Document:

exv10w3

 

Exhibit 10.3

     THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR PURSUANT TO THE SECURITIES
OR “BLUE SKY” LAWS OF ANY STATE OR FOREIGN JURISDICTION. SUCH SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT WITH RESPECT TO
SUCH SECURITIES THAT IS EFFECTIVE UNDER THE ACT, (B) RULE 144 UNDER THE ACT, OR (C) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER THE ACT, PROVIDED THAT IN THE CASE OF (C) ABOVE, IF REQUESTED BY
THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE IS
FURNISHED TO THE COMPANY STATING THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE. AN INVESTOR SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF AN
INVESTMENT IN THIS WARRANT OR THE SECURITIES ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE OF THIS
WARRANT FOR AN INDEFINITE PERIOD OF TIME.

March 27, 2008 (the “Issue Date”)

No. 1

WARRANT TO PURCHASE SHARES OF COMMON STOCK

TARRAGON CORPORATION

     This Warrant certifies that, for value received, Beachwold Partners, L.P., or its registered
assigns (the “Holder”), is entitled to purchase, at any time or from time to time after the
date hereof (the “Exercise Date”), at the purchase price of $2.35 per share (the
“Exercise Price”), up to an aggregate of 2,528,664 shares of Common Stock, par value $0.01
per share (the “Common Stock”), of Tarragon Corporation, a Nevada corporation (the
“Company”). The number of shares purchasable upon exercise of this Warrant will be subject
to adjustment as provided herein. The shares of Common Stock issuable upon exercise of this
Warrant are referred to herein as the “Warrant Shares.” This Warrant is delivered pursuant
to and contemporaneously with the Note and Warrant Purchase Agreement, dated as of the date hereof,
by and between the Company and the Holder.

ARTICLE 1

REGISTRATION, TRANSFER & EXCHANGE

1.1 REGISTRATION

     The Company will number and register this Warrant and all other warrants that it issues in a
register (the “Warrant Register”) maintained at the principal executive offices of the
Company or, in the Company’s sole discretion, at the office of any Transfer Agent (as defined in

 

 

Section 3.1(a)). The Company will be entitled to treat the Holder of this Warrant, as set
forth in the Warrant Register, as the owner of this Warrant for all purposes and will not be bound
to recognize any equitable or other claim to or interest in this Warrant on the part of any other
person.

1.2 EXCHANGE

     Subject to the terms hereof, the Holder may exchange this Warrant for another warrant or
warrants, on substantially the terms of this Warrant, collectively entitling the Holder to purchase
the same aggregate number of Warrant Shares as this Warrant then entitles the Holder to purchase,
by providing a notice to the Company of the number of new warrants to be issued to the Holder. If
the Holder desires to so exchange this Warrant, then the Holder will make such request in writing
and deliver it to the Company, along with this Warrant, and the Company will sign and deliver to
the Holder a new warrant or warrants as requested by the Holder.

ARTICLE 2

EXERCISE

2.1 GENERALLY

     (a) This Warrant may be exercised at any time or from time to time after the first anniversary
of the Issue Date, in whole or in part, if the Holder delivers to the Company, at its principal
executive office, or at the office of the Transfer Agent (as defined in Section 3.1(a)), if
any:

          (i) a statement indicating whether the Holder is exercising this Warrant in whole or in part,
and if in part (but not for a fraction of a Warrant Share and for not fewer than 5,000 Warrant
Shares), indicating the part of this Warrant which the Holder is exercising;

          (ii) this Warrant;

          (iii) a properly completed and signed purchase form in the form attached hereto (the
“Purchase Form”); and

          (iv) An amount equal to the Exercise Price multiplied by the number of Warrant Shares to be
issued upon exercise of this Warrant in whole or in part (“Aggregate Exercise Price”) in
cash by wire transfer or other immediately available funds.

     (b) As soon as practicable after the Holder makes the deliveries described in Section
2.1(a), the Company will issue and deliver to the Holder or such other person or persons as the
Holder may designate, a certificate or certificates for the number of Warrant Shares so purchased,
and, at the Company’s option pursuant to Article 5, cash in lieu of fractional Warrant
Shares.

     (c) This Warrant will be deemed to have been exercised immediately after the opening of
business on the date that all required deliveries are made in accordance with Section
2.1(a), and the person entitled to receive the Warrant Shares issuable upon such exercise will
be

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treated for all purposes as the holder of record of such Warrant Shares as of the opening of
business on such date.

     (d) If the Holder exercises this Warrant in part, a new Warrant dated as of the date of this
Warrant evidencing the unexercised rights under this Warrant will be issued and delivered to the
Holder.

