooperate with each other to conduct the defense of
such action or proceeding as efficiently as possible. If the indemnifying party
is not so entitled to assume the defense of such action or does not assume such
defense, after having received the notice referred to in the first sentence of
this paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the indemnifying
party will not be liable for any settlement effected without the written consent
of the indemnifying party. If any indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, the indemnifying party shall not be liable for any fees and expenses
of counsel for the indemnified party incurred thereafter in connection with such
action or proceeding.

         17.4 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms, the Company and the
subject Holder shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative fault of
but also the relative benefits to

                                       8
<PAGE>   61

the Company on the one hand and such Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.

         The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro-rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.4, no Holder shall be required
to contribute any amount in excess of the amount of the total proceeds to such
Holder from sales of the Registrable Securities of such Holder under the
Registration Statement.

         Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 2.4, each member, officer and
manager of and each person, if any, who controls, a Holder within the meaning of
Section 15 of the Act shall have the same rights to contribution as such Holder,
and each director of the Company, each officer of the Company who signed a
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act shall have the same rights to contribution
as the Company.

                         SECTION 18. RULE 144 COMPLIANCE
         The Company will use its best efforts to timely file the reports
required to be filed by the Company under the Securities Act and the Exchange
Act so as to enable Holder to sell Registrable Securities pursuant to Rule 144
under the Securities Act. In connection with any sale, transfer or other
disposition by Holder of any Registrable Securities pursuant to Rule 144 under
the Securities Act, the Company shall cooperate with Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as Holder may reasonably request at least ten (10)
business days prior to any sale of Registrable Securities hereunder.

                            SECTION 19. MISCELLANEOUS
         19.1 Integration; Amendment. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth herein
and supersedes and renders of no force and effect all prior oral or written
agreements, commitments and understandings among the parties with respect to the
matters set forth herein. Except as otherwise expressly provided in this
Agreement, no amendment, modification or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the Company
and the affected Holder.

                                       9
<PAGE>   62

         19.2 Waivers. No waiver by a party hereto shall be effective unless
made in a written instrument duly executed by the party against whom such waiver
is sought to be enforced, and only to the extent set forth in such instrument.
Neither the waiver by any of the parties hereto of a breach or a default under
any of the provisions of this Agreement, nor the failure of any of the parties,
on one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any such provisions, rights or privileges hereunder.

         19.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provides that this Agreement may not be assigned by any Holder (other
than to a member of Holder's immediate family, trust established for the benefit
of such Holder or immediate family member(s) of such Holder, a beneficiary of
Holder, or a partnership or corporation controlled by Holder, a beneficiary of
Holder or immediate family member(s) of Holder), and any other attempted
assignment hereof by any Holder will be void and of no effect.

         19.4 Notices. All notices called for under this Agreement shall be in
writing and shall be deemed given upon receipt if delivered personally or by
facsimile transmission and followed promptly by mail, or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the addresses set forth opposite their names in Schedule A hereto, or to any
other address or addressee as any party entitled to receive notice under this
Agreement shall designate, from time to time, to others in the manner provided
in this Section 4.4 for the service of notices; provided, however, that notices
of a change of address shall be effective only upon receipt thereof. Any notice
delivered to the party hereto to whom it is addressed shall be deemed to have
been given and received on the day it was received; provided, however, that if
such day is not a business day then the notice shall be deemed to have been
given and received on the business day next following such day. Any notice sent
by facsimile transmission shall be deemed to have been given and received on the
business day next following the transmission.

         19.5 Specific Performance. The parties hereto acknowledge that the
obligations undertaken by them hereunder are unique and that there would be no
adequate remedy at law if any party falls to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.

         19.6 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of Delaware, but not
including the choice of law rules thereof.

                                       10
<PAGE>   63

         19.7 Headings. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.

         19.8 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the person or entity may require.

         19.9 Execution in Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.

         19.10 Severability. If fulfillment of any provision of this Agreement,
at the time such fulfillment shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be modified only to the extent
necessary to render same effective or (if necessary) be held ineffective, as
though not herein contained, and the remainder of this Agreement shall remain
operative and in full force and effect.

                                       11
<PAGE>   64

         IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.

                                       COMPANY:

                                       TARRAGON REALTY INVESTORS, INC.

                                       By: /s/ William S. Friedman
                                          --------------------------------------
                                          Name: William S. Friedman
                                          Title: President

                                       HOLDER:

                                       THE ROHDIE FAMILY LLC

                                       By: /s/ Robert C. Rohdie
                                          --------------------------------------
                                          Name: Robert C. Rohdie
                                          Title: Manager

                                       12
<PAGE>   65

                                   SCHEDULE A

                                    ADDRESSES

Tarragon Realty Investors, Inc.
280 Park Avenue
East Building, 20th Floor
New York, New York 10017

The Rohdie Family LLC
433 Hampton Crest
Heathrow, Florida  32746

                                       13
<PAGE>   66

                                   EXHIBIT C-2

                          REGISTRATION RIGHTS AGREEMENT

                                      C-2
<PAGE>   67

                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of February 7, 2000 by and between Tarragon Realty Investors,
Inc., a Nevada corporation (the "Company"), and The Rohdie Family LLC, a
Delaware limited liability company (a "Holder).

         WHEREAS, on the date hereof, the Holder is receiving Class B member
units ("Units") in Tarragon Development Company LLC, a Delaware limited
liability company (the "LLC");

         WHEREAS, in connection therewith, the Company has agreed to grant to
Holder the Registration Rights (as defined in Section 1 hereof);

         WHEREAS, the LLC and Holder have agreed that the Holder shall not,
among other things, present Units for conversion during the one-year period
following the issuance of such Units to Holder; and

         NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:

                         SECTION 20. REGISTRATION RIGHTS
         At any time following one year following the issuance of the Units, if
Holder receives shares of common stock ("Common Stock") of the Company upon
conversion of Units (the "Conversion Shares" which term shall include any, and
all Common Stock issued by reason of any stock split, stock dividend or
distribution in respect of Conversion Shares) pursuant to the terms of the
limited liability company agreement of the LLC, as amended (the "LLC
Agreement"), Holder shall be entitled to offer the Conversion Shares for sale
pursuant to a shelf registration statement set forth herein.

                  20.1(a) Registration Procedure. Subject to Sections 1.1(c) and
1.3 hereof, if at any time Holder desires to exercise its Registration Rights
with respect to any or all of the Conversion Shares, Holder shall deliver to the
LLC a written notice (a "Registration Notice") informing the LLC and the Company
of such exercise and specifying the number of shares to be offered by Holder
(such shares to be offered being referred to herein as the "Registrable
Securities"'). Such notice may be given at any time on or after the date a
notice of conversion is delivered by Holder to the Company pursuant to the LLC
Agreement, but must be given at least ten (10) business days prior to the
consummation of the sale of Registrable Securities. Upon receipt of the
Registration Notice, the Company, if it has not already caused the Registrable
Securities to be included as part of an existing and currently effective shelf
registration statement and related prospectus (the "Shelf Registration
Statement") that the Company then has on file with the Securities and Exchange
Commission (the "SEC") (in which event the Company shall be deemed to have
satisfied its registration obligation under this Section 1.1) and that is
effective, will cause to be filed with the SEC as soon as reasonably practicable
after receiving the

                                       1
<PAGE>   68

Registration Notice a new registration statement and related prospectus (a "New
Registration Statement") that complies as to form in with applicable SEC rules
providing for the sale by Holder of the Registrable Securities, and shall
(subject to Section 1.3 hereof) use its best efforts to cause such New
Registration Statement to be declared effective by the SEC as soon as
practicable. (As used herein, "Registration Statement" and "Prospectus" refer to
the Shelf Registration Statement and related prospectus (including any
preliminary prospectus) or the New Registration Statement and related prospectus
(including any preliminary prospectus), whichever is utilized by the Company to
satisfy Holder's Registration Rights pursuant to this Section 1, including in
each case any documents incorporated therein by reference). Holder shall provide
in a timely manner information regarding the proposed distribution by Holder of
the Registrable Securities and such other information reasonably requested by
the Company in connection with the preparation of and for inclusion in the
Registration Statement. The Company shall (subject to Section 1.3 hereof) use
its best efforts to keep the Registration Statement and Prospectus current and
effective (including the preparation and filing of any amendments and
supplements necessary for that purpose) until the earlier of (i) the date on
which Holder consummates the sale of all of the Registrable Securities
registered under the Registration Statement, or (ii) the date on which all of
the Registrable Securities are eligible for sale pursuant to Rule 144(k) (or any
successor provision) under the Securities Act of 1933, as amended (the "Act").
The Company shall provide to Holder a reasonable number of copies of the
Registration Statement and the Prospectus and any amendments or supplements
thereto.

                  1.1(b) Offers and Sales. All offers and sales by Holder under
the Registration Statement referred to in this Section 1.1 shall be completed
within the period during which the Registration Statement is required to remain
effective pursuant to Section 1.1(a), and upon expiration of period Holder will
not offer or sell any Registrable Securities under the Registration Statement.
If directed by the Company, Holder will return all undistributed copies of the
Prospectus in its possession upon the expiration of such period.