2.2 MANDATORY EXERCISE

     In the event the Common Stock trades on The NASDAQ Global Select Market (“Nasdaq”) at
a volume weighted average price per share equal to or greater than 150% of the Exercise Price for
any 30-day trading period commencing after March 27, 2011 (the “Mandatory Exercise Event”),
the Company may, at its election, promptly (and in any event not more than five business days
thereafter) deliver to the Holder a written notice of the Mandatory Exercise Event, which notice
shall specify the date by which the Holder must exercise this Warrant in full in accordance with
this Section 2.2. The Holder shall have a period of 90 days following the Mandatory
Exercise Event (the “Mandatory Purchase Period”) to exercise this Warrant in full, but no
event shall such Exercise Date be later than the fifth anniversary of the Issue Date. If the
Holder does not exercise this Warrant in full prior to expiration of Mandatory Purchase Period,
this Warrant shall terminate on the date immediately following the expiration of the Mandatory
Purchase Period.

2.3 MUTILATED OR MISSING WARRANT

     If this Warrant is mutilated, then the Company will issue and deliver, in exchange and
substitution for and upon cancellation of this Warrant, a new Warrant of like tenor and
representing an equivalent right or interest. If this Warrant is lost, stolen or destroyed, then
the Company will issue and deliver, in lieu of and in substitution for this Warrant, a new Warrant
of like tenor and representing an equivalent right or interest, upon receipt of evidence and an
indemnity or security reasonably satisfactory to the Company with respect to such loss, theft or
destruction.

2.4 NO VOTING OR DIVIDEND RIGHTS

     Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the
right to vote or to receive notice as a shareholder of the Company on any other matters or any
rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or
accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares
purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised.

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ARTICLE 3

CERTAIN ASSURANCES

3.1 RESERVATION OF WARRANT SHARES

     (a) To satisfy the Company’s obligations to issue Warrant Shares upon the surrender of this
Warrant, the Company will at all times reserve, and keep available and free from preemptive rights,
out of its authorized but unissued shares of Common Stock or out of shares of Common Stock held in
treasury, the full number of Warrant Shares that remain deliverable upon the exercise of this
Warrant. The Company represents that it, or, if appointed, any transfer agent for the Common Stock
(or any securities into which the Common Stock may be exercised, converted or exchanged) (the
“Transfer Agent”), will be irrevocably authorized and directed at all times to reserve such
number of authorized shares as will be required for such purpose. The Company will keep a copy of
this Warrant on file with any Transfer Agent. The Company will furnish the Transfer Agent with a
copy of all notices of adjustments and modifications and certificates related thereto which are
transmitted to the Holder pursuant to Article 4.

     (b) All Warrant Shares issuable upon exercise of this Warrant will, upon issuance pursuant to
the terms and conditions herein, be fully paid and nonassessable shares of Common Stock, free from
preemptive rights and free from all taxes with respect to the issuance thereof, and all liens,
charges, encumbrances and security interests, except for restrictions on transfer provided for
herein or under applicable Federal and state securities laws.

3.2 NO IMPAIRMENT

     The Company will not, by amendment of its Articles of Incorporation or Bylaws, or through
reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against the avoidance of observance or performance of any of the terms of
this Warrant.

ARTICLE 4

ADJUSTMENTS

4.1 ADJUSTMENT OF TERMS

     The number of Warrant Shares purchasable upon exercise of this Warrant and the other terms of
this Warrant will be subject to adjustment from time to time upon the happening of certain events
as hereinafter described, provided that, notwithstanding anything to the contrary, no more than one
adjustment will be made with respect to any single event.

4.2 STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS

     If the Company at any time subdivides (by any stock split, stock dividend, recapitalization,
reclassification or otherwise) one or more classes of its outstanding Common Shares into a greater
number of shares, the Warrant Shares in effect immediately prior to such

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subdivision will be proportionately increased. If the Company at any time combines (by
reverse stock split, reclassification or otherwise) one or more classes of its outstanding Common
Shares into a smaller number of shares, the Warrant Shares in effect immediately prior to such
combination will be proportionately decreased. The provisions of this Section 4.2 shall
apply to successive dividends, subdivisions and combinations specified in this Section 4.2
and shall be subject to further adjustment thereafter as provided in this Article 4.

4.3 MERGERS; CONSOLIDATIONS; RECLASSIFICATIONS

     In case at any time or from time to time, the Company shall (a) effect a capital
reorganization, reclassification or recapitalization, (b) consolidate with, combine with or merge
into any other person or (c) transfer all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of the Company, then in
each such case, the Holder of this Warrant, on the exercise hereof as provided in Article 2
hereof at any time after the consummation of such reorganization, recapitalization, consolidation
or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of
the Warrant Shares (or other securities) issuable on such exercise prior to such consummation or
effective date, the stock and other securities and property (including cash) to which such Holder
would have been entitled upon such consummation or in connection with such dissolution, as the case
may be, if such holder had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in this Article 4. The provisions of this
Section 4.3 shall similarly apply to successive capital reorganizations, reclassifications,
mergers, combinations or consolidations.