                  1.1(c) Limitations on Registration Rights. The Registration
Rights of the Holder with respect to the Units shall be unlimited and may be
exercised at any time and from time to time by the Holder as set forth in the
LLC Agreement. Subject to the provision in the LLC Agreement preventing the
conversion before the first anniversary date of the date of such LLC Agreement,
the right of Holder to deliver a Registration Notice commences upon the date a
Holder delivers a notice of conversion pursuant to the LLC Agreement. The right
of Holder to deliver a Registration Notice shall expire on the date on which all
of the Conversion Shares held by Holder or issuable upon conversion of Units
held by Holder are eligible for sale pursuant to Rule 144(k) (or any successor
provision) under the Act. The Registration Rights granted pursuant to this
Section 1.1 may not be exercised as part of any underwritten public offering by
the Company or by Holder without the prior written consent of the Company.

         20.2 Piggy-Back Registration Rights. If the Company, at any time or
from time during the term of the LLC Agreement, authorizes a registration of any
securities under the Securities Act on Form S-1, S-2, or S-3 (or any
registration form promulgated by the SEC in substitution of one of those forms),
it shall include in that registration any of the Conversion Shares that Holder
elects to register for public sale, to the extent permitted by the applicable
registration form and

                                       2
<PAGE>   69

any underwriters in the offering. The Company shall notify Holder of each
proposed registration as soon as practicable prior to filing the registration
statement, and, if it receives from Holder a written request within 15 days
after that notice, the Company shall include in its registration the number of
Conversion Shares specified in Holder's registration request. If the
registration will involve an underwritten distribution of securities by the
Company, subject to the provisions of the following paragraph, (i) the Company
shall include in the underwriting all the Conversion Shares that Holder is
entitled to include in the registration, (ii) the Holder shall sell the
registered Conversion Shares through the underwriter or syndicate of
underwriters selected by the Company, and (iii) the Holder shall enter into an
underwriting agreement with the underwriter or syndicate of underwriters
selected by the Company, which will provide (among other things) for the
Company, the Holder, and each underwriter (and each person who controls each
underwriter within the meaning of Section 15 of the Securities Act) to grant to
each other (and to each person who controls each of them within the meaning of
Section 15 of the Securities Act) reciprocal indemnification against liabilities
under the Securities Act, subject to such limitations as are appropriate to
reflect the parties' respective interests in the underwriting.

         In connection with any offering involving an underwriting of shares of
securities being issued by the Company for its own account or for the account of
others, the Company shall not be required to include any of the Conversion
Shares in the registration statement unless the Holder accepts and agrees to the
terms of the underwriters selected by the Company. If the total number of
Conversion Shares the Holder requests to be included in any offering involving
an underwriting of securities being issued by the Company for its own account or
for the account of others (the "Requested Shares") exceeds the number the
underwriters reasonably believe is compatible with the success of the offering,
the Company shall only be required to include in the offering, after the
inclusion of all of the securities the Company desires to sell, so many
Requested Shares as the underwriters believe will not jeopardize the success of
the offering. In such case, the Requested Shares to be included shall be
apportioned among all holders pro rata according to the number of shares owned
by each holder entitled to participate in such offering.

         The Company is not required to include any of the Conversion Shares in
a registration that covers any of the following: (A) securities proposed to be
issued in exchange for assets or securities of another corporation; (B) debt
securities not convertible into, or exchangeable for, shares of Common Stock;
(C) securities to be issued pursuant to a transaction registered on Form S-4 (or
any registration form promulgated by the SEC in substitution of that form); or
(D) a stock option, stock bonus, stock purchase, or other employee benefit or
compensation plan or securities issued or issuable pursuant to any such plan.

         20.3 Suspension of Offering. Upon any notice by the Company, either
before or after a Holder has delivered a Registration Notice, that a negotiation
or consummation of a transaction by the Company or its subsidiaries is pending
or an event has occurred, which negotiation, consummation or event would require
additional disclosure by the Company in the Registration Statement of material
information which the Company has a bona fide business purpose for keeping
confidential and the nondisclosure of which in the Registration Statement might
cause the Registration Statement to fail to comply with applicable disclosure
requirements (a "Materiality Notice"), then the Company will promptly prepare,
file, pursue to effectiveness, and

                                       3
<PAGE>   70

deliver to Holder a supplemented or amended Prospectus that corrects the
misstatement(s) or omission(s) referred to above, and Holder agrees that it will
immediately discontinue offers and sales of the Registrable Securities under the
Registration Statement until Holder receives copies of, a supplemented or
amended Prospectus; provided, that the Company may delay, suspend or withdraw
the Registration Statement for such reason for no more than ninety (90) days
after delivery of the Materiality Notice at any one time. If so directed by the
Company, Holder will deliver to the Company all copies of the Prospectus
covering the Registrable Securities current at the time of receipt of such
notice.

         20.4 Expenses. The Company shall pay all expenses incident to the
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration, listing
and filing fees, (ii) all expenses incurred in connection with the preparation,
printing and distributing of the Registration Statement and Prospectus, and the
preparation of stock certificates, and (iii) fees and disbursements of counsel
for the Company and of the independent public accountants of the Company. Holder
shall be responsible for the payment of any underwriters' fees, discounts or
commissions or any brokerage and sales commissions relating to the Registrable
Securities and the fees and disbursements of Holder's counsel, and any transfer
taxes relating to the sale or disposition of the Registrable Securities by
Holder.

         20.5 Qualification. The Company shall cooperate with the underwriter to
register or qualify the Registrable Securities, by the time the applicable
Registration Statement is declared effective by the SEC, under all applicable
state securities or "blue sky" laws of such jurisdictions as Holder shall
reasonably request in writing, to keep each such registration or qualification
effective during the period such Registration Statement is required to be kept
effective or, during the period offers or sales are being made by Holder after
delivery of a Registration Notice to the Company, whichever is shorter, and to
do any and all other acts and things which may be reasonably necessary or
advisable to enable Holder to consummate the disposition in each such
jurisdiction of the Registrable Securities owned by Holder; provided, however,
that the Company shall not be required to (x) qualify generally to do business
in any jurisdiction or to register as a broker or dealer in such jurisdiction
where it would not otherwise be required to qualify but for this Section 1; (y)
subject itself to taxation in any such jurisdiction; or (z) submit to the
general service of process in any such jurisdiction.

         20.6 Additional Agreements of the Company. If the Company is required
to register any of the Conversion Shares pursuant to this Agreement, the Company
shall:

         (a) If any event occurs that necessitates, in the opinion of Holder's
legal counsel, an amendment or supplement to any prospectus in order to make the
prospectus not misleading in light of the circumstances existing at the time it
is delivered to Holder, (i) amend or supplement the prospectus to the extent
required so that the prospectus, as amended or supplemented, will not contain an
untrue statement of a material fact or omit to state a material fact necessary,
in order to make the statements therein, in light of the circumstances existing
at the time the prospectus is delivered to a purchaser, not misleading, and (ii)
furnish to Holder a reasonable number of copies of both any amendment or
supplement to the prospectus that it prepares, and

                                       4
<PAGE>   71

any filing pursuant to Section 13(a), 13(c), or 14 under Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that it makes, to effectuate the
amendment or supplement the prospectus;

         (b) During the period when a prospectus is required to be delivered
under the Securities Act, reasonably promptly provide to the Holder upon request
each document filed by the Company with the SEC pursuant to Section 13(a),
13(c), or 14 of the Exchange Act;

         (c) Promptly notify Holder in writing of the following: (i) the date
when the registration statement or any post-effective amendment to it becomes
effective, and the date when any amendment to the registration statement or
supplement to a prospectus is filed with the SEC; (ii) the issuance by the SEC
of a stop order suspending the effectiveness of the registration statement or
the initial proceedings for that purpose; (iii) the suspension of qualification
of any Conversion Shares for sale in any jurisdiction or the initiation of any
proceedings for that purpose; and (iv) the Company's intention to file an
amendment to the registration statement, or a supplement to any prospectus, that
differs from the prospectus on file when the registration statement became
effective and including documents deemed to be incorporated by reference into a
prospectus;

         (d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction, at the earliest possible moment;

         (e) Within a reasonable time prior to the filing of any registration
statement, any prospectus, any amendment to a registration statement or
amendment or supplement to a prospectus, provide copies of such document to
Holder and to counsel to Holder and to the underwriter or underwriters of any
underwritten offering of Conversion Shares, if any; and

         (f) Use its best efforts to list the Conversion Shares on each
securities exchange or automated quotation system on which such class of
securities are then listed, or if such securities are not already so listed, use
reasonable efforts to list the Conversion Shares on an exchange or automated
quotation system, if such listing is then permitted under the rules of such
exchange or automated quotation system.

         20.7 Lockup Agreement. In consideration of the Company agreeing to its
obligations under this Agreement, the Holder agrees in connection with any
registration of any Registrable Securities, at the request of the Company or the
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities without the
prior written consent of the Company or underwriters (as the case may be) for
such period of time (not to exceed 180 days) from the effective date of such
registration as the Company and the underwriters may specify, so long as the
Holder or unit holders holding more than 1% of the Common Stock of the Company
and all officers and directors of the Company are bound by a comparable
obligation.