4.4 NOTICE OF ADJUSTMENT

     Whenever the number of Warrant Shares purchasable upon exercise of this Warrant or other terms
of this Warrant are adjusted pursuant to this Article 4, the Company will compute or
determine the adjusted terms in accordance with the foregoing provisions and will prepare a
certificate setting forth such adjusted terms and showing in reasonable detail the facts upon which
such adjustment is based. A copy of such certificate will be filed promptly with the Transfer
Agent, if one has been appointed. Promptly after delivery of such certificate, the Company will
prepare a notice setting forth the adjustments made and the date on which such adjustments become
effective and will mail such notice of such adjustment to the Holder. The Company will give
written notice to the Holder at least 10 days prior to the date on which the Company closes its
books or takes a record for determining rights to receive any dividends or distributions. The
Company will give written notice to the Holder at least 10 days prior to the date on which any
reorganization, consolidation or merger will take place.

4.5 STATEMENT OF WARRANT

     Irrespective of any adjustments in the number or kind of securities purchasable upon the
exercise of this Warrant or in the other terms of this Warrant, this Warrant may continue to
express the same terms but will be interpreted to reflect the adjustments.

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ARTICLE 5

FRACTIONAL INTERESTS

     The Company may, but will not be required to, issue fractional Warrant Shares on the exercise
of this Warrant. If any fraction of a Warrant Share would be issuable on the exercise of this
Warrant (or specified portion thereof), then the Company may, in its sole discretion, issue such
fraction of a Warrant Share or pay to the Holder (or its permitted designee) an amount in cash
equal to the Market Price (as defined below) per share of Common Stock computed as of the Business
Day immediately preceding the date this Warrant is presented for exercise, multiplied by such
fraction (but in no event less than an amount equal to such fraction multiplied by the Exercise
Price in effect at such time).

     For purposes of Article 5, if the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or is listed on Nasdaq,
the Market Price as of a specified day will be the last reported sale price of Common Stock on such
exchange or on the Nasdaq on such date or if no such sale is made on such day, the mean of the
closing bid and asked prices for such day on such exchange or on Nasdaq, each as reported by
The Wall Street Journal, or if no such publication exists, a reasonably acceptable
alternative publication. If the Common Stock is not so listed or admitted to unlisted trading
privileges, the “Market Price” as of a specified day will be the mean of the last bid and
asked prices reported on such date by the National Quotation Bureau Incorporated. If the Common
Stock is primarily traded in another market, the Market Price will be determined in a manner
specified by the Board of Directors of the Company using quotations in such other market. If the
Common Stock is not traded in any market, the Market Price will be determined in good faith by a
resolution of the Board of Directors of the Company as of a date that is within 15 days of the date
as of which the determination is to be made.

ARTICLE 6

COMPANY’S REPRESENTATIONS AND WARRANTIES

     The Company represents and warrants to the Holder as follows:

6.1 AUTHORITY, VALIDITY AND EFFECT

     The execution and delivery by the Company of this Warrant and the performance of all
obligations of the Company hereunder, including the issuance to the Holder of the right to acquire
the Warrant Shares hereunder, have been duly authorized by all necessary corporate action on the
part of the Company, and this Warrant constitutes a legal, valid and binding agreement of the
Company, enforceable in accordance with its remaining terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors
generally, and subject to general principles of equity. The execution and delivery of this Warrant
by the Company does not violate or conflict with the Company’s Articles of Incorporation or Bylaws.

6.2 CONSENTS AND APPROVALS

     No consent or approval of, giving notice to, registration with, or taking of any other action
in respect of any state, federal or other governmental authority or agency is required in

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connection with the execution, delivery and performance by the Company of its obligations under
this Warrant, except for any filing required by applicable Federal and state securities laws, which
filings will be made by the time required by such laws.

ARTICLE 7

HOLDER’S REPRESENTATIONS, WARRANTIES AND COVENANTS

The Holder represents and warrants to the Company as follows:

7.1 INVESTOR QUALIFICATIONS

     (a) The Holder has made an independent investigation of, and is familiar with, the
business of the Company, has had an opportunity to discuss the Company’s business,
management, properties and financial condition with management and has had the opportunity
to obtain (and has obtained to its satisfaction) such information about the Company’s
business, management, properties and financial condition as it has requested. The Holder
further represents that it has requested, received, reviewed and considered all information
it deems relevant in making its decision to purchase this Warrant and the Warrant Shares
issuable upon exercise of this Warrant.