         20.8 Common Stock. The Company represents and warrants to the Holder
that, at the time of issuance thereof, the Conversion Shares will be validly
issued, fully paid and

                                       5
<PAGE>   72

non-assessable, free and clear of any mortgage, pledge, lien, encumbrance,
security interest, claim or rights of any third party of any nature whatsoever.

                        SECTION 21. INDEMNIFICATION; LLC
         21.1 Indemnification by the Company. The Company shall indemnify and
hold harmless Holder, each member, officer and manager of Holder, and each
person, if any, who controls Holder within the meaning of Section 15 of the Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as follows:

                  (a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Act, including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

                  (b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company; and

                  (c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental, agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability, claim,
damage or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto), or (ii) such Holder's
failure to deliver an amended or supplemental Prospectus provided by the Company
to the Holder for such purpose if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred.

         21.2 Indemnification by Holder. Holder (and each permitted assignee of
Holder, on a several basis) severally agrees to indemnify and hold harmless the
Company, and each of its

                                       6
<PAGE>   73

directors and officers (including each director and officer of the Company who
signed a Registration Statement), and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, as follows:

                  (a) against any and. all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which such
Holder's Registrable Securities were Registered under the Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

                  (b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of such
Holder; and

                  (c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage or
expense to the extent arising out of (i) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental Prospectus provided by the Company to such
Holder for such purpose if such loss, liability, claim, damage or expense would
not have arisen had such delivery occurred. Notwithstanding the provisions of
this Section 2.2, Holder and any permitted assignee shall not be required to
indemnify the Company, its officers, directors or control persons with respect
to any amount in excess of the amount of the total proceeds to such Holder or
such permitted assignee, as the case may be, from sales of the Registrable
Securities of such Holder under the Registration Statement, and no Holder shall
be liable under this Section 2.2 for any statements or omissions of any other
Holder.

                                       7
<PAGE>   74

         21.3 Conduct of Indemnification Proceedings. The indemnified party
shall give reasonably prompt notice to the indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity provided in Section
2.1 or 2.2 above, unless and to the extent it did not otherwise learn of such
action and the lack of notice by the indemnified party results in the forfeiture
by the indemnifying party of substantial rights and defenses, and (ii) shall
not, in any event, relieve the indemnifying party from any obligations to the
indemnified party other than the indemnification obligation provided under
Section 2.1 or 2.2 above. If the indemnifying party so elects within a
reasonable time after receipt of such notice, the indemnifying party may assume
the defense of such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
however, that the indemnifying party will not settle any such action or
proceeding without the written consent of the indemnified party unless, as a
condition to such settlement, the indemnifying party secures the unconditional
release of the indemnified party; and provided further, that if the indemnified
party reasonably determines that a conflict of interest exists where it is
advisable for the indemnified party to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the defense
of such action or proceeding as a result of the proviso to the preceding
sentence, the indemnifying party's counsel shall be entitled to conduct the
indemnifying party's defense and counsel for the indemnified party shall be
entitled to conduct the defense of the indemnified party, it being understood
that both such counsel will cooperate with each other to conduct the defense of
such action or proceeding as efficiently as possible. If the indemnifying party
is not so entitled to assume the defense of such action or does not assume such
defense, after having received the notice referred to in the first sentence of
this paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the indemnifying
party will not be liable for any settlement effected without the written consent
of the indemnifying party. If any indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, the indemnifying party shall not be liable for any fees and expenses
of counsel for the indemnified party incurred thereafter in connection with such
action or proceeding.

         21.4 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms, the Company and the
subject Holder shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative fault of
but also the relative benefits to

                                       8
<PAGE>   75

the Company on the one hand and such Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.

         The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro-rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.4, no Holder shall be required
to contribute any amount in excess of the amount of the total proceeds to such
Holder from sales of the Registrable Securities of such Holder under the
Registration Statement.

         Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 2.4, each member, officer and
manager of and each person, if any, who controls, a Holder within the meaning of
Section 15 of the Act shall have the same rights to contribution as such Holder,
and each director of the Company, each officer of the Company who signed a
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act shall have the same rights to contribution
as the Company.

                         SECTION 22. RULE 144 COMPLIANCE
         The Company will use its best efforts to timely file the reports
required to be filed by the Company under the Securities Act and the Exchange
Act so as to enable Holder to sell Registrable Securities pursuant to Rule 144
under the Securities Act. In connection with any sale, transfer or other
disposition by Holder of any Registrable Securities pursuant to Rule 144 under
the Securities Act, the Company shall cooperate with Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as Holder may reasonably request at least ten (10)
business days prior to any sale of Registrable Securities hereunder.

                            SECTION 23. MISCELLANEOUS
         23.1 Integration; Amendment. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth herein
and supersedes and renders of no force and effect all prior oral or written
agreements, commitments and understandings among the parties with respect to the
matters set forth herein. Except as otherwise expressly provided in this
Agreement, no amendment, modification or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the Company
and the affected Holder.

                                       9
<PAGE>   76

         23.2 Waivers. No waiver by a party hereto shall be effective unless
made in a written instrument duly executed by the party against whom such waiver
is sought to be enforced, and only to the extent set forth in such instrument.
Neither the waiver by any of the parties hereto of a breach or a default under
any of the provisions of this Agreement, nor the failure of any of the parties,
on one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any such provisions, rights or privileges hereunder.

         23.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provides that this Agreement may not be assigned by any Holder (other
than to a member of Holder's immediate family, trust established for the benefit
of such Holder or immediate family member(s) of such Holder, a beneficiary of
Holder, or a partnership or corporation controlled by Holder, a beneficiary of
Holder or immediate family member(s) of Holder), and any other attempted
assignment hereof by any Holder will be void and of no effect.

         23.4 Notices. All notices called for under this Agreement shall be in
writing and shall be deemed given upon receipt if delivered personally or by
facsimile transmission and followed promptly by mail, or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the addresses set forth opposite their names in Schedule A hereto, or to any
other address or addressee as any party entitled to receive notice under this
Agreement shall designate, from time to time, to others in the manner provided
in this Section 4.4 for the service of notices; provided, however, that notices
of a change of address shall be effective only upon receipt thereof. Any notice
delivered to the party hereto to whom it is addressed shall be deemed to have
been given and received on the day it was received; provided, however, that if
such day is not a business day then the notice shall be deemed to have been
given and received on the business day next following such day. Any notice sent
by facsimile transmission shall be deemed to have been given and received on the
business day next following the transmission.

         23.5 Specific Performance. The parties hereto acknowledge that the
obligations undertaken by them hereunder are unique and that there would be no
adequate remedy at law if any party falls to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.

         23.6 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of Delaware, but not
including the choice of law rules thereof.

                                       10
<PAGE>   77

         23.7 Headings. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.

         23.8 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the person or entity may require.

         23.9 Execution in Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.

         23.10 Severability. If fulfillment of any provision of this Agreement,
at the time such fulfillment shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be modified only to the extent
necessary to render same effective or (if necessary) be held ineffective, as
though not herein contained, and the remainder of this Agreement shall remain
operative and in full force and effect.

         IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.

                                       COMPANY:

                                       TARRAGON REALTY INVESTORS, INC.

                                       By: /s/ William S. Friedman
                                          --------------------------------------
                                          Name: William S. Friedman
                                          Title: President

                                       HOLDER:

                                       THE ROHDIE FAMILY LLC

                                       By: /s/ Robert C. Rohdie
                                          --------------------------------------
                                          Name: Robert C. Rohdie
                                          Title: Manager

                                       11
<PAGE>   78

                                   SCHEDULE A

                                    ADDRESSES

Tarragon Realty Investors, Inc.
280 Park Avenue
East Building, 20th Floor
New York, New York 10017

The Rohdie Family LLC
433 Hampton Crest
Heathrow, Florida  32746

                                       12
<PAGE>   79

                                    EXHIBIT D
                        SCHEDULE OF CONTRIBUTED ENTITIES

       1.       Orange National Partners, Ltd.

       2.       Tarragon Savannah LP

       3.       Tarragon Huntsville Apartments, L.L.C.

       4.       Tarragon Savannah LP II

       5.       Danforth National Apartments, Ltd.

       6.       Tarragon Stoneybrook Apartments, L.L.C.

       7.       RI Windsor, Ltd.

       8.       RI Panama City, Ltd.

       9.       Lake Lotta Apartments, L.L.C.

       10.      Vintage At Legacy Lakes II, L.P.

                                      D-1
<PAGE>   80

                                    EXHIBIT E

                           CERTIFICATE OF DESIGNATION

                                      E-1
<PAGE>   81

                         TARRAGON REALTY INVESTORS, INC.

              CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE
             PARTICIPATING OR OPTIONAL OR OTHER SPECIAL RIGHTS, AND
             QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF OF
                                  SPECIAL STOCK
                     BY RESOLUTION OF THE BOARD OF DIRECTORS

         We, William S. Friedman, President, and Kathryn Mansfield, Secretary of
TARRAGON REALTY INVESTORS, INC., a corporation organized and existing under the
Business Corporation Law of the State of Nevada, in accordance with the
provisions of Section 78.195 of the Nevada Revised Statutes thereof, DO HEREBY
CERTIFY:

                  THAT, pursuant to the authority conferred upon the Board of
         Directors by the Articles of Incorporation of TARRAGON REALTY
         INVESTORS, INC. (the "Corporation"), and pursuant to the provisions of
         NRS 78.1955 (which section provides that no stockholder action is
         required in order to effectuate this designation), said Board of
         Directors by unanimous written consent dated February 25, 2000, adopted
         certain recitals and resolutions providing for the designations,
         preferences and relative participating, optional or other special
         rights and qualifications, limitations or restrictions thereof, of a
         series of Special Stock of the Corporation, specifically the 10%
         Cumulative Preferred Stock, which recitals and resolutions are as
         follows:

                  WHEREAS, Article Fourth of the Articles of Incorporation of
         the Corporation authorizes the Corporation to issue not more than
         10,000,000 shares of Special Stock, $.01 par value per share (the
         "Special Stock") and 20,000,000 shares of Common Stock, $0.01 par value
         per share (the "Common Stock"), which Special Stock may be issued from
         time to time in one or more series and shall be designated as the Board
         of Directors may determine to have such voting powers, preferences,
         limitations and relative rights with respect to the shares of each
         series of the class of Special Stock of the Corporation as expressly
         provided in a resolution or resolutions providing for the issuance of
         such series adopted by the Board of Directors which is vested with the
         authority in respect thereof; and

                  WHEREAS, no shares of such Special Stock have been previously
         designated hereof; and

                  WHEREAS, the Board of Directors now desires to amend the
         Articles of Incorporation to designate one series of the Special Stock.

                  NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
         granted to the Board of Directors by Article Fourth of the Articles of
         Incorporation, as amended, the Board of Directors hereby further amends
         the Articles of Incorporation to provide for the issuance of one single
         series of Special Stock consisting of the number of shares in such
         series as set forth below and, subject to the provisions of Article
         Fourth of the Articles of Incorporation, as amended, of the
         Corporation, hereby fixes and determines with respect to such series
         the following designations, preferences and relative participating,
         optional or other special rights, if any, and qualifications,
         limitations or restrictions thereof:

<PAGE>   82

                  1. DESIGNATION. The distinctive designation of such series
         shall be the 10% Cumulative Preferred Stock and each share of the 10%
         Cumulative Preferred Stock shall have a par value of $0.01 per share
         and a preference on liquidation under paragraph 6 below of up to $12
         per share. The 10% Cumulative Preferred Stock is sometimes referred to
         herein as the "Preferred Stock."

                  2. NUMBER OF SHARES. The number of shares which shall
         constitute the 10% Cumulative Preferred Stock shall be such number as
         may actually be issued by the Corporation, not to exceed a maximum of
         2,500,000 shares, which number may be decreased (but not below the
         number then outstanding), from time to time by the Board of Directors,
         subject to the provisions hereof.

                  3. DIVIDENDS AND DIVIDEND RATE. Holders of record on the
         fifteenth day of each March, June, September and December of each year
         of shares of the 10% Cumulative Preferred Stock shall be entitled to
         receive dividends, when and as declared by the Board of Directors of
         the Corporation and to the extent permitted under the Nevada General
         Corporation Law, payable quarterly on each March 31, June 30, September
         30 and December 31 of each year, beginning on September 15, 2000 (each
         a "Dividend Reference Date" and, collectively, the "Dividend Reference
         Dates"), in preference to and with priority over dividends upon all
         "Junior Securities" (as defined in paragraph 6 below). Except as
         otherwise provided herein, dividends on each share of 10% Cumulative
         Preferred Stock will accrue (but not compound) cumulatively on a daily
         basis at the rate per share of ten percent (10%) per annum ($0.30 per
         calendar quarter) from and including the date of issuance to and
         including the date on which the "Redemption Price" (as defined in
         paragraph 4 below) of such share is paid, whether or not such dividends
         have been declared and whether or not there are profits, surplus or
         other funds of the Corporation legally available for the payment of
         such dividends. For purposes of this paragraph 3, the date on which the
         Corporation initially issues any share is its date of issuance,
         regardless of the number of times transfer of such share is made on the
         stock records maintained by or for the Corporation and regardless of
         the number of certificates that may be issued to evidence such share
         (whether by reason of transfer of such share or for any other reason).
         Notwithstanding any other requirement of this paragraph unless the
         holder of the 10% Cumulative Preferred Stock requests of the
         Corporation payment of dividends in a form other than cash, any and all
         quarterly dividends on the 10% Cumulative Preferred Stock shall be
         satisfied by payment of cash. So long as any shares of 10% Cumulative
         Preferred Stock are outstanding, the Corporation will not declare or
         pay any dividends on Junior Securities (other than dividends in respect
         of Common Stock payable in shares of Common Stock) or make, directly or
         indirectly, any other distribution of any sort in respect of Junior
         Securities, or any payment on account of the purchase or other
         acquisition of the Junior Securities, unless on the date of such
         declaration in the case of a dividend, or on such date of distribution
         or payment, in the case of such distribution or other payment (a) all
         dividends on the 10% Cumulative Preferred Stock for all past
         quarter-yearly dividend periods have been paid in full and the full
         dividends for the then current quarter-yearly period shall have been
         paid or declared in a sum sufficient for the payment thereof set apart,
         and (b) after giving effect to such payment of dividends, other
         distributions, purchase or redemption, the aggregate capital of the
         Corporation applicable to all capital stock of the Corporation then
         outstanding, plus the earned and capital surplus of the Corporation
         shall exceed the aggregate amount payable on involuntary dissolution,
         liquidation or winding up of the Corporation on all shares of the 10%
         Cumulative Preferred Stock and all stock ranking prior to or on a
         parity with the 10% Cumulative Preferred Stock as to dividends or
         assets outstanding after the payment of

<PAGE>   83

         such dividends, other distributions, purchase or redemption. Dividends
         shall not be paid or declared and set apart for payment on any series
         of Special Stock for any dividend period (including the 10% Cumulative
         Preferred Stock) unless dividends have been or are, contemporaneously,
         paid and declared and set apart for payment on all outstanding series
         of Special Stock entitled thereto for all dividend periods terminating
         on the same or earlier date. If at any time the Corporation pays less
         than the total amount of dividends then accrued with respect to the 10%
         Cumulative Preferred Stock, such payment will be distributed ratably
         among the then holders of 10% Cumulative Preferred Stock so that an
         amount equal is paid with respect to each outstanding share.

                  4. REDEMPTION. The Corporation may, at any time after issuance
         thereof and after June 30, 2003 and from time to time thereafter, at
         the election of the Board of Directors of the Corporation redeem any or
         all of the 10% Cumulative Preferred Stock then outstanding by written
         notice given not less than twenty (20) nor more than sixty (60) days
         before the date fixed for redemption (the "Redemption Date"). If
         mailed, such notice shall be deemed to be delivered when deposited in
         the United States Mail, postage prepaid, addressed to the holder of
         shares of 10% Cumulative Preferred Stock at his address as it appears
         on the stock transfer records of the Corporation. Such notice shall set
         forth (a) the shares to be so redeemed, (b) the date fixed for
         redemption, (c) the applicable Redemption Price, and (d) the place at
         which the holder(s) may obtain payment of the applicable Redemption
         Price upon surrender of the share certificate(s). If less than all
         shares of 10% Cumulative Preferred Stock at any time outstanding shall
         be called for redemption, such shares shall be redeemed pro rata by lot
         drawn or other manner deemed fair in the sole discretion of the Board
         of Directors to redeem one or more such shares without redeeming all
         such shares of 10% Cumulative Preferred Stock. If such notice of
         redemption shall have been so mailed, on or before the Redemption Date,
         the Corporation may provide for payment of a sum sufficient to redeem
         the applicable number of shares of 10% Cumulative Preferred Stock
         called for redemption either (i) by setting aside the sum required to
         be paid as the Redemption Price by the Corporation, separate and apart
         from its other funds, in trust for the account of the holder(s) of the
         shares of 10% Cumulative Preferred Stock to be redeemed or (ii) by
         depositing such sum in a bank or trust company (either located in the
         state where the principal executive office of the Corporation is
         maintained, such bank or trust company having a combined surplus of at
         least $10,000,000 according to its latest statement of condition, or
         such other bank or trust company as may be permitted by the Articles of
         Incorporation, as amended, or by law) as a trust fund, with irrevocable
         instructions and authority to the bank or trust company to give or
         complete the notice of redemption and to pay, on or after the
         Redemption Date, the applicable Redemption Price on surrender of
         certificates evidencing the share(s) of 10% Cumulative Preferred Stock
         so called for redemption and, in either event, from and after the
         Redemption Date (A) the share(s) of 10% Cumulative Preferred Stock
         deemed to be redeemed, (B) such setting aside or deposit shall be
         deemed to constitute full payment for such share(s), (C) such share(s)
         so redeemed shall no longer be deemed to be outstanding, (D) the
         holder(s) thereof shall cease to be a stockholder of the Corporation
         with respect to such share(s), and (E) such holder(s) shall have no
         rights with respect thereto except the right to receive their
         proportionate share of the funds set aside pursuant hereto or deposited
         upon surrender of their respective certificates. Any interest on the
         funds so deposited shall be paid to the Corporation. Any and all such
         redemption deposits shall be irrevocable except to the following
         extent: any funds so deposited which shall not be required for the
         redemption of any shares of 10% Cumulative Preferred Stock because of
         any prior sale or purchase by the Corporation other than through the
         redemption process, subsequent to the date of deposit but prior to the
         Redemption Date, shall be repaid to the Corporation forthwith and any
         balance of the funds so deposited and unclaimed by