     (b) The Holder has consulted with its own advisers as to the financial, tax, legal and
related matters concerning an investment in this Warrant and the Warrant Shares and on that
basis believes that an investment in this Warrant and the Warrant Shares is suitable and
appropriate for the Holder. The Holder and its advisers have such knowledge and experience
in financial, tax and business matters so as to enable the Holder to utilize the information
made available to the Holder in connection with the investment contemplated hereby to
evaluate the merits and risks of an investment in the Company and to make an informed
investment decision with respect thereto. The Holder is familiar with the type of
investment that this Warrant constitutes and recognizes that an investment in the Company
involves substantial risks, including significant risk of loss, including the loss of the
entire amount of such investment.

     (c) The Holder hereby acknowledges that this Warrant is not, and the Warrant Shares
issuable upon exercise of thereof will not be, registered under the Securities Act of 1933
(the “Securities Act”) or registered or qualified for sale pursuant to the
applicable securities or Blue Sky laws of any state or foreign jurisdiction by reason of a
specific exemption from the registration requirements thereof, the availability of which
depends upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Holder’s representations, warranties and covenants set forth herein. The
Holder is acquiring this Warrant, and the Warrant Shares issuable upon exercise thereof, for
its own account as principal, for investment purposes and has no present intention to
dispose of this Warrant or the Warrant Shares issuable upon exercise thereof, in whole or in
part, or of any interest in this Warrant or the Warrant Shares issuable upon exercise
thereof, to any other Person whether by public distribution or otherwise. The Holder
represents that it is an “accredited investor” (as defined in Rule 501(a) of Regulation D
under the Securities Act).

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     (d) The Holder was offered this Warrant and the Warrant Shares through private
negotiations and not through any general solicitation or general advertising.

     (e) Neither the Company nor any other Person is under any obligation (except as
expressly set forth therein) to register this Warrant or any Warrant Shares issuable upon
the exercise thereof, under the Securities Act or any applicable securities laws of the
United States or any other country or any state or province of the United States or any
other country or to comply with the terms and conditions of any exemption thereunder.

7.2 TRANSFER RESTRICTIONS

     (a) This Warrant and the Warrant Shares shall bear a legend in substantially the
following form:

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
“ACT”) OR PURSUANT TO THE SECURITIES OR “BLUE SKY” LAWS OF ANY STATE OR FOREIGN
JURISDICTION. SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT WITH RESPECT
TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT, (B) RULE 144 UNDER THE ACT,
OR (C) ANY OTHER EXEMPTION FROM REGISTRATION UNDER THE ACT, PROVIDED THAT IN THE
CASE OF (C) ABOVE, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM, SCOPE AND SUBSTANCE IS FURNISHED TO THE COMPANY STATING
THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE.
AN INVESTOR SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF AN INVESTMENT IN THIS WARRANT OR THE SECURITIES ISSUABLE UPON EXERCISE,
CONVERSION OR EXCHANGE OF THIS WARRANT FOR AN INDEFINITE PERIOD OF TIME.

     (b) This Warrant and the Warrant Shares (and any other security) issuable upon
exercise, conversion or exchange of this Warrant have not been registered under the
Securities Act or pursuant to the applicable securities or Blue Sky laws of any state or
foreign jurisdiction and may not be offered, sold, transferred, pledged, hypothecated or
otherwise assigned, in whole or in part, without compliance with applicable federal
securities laws and the applicable securities or Blue Sky laws of any state or foreign
jurisdiction by the transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions reasonably satisfactory to
the Company).

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     (c) Prior to any transfer of any Warrant Shares that are not registered pursuant to an
effective registration statement under the Securities Act (other than a transfer pursuant to
Rule 144 or any comparable rule under the Securities Act), the Holder shall give written
notice to the Company of its intention to effect such transfer and to comply in all other
respects with this Section 7.2. Each such notice shall designate counsel for the
Holder, which counsel shall be reasonably satisfactory to the Company and shall describe the
manner and circumstances of the proposed transfer in sufficient detail to enable counsel to
render the opinion referred to below. The following provisions shall then apply:

          (i) If in the written opinion of such counsel for the Holder, obtained at the Holder’s
sole cost and expense and a copy of which shall be furnished to, and shall be reasonably
satisfactory in form, scope and substance to, the Company, an exemption from the
registration requirements of the Securities Act is available with respect to the transfer of
this Warrant or Warrant Shares, the Holder shall thereupon be entitled to transfer this
Warrant or any Warrant Shares in accordance with the terms of the notice delivered by the
Holder to the Company. This Warrant and each Warrant Share or certificate, if any, issued
upon or in connection with such transfer shall bear the appropriate restrictive legend set
forth in Section 7.2(a) unless, in the opinion of such counsel, the first such
legend is no longer required to insure compliance with applicable federal securities laws
and the applicable securities or Blue Sky laws of any state or foreign jurisdiction.