<PAGE>   84

         the holder(s) of any shares of 10% Cumulative Preferred Stock entitled
         thereto at the expiration of one calendar year from the Redemption Date
         shall be repaid to the Corporation upon its request or demand therefor
         and after any such repayment the holder(s) of the share(s) so called
         for redemption shall look only to the Corporation for payment of the
         Redemption Price thereof. In addition to the redemption under this
         paragraph 4, the Corporation may redeem or repurchase shares of the 10%
         Cumulative Preferred Stock (i) from any holder(s) thereof who consents
         in writing to such redemption (ii) pursuant to any offer by the
         Corporation to purchase or acquire share(s) from holders of less than a
         specified number of share(s) or "round lots" (i.e., an "odd lot" or "99
         or less" offer) and/or (iii) open market or negotiated purchases, and
         in each of clauses (i), (ii) and/or (iii), the provisions of this
         paragraph 4 will not apply to any such consented redemption or purchase
         by the Corporation. All shares of 10% Cumulative Preferred Stock
         redeemed may either be held in the treasury subject to reissuance or
         shall be canceled and retired and no shares shall be issued in place
         thereof, but such shares shall be restored to the status of authorized
         but unissued shares of Special Stock. The "Redemption Price" (herein so
         called) shall be an amount equal to (i) the "Liquidation Value" (as
         defined in paragraph 6 below) of $12 per share, plus (ii) the amount of
         all accrued but unpaid dividends thereon to the Redemption Date, which
         shall include all cumulative dividends in arrears and also the
         proportionate part of the dividend accrued since the last Dividend
         Reference Date preceding the Redemption Date and whether or not earned
         or declared, but without interest, plus (iii) the following amount per
         share during the periods set forth below:

<TABLE>
<CAPTION>
                              IF REDEMPTION OCCURS DURING THE
                              TWELVE MONTH PERIOD                    ADDITIONAL PREMIUM
                              ENDING JUNE 30 OF                      PER SHARE
                              <S>                                    <C>
                              2004                                   $0.50
                              2005                                   $0.40
                              2006                                   $0.30
                              2007                                   $0.20
                              2008                                   $0.10
</TABLE>

         provided that from and after July 1, 2008 there shall be no premium as
         a part of the Redemption Price.

                  5. SINKING FUND. The Corporation shall not be required to
         maintain any so-called "Sinking Fund" for the retirement on any basis
         of the 10% Cumulative Preferred Stock.

                  6. RIGHTS ON LIQUIDATION. In the event of any liquidation,
         dissolution or winding-up of the Corporation, and after paying and
         providing for the payment of all creditors of the Corporation, the
         holders of shares of the 10% Cumulative Preferred Stock then
         outstanding shall be entitled, before any distribution or payment is
         made upon any "Junior Securities" (defined to be and mean the Common
         Stock and any other equity security of any kind which the Corporation
         at any time has issued, issues or is authorized to issue if the 10%
         Cumulative Preferred Stock has priority over such securities as to
         dividends or upon liquidation), to receive a liquidation preference in
         an amount in cash equal to the aggregate Liquidation Value of all
         shares of 10% Cumulative Preferred Stock then outstanding, whether any
         such liquidation, dissolution or winding up is voluntary or involuntary
         and the holders of the 10% Cumulative Preferred Stock then outstanding,
         whether any such liquidation, dissolution or winding up is voluntary or
         involuntary and the holders of the 10% Cumulative Preferred Stock

<PAGE>   85
         shall not be entitled to any other or further distributions of assets.
         The term "Liquidation Value" shall be and mean, as of any particular
         date, an amount per share of 10% Cumulative Preferred Stock equal to
         the Redemption Price if such share were so redeemed in accordance with
         the provisions of paragraph 5 above, but in no event shall exceed $12
         per share, plus any accrued and unpaid cumulative dividends. If, upon
         any dissolution, liquidation or winding-up of the affairs of the
         Corporation, the net assets available for distribution shall be
         insufficient to permit payment to the holders of all outstanding shares
         of all series of Special Stock of the amounts to which they
         respectively shall be entitled, then the assets of the Corporation to
         be distributed to such holders will be distributed ratably among them
         based upon the amounts payable on the shares of each such series of
         Special Stock in the event of voluntary or involuntary dissolution,
         liquidation or winding-up, as the case may be, in proportion to the
         full preferential amounts, together with any and all arrearages to
         which they are respectively entitled. Upon any such liquidation,
         dissolution or winding-up of the Corporation, after the holders of
         Special Stock have been paid in full the amounts to which they are
         entitled, the remaining assets of the Corporation may be distributed to
         the holders of Junior Securities, including Common Stock, of the
         Corporation. The Corporation will mail written notice of such
         liquidation, dissolution or winding-up, not less than twenty (20) nor
         more than fifty (50) days prior to the payment date stated therein to
         each record holder of 10% Cumulative Preferred Stock. Neither the
         consolidation nor merger of the Corporation into or with any other
         corporation or corporations, nor the sale or transfer by the
         Corporation of all or any part of its assets, nor a reduction of the
         capital stock of the Corporation, nor the purchase or redemption by the
         Corporation of any shares of its Special Stock or Common Stock or any
         other class of its stock will be deemed to be a liquidation,
         dissolution or winding-up of the Corporation within the meaning of this
         paragraph 6.

                  7. RANKING. The 10% Cumulative Preferred Stock shall rank on a
         parity as to dividends and upon liquidation, dissolution or winding up
         with all other shares of Special Stock issued by the Corporation;
         provided, however, that the Corporation shall not issue any shares of
         Special Stock of any series which are superior to the 10% Cumulative
         Preferred Stock as to dividends or rights upon liquidation, dissolution
         or winding up of the Corporation as long as any shares of the 10%
         Cumulative Preferred Stock are issued and outstanding, without the
         prior written consent of the holders of a majority of such shares of
         10% Cumulative Preferred Stock then outstanding voting separately as a
         class.

                  8. VOTING RIGHTS. The holders of the shares of 10% Cumulative
         Preferred Stock shall only have the voting rights specifically required
         by law under the Nevada General Corporation Law, and shall have the
         following additional voting rights subject to and after compliance with
         any applicable laws and rules or actual requirements of any exchange
         upon which any securities of the Corporation are listed:

                  (a) Except as may otherwise be specifically required by law
                  under the Nevada General Corporation Law, the holders of the
                  shares of 10% Cumulative Preferred Stock shall not have the
                  right to vote such stock, directly or indirectly, at any
                  meeting of the stockholders of the Corporation and such shares
                  of stock shall not be counted in determining the total number
                  of outstanding shares to constitute a quorum at any meeting of
                  stockholders.

                  (b) In the event that, under any circumstance, the holders of
                  the 10% Cumulative Preferred Stock are required by law to vote
                  upon any matter, the approval of such series

<PAGE>   86

                  shall be deemed to have been obtained upon the affirmative
                  vote of the holders of only a majority of the shares of the
                  10% Cumulative Preferred Stock then outstanding.

                  (c) Except as set forth herein, or as otherwise provided by
                  the Articles of Incorporation, as amended, or by law, holders
                  of the 10% Cumulative Preferred Stock shall have no special
                  voting rights and their consent shall not be required for the
                  taking of any corporate action.

                  9. NO CONVERSION RIGHTS. The 10% Cumulative Preferred Stock
         may not be converted into any other securities of the Corporation.

                  10. LIMITED RIGHT TO ELECT DIRECTOR. If and when, at any time,
         six consecutive quarterly dividends, in whole or in part, on the 10%
         Cumulative Preferred Stock shall be in arrears, then the holders of the
         shares of 10% Cumulative Preferred Stock, voting separately as a class,
         shall be entitled, at any annual meeting of stockholders or special
         meeting held in place thereof, or at a special meeting of the holders
         of the shares of the 10% Cumulative Preferred Stock called as
         hereinafter provided, to elect one (1) director and, except as
         otherwise provided in the Articles of Incorporation, as amended, the
         holders of shares of Common Stock and any other class of stock of the
         Corporation, to the extent it shall have the right to vote, shall be
         entitled to elect all remaining members of the Board of Directors, but
         the holders of Common Stock and any other class of stock of the
         Corporation shall not be entitled to vote in the election of the
         director of the Corporation so to be elected by the holders of shares
         of 10% Cumulative Preferred Stock. Such right of the holders of shares
         of 10% Cumulative Preferred Stock to elect one (1) director may be
         exercised until dividends in default on the outstanding shares of 10%
         Cumulative Preferred Stock have been paid in full or funds sufficient
         therefor set aside, and when so paid or provided for, then the right of
         the holders of shares of 10% Cumulative Preferred Stock to elect such
         director shall cease, but subject always to the same provisions for the
         vesting of such voting rights in the case of any such future dividend
         default or defaults. At any time after such voting power shall have
         vested in the holders of the outstanding shares of 10% Cumulative
         Preferred Stock, the Secretary of the Corporation may, and upon the
         written request of holders of record of 25% or more of the shares of
         10% Cumulative Preferred Stock then outstanding addressed to him at the
         principal office of the Corporation shall, call a special meeting of
         the holders of shares of 10% Cumulative Preferred Stock for the
         election of the director to be elected by them as herein provided, to
         be held within sixty (60) days after delivery of such request and at
         the place and upon the notice provided by law and in the Bylaws for the
         holding of meetings of stockholders; provided, however, that the
         Secretary shall not be required to call such special meeting in the
         case of any such request received less than 120 days before the date
         fixed for the next ensuing annual meeting of stockholders. No such
         special meeting and no adjournment thereof shall be held on a date less
         than 30 days before the annual meeting of stockholders or special
         meeting held in place thereof next succeeding the time when the holders
         of the 10% Cumulative Preferred Stock become entitled to elect one (1)
         director as above provided. If at any annual or special meeting or any
         adjournment thereof the holders of at least a majority of the shares of
         10% Cumulative Preferred Stock then outstanding shall be present or
         represented by proxy then, by vote of the holders of at least a
         majority of the shares of 10% Cumulative Preferred Stock present or so
         represented at such meeting, the authorized number of directors of the
         Corporation shall be increased by one (1) and the holders of shares of
         10% Cumulative Preferred Stock shall be entitled to elect the
         additional director so provided for. The director so elected shall
         serve until the next annual meeting or until his successor shall be
         elected and shall qualify; provided, however, that whenever the holders
         of shares of 10% Cumulative