          (ii) If the opinion of such counsel rendered pursuant to the foregoing subdivision (i)
is not to the effect that an exemption from the registration requirements of the Securities
Act is available with respect to the transfer of this Warrant or any Warrant Shares (such
opinion to state the basis of the legal conclusions reached therein), the Holder shall not
be entitled to transfer this Warrant or such Warrant Shares (other than a transfer in
compliance with Rule 144 or any comparable rule under the Securities Act) until receipt by
the Company of a further notice and a further opinion of counsel for the Holder to the
effect stated in subdivision (i) above or until registration of this Warrant or such Warrant
Shares under applicable federal securities laws and the applicable securities or Blue Sky
laws of any state or foreign jurisdiction has become effective.

     (d) The Holder is aware of the provisions of Rule 144 promulgated under the Securities
Act. Any sale of this Warrant, or any Warrant Shares issuable upon the exercise thereof,
made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of this Warrant or any Warrant Shares
issuable upon the exercise thereof, under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as the term is defined in
the Securities Act) may require compliance with some other exemption under the Securities
Act or the rules and regulations of the Securities and Exchange Commission thereunder.

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7.3 MARKET STANDOFF

     The Holder agrees that if so requested by the Company or any representative of the
underwriters in connection with registration of a public offering of any securities of the Company
under the Securities Act, the Holder shall not sell or otherwise transfer any Warrant Shares or
other securities of the Company during the 10 days prior and the 90-day period following the
effective date of such registration statement. The Company may impose stop transfer instructions
with respect to securities subject to the foregoing restrictions until the end of such 90-day
period.

7.4 INDEMNIFICATION

     The Holder hereby agrees to indemnify the Company and hold it harmless against all
liabilities, claims, costs or expenses arising out of or resulting from any misrepresentation or
breach of any covenant made by the Holder in this Warrant.

ARTICLE 8

MISCELLANEOUS

8.1 TERMINATION

     The purchase right represented by this Warrant shall expire at 5:00 p.m., New York City time,
on the fifth anniversary of the Issue Date, unless earlier terminated in accordance with
Section 2.2 hereof (any such time, the “Termination Time”). If this Warrant is not
exercised on or before the Termination Time, it shall become void, and all rights hereunder shall
thereupon cease.

8.2 AMENDMENT AND MODIFICATION

     This Warrant may not be amended or modified, nor may any provision hereof be waived, unless
such amendment, modification or waiver is set forth in writing executed by the Company and the
Holder. If there is a waiver of any provision of this Warrant, the remainder of this Warrant will
not be affected. No course of dealing or course of conduct between or among any person or entity
having any interest in this Warrant will be deemed effective to modify, amend or waive any part of
this Warrant or any rights or obligations of any person or entity under or by reason of this
Agreement.

8.3 WAIVER

     The parties’ rights hereunder are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power, or privilege hereunder will operate as a waiver
of such right, power, or privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent permitted by applicable
law: (a) no claim or right arising out of this Warrant can be discharged by a party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a

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waiver of any obligation of such party or of the right of the party giving such notice or demand to
take further action without notice or demand as provided herein.

8.4 FURTHER ASSURANCES

     The parties will cooperate reasonably with each other and with their respective
representatives in connection with any steps required to be taken as part of their respective
obligations under this Warrant, and the parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other documents and (c) to
do such other acts and things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Warrant.

8.5 SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT

     This Agreement and all of the provisions hereof will be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. This Warrant sets forth the
entire agreement and understanding between the parties as to the subject matter hereof and merges
and supersedes all prior discussions, agreements and understandings of any and every nature among
them.

8.6 SEVERABILITY

     If any provision of this Warrant or the application of any provision hereof is declared to be
illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Warrant will not be affected.

8.7 NOTICES

     Any notice, demand, delivery or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or facsimile, or sent, postage
prepaid, by registered, certified or express mail, or reputable overnight courier service and shall
be deemed given when so delivered by hand or facsimile, or if mailed, five business days after
mailing (two business days in the case of express mail or overnight courier service), as follows
(or at such other address as may have been furnished to the Company or the Holder, as the case may
be, in writing by the Company or the Holder from time to time):

if to the Company:

Tarragon Corporation

423 West 55th Street, 12th Floor

New York, New York 10019

Attention: William S. Friedman

Facsimile: (212) 949-8001

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with a copy to:

Tarragon Corporation

3100 Monticello Avenue, Suite 200

Dallas, Texas 75205

Attn: Kathryn Mansfield

Facsimile: (214) 599-2220

if to the Holder:

Beachwold Partners, L.P.