<PAGE>   87

         Preferred Stock shall be divested of voting power as above provided,
         the term of office of the person elected as director by the holders of
         shares of 10% Cumulative Preferred Stock as a class shall forthwith
         terminate and the number of the Board of Directors shall be reduced
         accordingly.

                  If, during any interval between any special meeting of the
         holders of shares of 10% Cumulative Preferred Stock for the election of
         one (1) director to be elected by them as provided in the preceding
         paragraph and the next ensuing annual meeting of stockholders, or
         between annual meeting of stockholders for the election of directors,
         and while the holders of shares of 10% Cumulative Preferred Stock shall
         be entitled to elect one (1) director, the director so elected by the
         holders of shares of 10% Cumulative Preferred Stock shall resign or
         die, a majority of the directors then in office though less than a
         quorum shall designate the successor to fill the vacancy thereby
         created; provided, however, that if a successor shall not be designated
         to fill the vacancy created by the resignation or death of the director
         elected by the holders of shares of 10% Cumulative Preferred Stock as
         herein above provided, within forty (40) days after the creation of
         such vacancy the Secretary of the Corporation shall call a special
         meeting of the holders of shares of 10% Cumulative Preferred Stock and
         such vacancy shall be filled at such special meeting as herein above
         provided. Any director elected by the holders of the shares of 10%
         Cumulative Preferred Stock or designated to fill a vacancy may be
         removed from office only by the vote of the holders of a majority of
         the outstanding shares of 10% Cumulative Preferred Stock at a special
         meeting of the holders of shares of 10% Cumulative Preferred Stock
         called for the purpose of removing such director. Upon the written
         request of holders of 25% or more of the shares of 10% Cumulative
         Preferred Stock then outstanding addressed to him at the principal
         office of the Corporation, the Secretary shall, within ten (10)
         calendar days after delivery to him of such request, call a special
         meeting of the holders of shares of 10% Cumulative Preferred Stock for
         such purpose to be held within sixty (60) days after delivery of such
         request; provided, however, that the Secretary shall not be required to
         call a special meeting in the case of any request received less than
         120 calendar days before the date fixed for the next ensuing annual
         meeting of stockholders. The holders of shares of 10% Cumulative
         Preferred Stock voting separately as a class shall be entitled to fill
         any vacancy created by the removal of the director at any meeting at
         which such removal shall have been approved or if such vacancy is not
         so filled, it may be filled as provided above.

                  11. REACQUIRED SHARES. Any shares of 10% Cumulative Preferred
         Stock purchased or otherwise acquired by the Corporation in any manner
         whatsoever may be retired and canceled promptly after the acquisition
         thereof. All such shares shall, upon cancellation, become authorized
         but unissued shares of Special Stock and may be re-issued as part of a
         new series of Special Stock subject to the conditions and restrictions
         on issuance set forth in the Articles of Incorporation, as amended, or
         as otherwise required by law.

         IN WITNESS WHEREOF, said TARRAGON REALTY INVESTORS, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
William S. Friedman, its President and Kathryn Mansfield, its Secretary as of
the ________ day of ____________, 2000.

                                       TARRAGON REALTY INVESTORS, INC.

                                       By:
                                          --------------------------------------
                                          Name: William S. Friedman
                                          President

<PAGE>   88

                                       By:
                                          --------------------------------------
                                          Name: Kathryn Mansfield
                                          Secretary

THE STATE OF TEXAS.........         )
                  .........         )
COUNTY  OF  DALLAS.........         )

         On _____________, 2000 personally appeared before me a Notary Public,
William S. Friedman, President of TARRAGON REALTY INVESTORS, INC., and Kathryn
Mansfield, Secretary of TARRAGON REALTY INVESTORS, INC., who acknowledged that
they executed the above instrument.

                                       -------------------------------
                                       Notary Public, State of Texas

                                       My Commission expires:

---------------------------------<PAGE>   1

                                                                   EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

         This Employment Agreement ("Agreement") is made and entered into
effective as of the 7th day of February, 2000 by and between TARRAGON REALTY
INVESTORS, INC., a Nevada corporation ("TRII") and ROBERT C. ROHDIE, an
individual (herein called "Employee").

                              W I T N E S S E T H:

         WHEREAS, TRII is engaged in the business of investing in equity
interests in real estate and financing real estate and real estate related
activities through mortgage loans including first, wrap-around and junior
mortgage loans and has elected to be treated as a real estate investment trust,
but has from time to time in the past and may again in the future engage in any
and all aspects of the real estate business including acquisition, development
and construction (all collectively the "Real Estate Business");

         WHEREAS, TRII desires to employ Employee as a senior executive officer
and Employee is willing to accept such employment, all under the terms and
subject to the conditions hereinafter set forth.

         NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises and covenants contained herein, and other good and valuable
consideration, the receipt, sufficiency and adequacy of which is hereby
acknowledged, the parties hereto do hereby agree as follows:

1. Adoption of Recitals. The parties hereby adopt and confirm the foregoing
recitals in the same manner as if fully recopied herein for all purposes.

2. Employment. TRII agrees to employ Employee for the term of this Agreement as
set forth in Section 3 below, and Employee agrees to accept such employment and
to serve TRII in the capacity of President and Chief Executive Officer of
Tarragon Development Corporation, a wholly owned subsidiary of TRII, and to fill
such other positions of responsibility and description as the Board of Directors
of TRII may from time to time determine, all upon the terms and conditions
herein set forth.

3. Term. The term of Employee's employment shall commence on the Effective Date
of this Agreement and shall continue for three (3) full calendar years
thereafter, expiring on February 6, 2003 (the "Initial Period"). Thereafter,
this Agreement shall automatically renew and continue on a year-to-year basis
unless terminated by written notice of non-renewal from either party to this
Agreement to the other party, delivered at least thirty (30) calendar days prior
to the expiration of the Initial Period or thirty (30) calendar days prior to
the termination of any subsequent annual extension of such period of employment,
unless otherwise previously terminated as set forth herein.

                                       1
<PAGE>   2

4. Compensation. In consideration of services to be rendered by Employee during
the term of this Agreement, TRII shall compensate Employee as follows:

     a.   Base Compensation. While Employee is in the employ of TRII under the
          provisions of this Agreement, TRII shall pay to Employee a base
          compensation at the rate of $200,000 per annum during each year of the
          Initial Period, payable no less frequently than 1/12th per month;
          during each annual period after the Initial Period, TRII shall pay to
          Employee a base compensation at the rate of $200,000 per annum,
          payable no less frequently than 1/12th per month, or at such higher
          rate of base compensation as may be set from time to time by the Board
          of Directors.

     b.   Bonus. Employee may receive, in addition to his base compensation,
          such bonuses as may be deemed appropriate by the Board of Directors of
          the Company, in their sole discretion.

     c.   Other Benefits. During the term of this Agreement, TRII will provide
          for Employee the following:

          i. Health Insurance; Benefit Plans. TRII will allow Employee to
          participate in any benefit plan of TRII or any of its subsidiaries
          covering health/major medical insurance and any self-funded retirement
          or "401-k" plan on the same basis as any other senior executive
          officer of the Company.

          ii. Other Insurance. TRII will provide life insurance and disability
          insurance for Employee on the same basis or pursuant to the same
          arrangements now or hereafter existing for the benefit of senior
          executive officers of TRII and its subsidiaries and Employee generally
          at any time during the term of this Agreement.

     iii. Vacation and Other Benefits. Employee shall be entitled to participate
          in benefits generally extended from time to time to senior executive
          officers of TRII and its subsidiaries and reasonable vacations
          consistent with TRII and its subsidiaries' policies.