423 West 55th Street, 12th Floor

New York, New York 10019

Attn: William S. Friedman

Facsimile: 212 949-8001

8.8 GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS

     The validity, performance, construction and effect of this Agreement will be governed by and
construed in accordance with the internal law of the State of Nevada, without giving effect to
principles of conflicts of law thereof and all parties, including their successors and assigns,
consent to the jurisdiction of the state and federal courts of the State of Nevada. The parties
hereto hereby declare that it is their intention that this Agreement will be regarded as made under
the laws of the State of Nevada and that the laws of the State of Nevada will be applied in
interpreting its provisions in all cases where legal interpretation will be required. Each of the
parties hereto hereby irrevocably and unconditionally agrees (a) to be subject to the exclusive
jurisdiction of the courts of the State of Nevada and of the federal courts sitting in the State of
Nevada, and (b)(i) to the extent such party is not otherwise subject to service of process in the
State of Nevada, to appoint and maintain an agent in the State of Nevada as such party’s agent for
acceptance of legal process, and (ii) that, to the fullest extent permitted by applicable law,
service of process may also be made on such party by prepaid certified mail with a proof of mailing
receipt validated by the United States Postal Service constituting evidence of valid service, and
that service made pursuant to (b) (i) or (ii) above shall, to the fullest extent permitted by
applicable law, have the same legal force and effect as if served upon such party personally within
the State of Nevada.

8.9 THIRD PARTY BENEFICIARIES

     Nothing in this Warrant will be construed to give to any person or entity other than the
Company and the Holder and their respective permitted transferees and assigns any legal or
equitable right, remedy or claim under this Warrant and this Warrant will be for the sole and
exclusive benefit of the Company and the Holder and their respective permitted transferees and
assigns.

8.10 HEADINGS

     The headings in this Agreement are for convenience of reference only and will not constitute a
part of this Agreement, nor will they affect their meaning, construction or effect.

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8.11 COUNTERPARTS

     This Agreement may be executed in counterparts, each of which when so executed will be deemed
to be an original, and all of which taken together will constitute one and the same instrument.

(Signature Page Follows)

13

 

     The Company and the Holder have caused this Warrant to be executed on the date first written
above.

	 	 	 	 	 
	 	TARRAGON CORPORATION

 	 
	 	By:  	/s/ Charles D. Rubenstein
 	 
	 	 	Charles D. Rubenstein 	 
	 	 	Executive Vice President 	 
	 
	 	BEACHWOLD PARTNERS, L.P.

 	 
	 	By:  	/s/ William S. Friedman
 	 
	 	 	William S. Friedman 	 
	 	 	General Partner 	 
	 

S-1

 

PURCHASE
FORM

(To be executed upon exercise of Warrant)

     The undersigned hereby irrevocably elects to exercise the right, represented by the attached
Warrant, to purchase
                     shares of Common Stock as provided for therein and pursuant to the
terms of Section 2.1 of the attached Warrant, tenders to the Company herewith cash by wire
transfer or other immediately available funds, or a combination thereof, the amount of $                    ,
as payment of the purchase price for such shares in full.

     The undersigned requests that a certificate for such shares of Common Stock be registered in
the name of and delivered to :

	 	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 

 

 

     If the number of shares of Common Stock being surrendered is less than all of the shares of
Common Stock purchasable hereunder, then the undersigned requests that a new Warrant representing
the right to purchase the remaining balance of the shares of Common Stock be registered in the name
of and delivered to:

	 	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 

	 	 	 	 	 
	Date:

	 	 	 	 
	 

	 	 	 	 

	 	 	 
	 
	 

(Insert I.R.S. Employer Identification Number, social security

	 	 
	or other identifying number of the Holder)
	 	 

	 	 	 	 	 
	 	 	 
	 

	 	 	 	(print name of the Holder)
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 

	 	Note:
	 	 Signature must conform in all
respects to name of the Holder as specified
on the face of the attached Warrant in every
particular, without alteration or enlargement
or any change whatsoever, unless the attached
Warrant has been validly assigned in
accordance with its terms.

 

 

ASSIGNMENT

(To be executed only upon assignment

of the Warrant)

     For value received, and in compliance with Section 1.2 of the attached Warrant, the
undersigned hereby sells, assigns and transfers unto:

	 	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 

the attached Warrant, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint                       , attorney, to transfer the Warrant on the
books of the Company, with full power of substitution in the premises.

	 	 	 	 	 
	Date:

	 	 	 	 
	 

	 	 	 	 

	 	 	 	 	 
	 	 	 
	 

	 	 	 	(print name of the Holder)
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 

	 	Note:
	 	Signature must conform in all
respects to name of the Holder as specified
on the face of the attached Warrant in every
particular, without alteration or
enlargement or any change whatsoever, unless
the attached Warrant has been validly
assigned in accordance with its terms.exv10w4

 

Exhibit 10.4

     THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR PURSUANT TO THE SECURITIES
OR “BLUE SKY” LAWS OF ANY STATE OR FOREIGN JURISDICTION. SUCH SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT WITH RESPECT TO
SUCH SECURITIES THAT IS EFFECTIVE UNDER THE ACT, (B) RULE 144 UNDER THE ACT, OR (C) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER THE ACT, PROVIDED THAT IN THE CASE OF (C) ABOVE, IF REQUESTED BY
THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE IS
FURNISHED TO THE COMPANY STATING THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE. AN INVESTOR SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF AN
INVESTMENT IN THIS WARRANT OR THE SECURITIES ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE OF THIS
WARRANT FOR AN INDEFINITE PERIOD OF TIME.

March 27, 2008 (the “Issue Date”)

No. 2

WARRANT TO PURCHASE SHARES OF COMMON STOCK

TARRAGON CORPORATION

     This Warrant certifies that, for value received, Robert P. Rothenberg, or its registered
assigns (the “Holder”), is entitled to purchase, at any time or from time to time after the
date hereof (the “Exercise Date”), at the purchase price of $2.35 per share (the
“Exercise Price”), up to an aggregate of 971,336 shares of Common Stock, par value $0.01
per share (the “Common Stock”), of Tarragon Corporation, a Nevada corporation (the
“Company”). The number of shares purchasable upon exercise of this Warrant will be subject
to adjustment as provided herein. The shares of Common Stock issuable upon exercise of this
Warrant are referred to herein as the “Warrant Shares.” This Warrant is delivered pursuant
to and contemporaneously with the Note and Warrant Purchase Agreement, dated as of the date hereof,
by and between the Company and the Holder.

ARTICLE 1

REGISTRATION, TRANSFER & EXCHANGE

1.1 REGISTRATION

     The Company will number and register this Warrant and all other warrants that it issues in a
register (the “Warrant Register”) maintained at the principal executive offices of the
Company or, in the Company’s sole discretion, at the office of any Transfer Agent (as defined in

 

 

Section 3.1(a)). The Company will be entitled to treat the Holder of this Warrant, as set
forth in the Warrant Register, as the owner of this Warrant for all purposes and will not be bound
to recognize any equitable or other claim to or interest in this Warrant on the part of any other
person.

1.2 EXCHANGE

     Subject to the terms hereof, the Holder may exchange this Warrant for another warrant or
warrants, on substantially the terms of this Warrant, collectively entitling the Holder to purchase
the same aggregate number of Warrant Shares as this Warrant then entitles the Holder to purchase,
by providing a notice to the Company of the number of new warrants to be issued to the Holder. If
the Holder desires to so exchange this Warrant, then the Holder will make such request in writing
and deliver it to the Company, along with this Warrant, and the Company will sign and deliver to
the Holder a new warrant or warrants as requested by the Holder.

ARTICLE 2

EXERCISE

2.1 GENERALLY

     (a) This Warrant may be exercised at any time or from time to time after the first anniversary
of the Issue Date, in whole or in part, if the Holder delivers to the Company, at its principal
executive office, or at the office of the Transfer Agent (as defined in Section 3.1(a)), if
any:

          (i) a statement indicating whether the Holder is exercising this Warrant in whole or in part,
and if in part (but not for a fraction of a Warrant Share and for not fewer than 5,000 Warrant
Shares), indicating the part of this Warrant which the Holder is exercising;

          (ii) this Warrant;

          (iii) a properly completed and signed purchase form in the form attached hereto (the
“Purchase Form”); and

          (iv) An amount equal to the Exercise Price multiplied by the number of Warrant Shares to be
issued upon exercise of this Warrant in whole or in part (“Aggregate Exercise Price”) in
cash by wire transfer or other immediately available funds.

     (b) As soon as practicable after the Holder makes the deliveries described in Section
2.1(a), the Company will issue and deliver to the Holder or such other person or persons as the
Holder may designate, a certificate or certificates for the number of Warrant Shares so purchased,
and, at the Company’s option pursuant to Article 5, cash in lieu of fractional Warrant
Shares.

     (c) This Warrant will be deemed to have been exercised immediately after the opening of
business on the date that all required deliveries are made in accordance with Section
2.1(a), and the person entitled to receive the Warrant Shares issuable upon such exercise will
be

2

 

treated for all purposes as the holder of record of such Warrant Shares as of the opening of
business on such date.

     (d) If the Holder exercises this Warrant in part, a new Warrant dated as of the date of this
Warrant evidencing the unexercised rights under this Warrant will be issued and delivered to the
Holder.