5. Duties; Extent of Services. Employee shall devote substantially all of his
business time, attention and energy to TRII and its subsidiaries and shall not,
during the term of employment, be actively engaged in any competitive managerial
or employment capacity in any other business activity for gain, profit or other
pecuniary advantage; provided, however, that the foregoing does not prohibit
Employee from making investments that do not materially interfere with the
performance of his duties for TRII and its subsidiaries and, provided, further,
that TRII recognizes that Employee has certain other business interests in real
estate which may require some devotion of time by Employee. Within such
parameters, Employee shall serve TRII and its subsidiaries in such responsible
capacities as the Board of Directors or other senior executive officers of TRII
may, from time to time, determine and in such capacities shall serve TRII and
its subsidiaries faithfully and to the best of his ability discharge the duties
undertaken by him

                                       2
<PAGE>   3

hereunder under the direction of the Board of Directors and other senior
executive officers of TRII, subject at all times to the discretion and control
of the Board of Directors of TRII. Employee shall also serve as a member of the
Board of Directors, and shall perform the duties of a director and/or member of
any committee of directors of TRII to which Employee is elected or selected.
Employee agrees that he shall not, during the term of this Agreement, whether as
an employee, director, officer, shareholder, owner, partner or otherwise,
directly or indirectly, engage in any business or businesses competitive to that
conducted by TRII or any of its subsidiaries or affiliates. Nothing herein
contained shall prevent Employee from owning or dealing in stocks or interests
of any entity actively traded on a recognized exchange which may be so
competitive (without participating in the management or control of such entity),
provided that Employee's holdings shall not at any time exceed five percent (5%)
of the outstanding equity voting securities of such entity. Employee may from
time to time request permission of the Board of Directors of TRII to engage in
other business activities (which may include service as a director of other
entities) which do not interfere with or prevent his faithful performance of the
responsibilities assigned to him by the Board of Directors or other senior
executive officers of TRII. Any such permission granted must be in writing to
become effective and be pursuant to and approved at a duly constituted meeting
of the Board of Directors. Notwithstanding the foregoing or anything else to the
contrary contained herein, it is recognized that Employee is an equity owner of
and/or directly involved with businesses and entities listed and described on
Exhibit "1" annexed hereto (all of which are collectively sometimes referred to
herein as the "Rohdie Entities"). The continuation of Employee's ownership
and/or involvement with the Rohdie Entities, including Employee's active
participation in the respective operations of the Rohdie Entities, shall not be
deemed to be a conflict with, or breach or violation of this Agreement or to
create, by itself, any right of termination or cancellation of this Agreement.

6. Termination. Employee's employment hereunder may be terminated at any time
during the term of this Agreement, but only on the terms and conditions set
forth below, provided, however, that notwithstanding such termination or any
other provision of this Agreement, the provisions of Sections 8, 9, 10 and 11
shall survive the term and termination of this Agreement and Employee and TRII
shall continue to be bound thereby:

     a.   Mutual Agreement. Employee's employment hereunder may be terminated at
          any time by mutual agreement on terms to be negotiated and reduced to
          writing at the time of such termination.

     b.   Death. Employee's employment hereunder and this Agreement shall
          terminate automatically upon the death of Employee.

     c.   Disability. Employee's employment hereunder shall terminate and this
          Agreement shall terminate automatically upon the total disability of
          Employee. For purposes of this Agreement "total disability" shall be
          deemed to have occurred if in the sole judgment of TRII, acting in
          good faith by a vote of at least 80% in number of the members of the
          Board of Directors, Employee shall have been unable to perform the
          duties of employment due to mental or physical incapacity for a period
          of 90 consecutive calendar days.

                                       3
<PAGE>   4

     d.   Cause. TRII may terminate Employee for "Cause." For purposes of this
          Agreement, the term "Cause" shall be deemed to be conduct by Employee
          constituting "mismanagement" (defined below), willful misconduct or
          fraud during the term of this Agreement directly involving TRII and
          the determination made in good faith by a vote of at least 50% in
          number of the members of the Board of Directors of TRII or the
          occurrence of events which, in the determination made in good faith by
          a vote of at least 50% in number of the members of the Board of
          Directors of TRII render Employee unable to devote full time and
          undivided attention to his duties under this Agreement (other than
          death, disability or illness). The term "gross mismanagement" shall be
          and mean (i) that Employee shall be convicted of, or shall admit in
          writing or publicly, to a crime involving the business or property of
          TRII or any of its subsidiaries, (ii) the absence other than by reason
          of illness, injury or vacation from his duties without the consent of
          TRII for more than thirty (30) consecutive days, (iii) the negligence
          by Employee in the performance of his duties under this Agreement or
          otherwise willfully failing to comply with the terms and conditions of
          this Agreement, or (iv) the engagement by Employee in any activity
          that would, in the reasonable opinion of at least 50% of the members
          of the Board of Directors of TRII, constitute a direct conflict of
          interest with TRII and/or its business, except for matters involving
          the Rohdie Entities. In the event of any such termination for Cause of
          Employee's employment hereunder, such termination shall not affect any
          of TRII's or Employee's other rights and/or remedies and any such
          termination for Cause may be made by TRII upon notification to the
          Employee in writing of the occurrence of any of the events specified
          in this paragraph within fifteen (15) calendar days prior to such
          termination.

     e.   Requested Resignation. The employment of Employee may be terminated
          without Cause by a vote of at least 80% in number of the members of
          the Board of Directors of TRII.

     f.   Employee's Voluntary Resignation. The employment of Employee will be
          terminated in the event of Employee's voluntary written resignation
          from employment.

7. Effects of Termination. Upon severance or termination of employment of
Employee for any reason and without regard to any attribution of fault to any
person, Employee shall, upon such severance or termination:

     a.   return to TRII and its subsidiaries all items of property owned or
          leased by TRII and its subsidiaries in Employee's possession
          including, without limitation, all credit cards, cash advances, work
          papers, computer programs or tapes, computers, customer lists, keys to
          facilities, vehicles or other items of transportation; and

     b.   have such other rights to which Employee may be entitled under the
          provisions of this Agreement.

Notwithstanding any subpart of this Section 7, upon severance or termination of
employment, Employee will make himself available, when reasonably requested, for
testimony in any lawsuit or administrative proceeding that may be brought
against TRII and/or its subsidiaries after

                                       4
<PAGE>   5

severance or termination of his employment. In the event Employee is called upon
to render such services, TRII agrees to reasonably compensate Employee for such
services.

8. Compensation upon Termination. If the employment of Employee under this
Agreement is terminated pursuant to the provisions of paragraph (a) under
Section 6 above, the terms of the negotiated mutual settlement shall encompass
and provide for the compensation, if any, to be paid to Employee and no further
compensation will be payable to Employee except as specifically provided
therein. In the event of the termination of this Agreement by reason of
paragraph (b) or (c) of Section 6 above, this Agreement shall terminate and no
further compensation shall be paid to Employee other than the base compensation
accrued through the date of termination, and such other benefits specifically
provided to Employee or his heirs under any benefit plan then in effect
involving the Employee. In the event of termination of this Agreement by reason
of paragraphs (d) or (f) under Section 6 above, this Agreement shall terminate
and no further compensation shall be paid to Employee other than the base
compensation accrued through the date of termination. In the event of
termination of this Agreement by reason of paragraph (e) under Section 6 above,
Employee shall receive on a monthly basis from TRII a payment of $16,666 per
month for the lesser of (x) the remaining number of months in the Initial Period
or, if such Initial Period has passed, then the then annual renewal term of this
Agreement, or (y) the equivalent number of months covered by Section 10 below
which are observed by Employee, not to exceed 12 calendar months.

9. Disclosure of Information. The Employee hereby acknowledges that he has had
and will continue to have access to certain trade secrets and confidential
information of TRII and its subsidiaries and affiliates (all collectively the
"Entities") and that such information constitutes the valuable, special and
unique property of the Entities. Employee will not, during or after the term of
employment hereunder, disclose any such trade secrets or confidential
information to any person or entity for any reason or purpose whatsoever, except
as may be required by law.

10. Restrictive Covenant; Agreement Not to Compete. Employee and TRII agree that
the covenants, agreements and restrictions contained herein are necessary to
protect the business good will, business interests and proprietary rights of
TRII and that the parties to this Agreement have independently discussed,
reviewed and had the opportunity to consult legal counsel about this Agreement
and have stipulated that the covenant contained in this Section 10 is an
integral part of an enforceable agreement, specifically the Agreement, and the
covenants contained herein were made at the same time that the Agreement was
consummated by the parties hereto, and that the covenants contained herein are
fair and reasonable in (i) geographical area, (ii) length of time, and (iii)
scope of activity being restrained. Employee expressly agrees that while this
Agreement is in effect, and following the termination of employment with TRII
pursuant to Section 6 above, for a period of one calendar year following the
date of termination, Employee shall not, except as provided below, "engage,"
directly or indirectly, in a "Competing Business." For purposes of the foregoing
sentence, the term "engage" shall mean and include activities that directly
further the business of any business enterprise (regardless of whether it is a
corporation, partnership, sole proprietorship, limited liability or other
business association entity) which

                                       5
<PAGE>   6

constitutes a "Competing Business" whether Employee serves as a principal,
owner, director, consultant, stockholder or employee of any such business
enterprise. "Competing Business" shall mean a business enterprise regardless of
how constituted as a sole proprietorship, corporation, limited liability
company, general or limited partnership or otherwise which is engaged in the
business of investing in equity interests in real estate and financing real
estate and real estate related activities through mortgage loans including
first, wrap-around and junior mortgage loans in the geographical areas or states
where TRII is actively engaged in such business during the period covered by
this Agreement or at the termination hereof, as applicable. For the purposes of
this Agreement, the term "Person" means any individual, corporation,
partnership, unincorporated association, firm, trust, joint stock company, joint
venture or other entity of whatever nature. For the purposes of this Agreement,
the term "affiliate" means, with respect to any Person, any Person that directly
or indirectly controls, or is controlled by or is under common control with,
such designated Person and, without limiting the generality of the foregoing,
shall include any Person who, directly or indirectly, is the legal or beneficial
owner of or controls 10% or more of any class of equity securities of the
designated Person. For the purpose of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise. Notwithstanding the foregoing, Employee shall not be
deemed to be engaged in a Competing Business solely by reason of:

     a.   ownership of an economic interest in a Competing Business on the
          Effective Date of this Agreement or continuing to hold such interest
          after the date of this Agreement or receipt of any payments in respect
          of such economic interest; or

     b.   continuing or becoming, after termination of this Agreement, an
          officer, director, consultant or employee of any of the Rohdie
          Entities or performing services or duties after termination of this
          Agreement requested by any of the Rohdie Entities (other than, in each
          instance specified in this paragraph, those which require Employee to
          render assistance to a Competing Business that furthers its
          competitive position in the areas specified in the definition of
          "Competing Business"); or

     c.   beneficial ownership as an investment, acquired after the date of this
          Agreement, of not more than 5% of the equity securities of any entity
          that constitutes a "Competing Business" if such entity is subject to
          the reporting requirements imposed by Sections 13 or 15 of the
          Securities Exchange Act of 1934, as amended.

It is intended that the restrictions set forth in this section shall not be held
invalid or unenforceable because of the scope of the territory or actions
subject thereto or restricted thereby for the period of time within which such
restriction is operative, but any judgment of any court of

                                       6
<PAGE>   7

competent jurisdiction may redefine or further limit the territory included in
the definition of "Competing Business," increase the exceptions set forth in the
immediately preceding paragraph and/or reduce the period of time during which
such restriction is enforceable.

11. Agreement Not to Solicit Employees. Following termination of employment with
TRII hereunder, Employee agrees that for a period of one (1) calendar year,
Employee will not, either alone or on behalf of any business engaged in a
"Competing Business" solicit or induce, or in any manner attempt to solicit or
induce, any person employed by, or an agent of, TRII or its affiliates to
terminate his or her contract of employment or agency (including those employees
at will), as the case may be, with TRII or one of its affiliates (other than
Employee's secretary or direct assistant).

12. Injunctive Relief; Independent Covenants. The covenants contained in
Sections 8, 9, 10 and 11 are independent and separate and, in the event any
provision contained in this Agreement is declared invalid or illegal, the other
provisions shall not be affected or impaired thereby and shall remain valid and
enforceable. In the event of a breach or threatened breach by Employee of any of
Sections 9, 10 or 11 of this Agreement, TRII shall be entitled to an injunction
to prevent irreparable injury to TRII or any of its affiliates. In the event of
a breach by TRII of Section 8 of this Agreement, the Employee shall be entitled
to an injunction to prevent irreparable injury to the Employee. Nothing herein
contained shall be construed as prohibiting any of TRII or any affiliate or the
Employee from pursuing any other remedies available to them for such breach or
threatened breach, including recovery of damages.

13. Right of First Refusal. While Employee is in the employ of TRII under the
provisions of this Agreement, regardless of whether any such duty or obligation
might exist absent this Agreement, Employee shall provide to TRII the right to
first acquire or engage in (and Employee shall refrain from acting with respect
to, until the expiration of ten calendar days following the date of written
notice to TRII by Employee of such opportunity) any opportunity relating to any
aspect of the real estate business received by Employee in any manner from any
source, in a manner which might directly or indirectly confer a benefit of any
kind upon Employee or the Rohdie Entities in all instances where such knowledge,
information or opportunity is received in the first instance by Employee from
his activities on behalf of TRII or its Subsidiaries, or while Employee is
directly and exclusively engaged in performing his duties as a director or
officer of TRII in TRII's business and is received as a direct result of such
activities, or in a written communication the express terms of which evidence
that it is intended to be received, and it was in fact intended to be received,
only by an officer or director of TRII in that capacity, unless otherwise
approved by a majority of the disinterested members of the Board of Directors of
TRII. The Employee also hereby agrees to apprise TRII in writing of such
opportunities in the real estate business and to impart to TRII such knowledge,
information, advice, and expertise relating to possible opportunities in the
real estate business as he may receive after the date of this Agreement. In the
event TRII fails to notify Employee of its election to exercise any such right
of first refusal within ten (10) calendar days following receipt of such notice,
TRII shall be deemed to have elected not to exercise such right of first
refusal. The right of first refusal

                                       7
<PAGE>   8

contained herein shall remain in full force and effect throughout the term of
this Agreement except with respect to those real estate opportunities for which
TRII has elected not to exercise such right of first refusal. In the event that
TRII ever elects not to exercise its right of first refusal and the real estate
opportunity is then available to Employee, Employee may take up such opportunity
on such basis as he deems appropriate without further obligation to TRII, so
long as such real estate opportunity does not interfere with the covenant of
Employee in Section 5 above to devote substantially all of his business time,
attention and energy to TRII and its subsidiaries.

14. Management of Real Estate Assets. During the term of this Agreement,
Employee will utilize his best lawful efforts to transfer to TRII and/or its
subsidiaries the right and opportunity to manage any real estate assets now or
hereafter controlled by Employee or his family which are of a type and in a
location where TRII is then managing one or more similar properties on terms
mutually acceptable to Employee and TRII.

15. Notices. Any notice or other communication required or permitted to be given
by this Agreement or any other document or instrument referred to herein or
executed in connection herewith must be given in writing (which may be by
telecopy, followed by mail or personal delivery) and must be personally
delivered or mailed by prepaid, certified or registered mail, to the party to
whom such notice or communication is directed, at the address of such party set
forth opposite his or its name on the signature page to this Agreement. Subject
to the other provisions of this Agreement, any party may change its address (or
re-designate the person to whom such notice shall be delivered) for purposes of
this Agreement by giving notice of such change to the other party pursuant to
this section. In all instances, any notice or other communication required or
permitted to be given by this Agreement shall only be effective upon actual
receipt thereof by the person intended to receive same.

16. Modification or Waiver. This Agreement may be amended, modified or
superseded and any of the terms, covenants, representations, warranties or
conditions herein may be waived, but only by a written instrument executed by
the parties hereto. No waiver of any nature, in any one or more instance, shall
be deemed to be or be construed as a further or continued waiver of any
condition or any breach of any other term, covenant, representation or warranty
in this Agreement. This Agreement and each provision hereof may not be waived,
altered, amended or modified, except in writing, duly executed by the parties
hereto. No failure to exercise and no delay in exercising, any right or power
hereunder shall operate as a waiver thereof.

17. Benefit. This Agreement shall inure to the benefit of and be binding upon
Employee, his heirs and personal representatives and TRII, its successors and
assigns. Neither this Agreement nor the rights and obligations created hereunder
may be assigned by either party without the prior written consent of the other
party.

18. Further Cooperation. To the extent that either TRII's or Employee's further
approval or other action is deemed necessary or desirable by the other party in
order to effectuate the terms and conditions of this Agreement and the matters
set forth herein, the parties hereby agree to

                                       8
<PAGE>   9

execute all reasonable documents and take all actions reasonably requested by
the other party to effectuate the terms and conditions of this Agreement.

19. Governing Law and Enforcement. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Texas, the
state in which it was negotiated, executed and delivered, without regard to any
principals of law involving conflicts of laws. Should any clause, sentence,
section or paragraph of this Agreement be judicially or administratively
declared to be invalid, unenforceable or void under the laws of the State of
Texas or the United States of America, or any agency or subdivision thereof,
such decision shall not have the effect of invalidating or voiding the remainder
of this Agreement and the parties hereto agree that the part or parts of this
Agreement so held to be invalid, unenforceable or void shall be deemed to have
been deleted here from and the remainder shall have the same force and effect as
if such part or parts had never been included herein. In the event any party
hereto shall fail to perform any of its obligations under this Agreement, such
party hereby agrees to pay all reasonable expenses, including reasonable
attorneys' fees, which may be incurred by any party hereto which is successful
in enforcing this Agreement.

20. Entire Agreement; Counterparts. This Agreement and the agreements referred
to herein constitute the entire agreement between the parties hereto concerning
the subject matter hereof, and supersedes all prior memoranda, correspondence,
conversations, and agreements. This Agreement may be executed in several
identical counterparts that together shall constitute but one and the same
instrument.

         IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.

TARRAGON REALTY INVESTORS, INC.

By:  /s/ William S. Friedman
     ------------------------------
     William S. Friedman
     President

     /s/ Robert C. Rohdie
     ------------------------------
     Robert C. Rohdie, individually

                                       9
<PAGE>   10

                                   EXHIBIT "1"

                     List and Description of Rohdie Entities

                                       10

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