2.2 MANDATORY EXERCISE

     In the event the Common Stock trades on The NASDAQ Global Select Market (“Nasdaq”) at
a volume weighted average price per share equal to or greater than 150% of the Exercise Price for
any 30-day trading period commencing after March 27, 2011 (the “Mandatory Exercise Event”),
the Company may, at its election, promptly (and in any event not more than five business days
thereafter) deliver to the Holder a written notice of the Mandatory Exercise Event, which notice
shall specify the date by which the Holder must exercise this Warrant in full in accordance with
this Section 2.2. The Holder shall have a period of 90 days following the Mandatory
Exercise Event (the “Mandatory Purchase Period”) to exercise this Warrant in full, but no
event shall such Exercise Date be later than the fifth anniversary of the Issue Date. If the
Holder does not exercise this Warrant in full prior to expiration of Mandatory Purchase Period,
this Warrant shall terminate on the date immediately following the expiration of the Mandatory
Purchase Period.

2.3 MUTILATED OR MISSING WARRANT

     If this Warrant is mutilated, then the Company will issue and deliver, in exchange and
substitution for and upon cancellation of this Warrant, a new Warrant of like tenor and
representing an equivalent right or interest. If this Warrant is lost, stolen or destroyed, then
the Company will issue and deliver, in lieu of and in substitution for this Warrant, a new Warrant
of like tenor and representing an equivalent right or interest, upon receipt of evidence and an
indemnity or security reasonably satisfactory to the Company with respect to such loss, theft or
destruction.

2.4 NO VOTING OR DIVIDEND RIGHTS

     Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the
right to vote or to receive notice as a shareholder of the Company on any other matters or any
rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or
accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares
purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised.

3

 

ARTICLE 3

CERTAIN ASSURANCES

3.1 RESERVATION OF WARRANT SHARES

     (a) To satisfy the Company’s obligations to issue Warrant Shares upon the surrender of this
Warrant, the Company will at all times reserve, and keep available and free from preemptive rights,
out of its authorized but unissued shares of Common Stock or out of shares of Common Stock held in
treasury, the full number of Warrant Shares that remain deliverable upon the exercise of this
Warrant. The Company represents that it, or, if appointed, any transfer agent for the Common Stock
(or any securities into which the Common Stock may be exercised, converted or exchanged) (the
“Transfer Agent”), will be irrevocably authorized and directed at all times to reserve such
number of authorized shares as will be required for such purpose. The Company will keep a copy of
this Warrant on file with any Transfer Agent. The Company will furnish the Transfer Agent with a
copy of all notices of adjustments and modifications and certificates related thereto which are
transmitted to the Holder pursuant to Article 4.

     (b) All Warrant Shares issuable upon exercise of this Warrant will, upon issuance pursuant to
the terms and conditions herein, be fully paid and nonassessable shares of Common Stock, free from
preemptive rights and free from all taxes with respect to the issuance thereof, and all liens,
charges, encumbrances and security interests, except for restrictions on transfer provided for
herein or under applicable Federal and state securities laws.

3.2 NO IMPAIRMENT

     The Company will not, by amendment of its Articles of Incorporation or Bylaws, or through
reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against the avoidance of observance or performance of any of the terms of
this Warrant.

ARTICLE 4

ADJUSTMENTS

4.1 ADJUSTMENT OF TERMS

     The number of Warrant Shares purchasable upon exercise of this Warrant and the other terms of
this Warrant will be subject to adjustment from time to time upon the happening of certain events
as hereinafter described, provided that, notwithstanding anything to the contrary, no more than one
adjustment will be made with respect to any single event.

4.2 STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS

     If the Company at any time subdivides (by any stock split, stock dividend, recapitalization,
reclassification or otherwise) one or more classes of its outstanding Common Shares into a greater
number of shares, the Warrant Shares in effect immediately prior to such

4

 

subdivision will be proportionately increased. If the Company at any time combines (by
reverse stock split, reclassification or otherwise) one or more classes of its outstanding Common
Shares into a smaller number of shares, the Warrant Shares in effect immediately prior to such
combination will be proportionately decreased. The provisions of this Section 4.2 shall
apply to successive dividends, subdivisions and combinations specified in this Section 4.2
and shall be subject to further adjustment thereafter as provided in this Article 4.

4.3 MERGERS; CONSOLIDATIONS; RECLASSIFICATIONS

     In case at any time or from time to time, the Company shall (a) effect a capital
reorganization, reclassification or recapitalization, (b) consolidate with, combine with or merge
into any other person or (c) transfer all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of the Company, then in
each such case, the Holder of this Warrant, on the exercise hereof as provided in Article 2
hereof at any time after the consummation of such reorganization, recapitalization, consolidation
or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of
the Warrant Shares (or other securities) issuable on such exercise prior to such consummation or
effective date, the stock and other securities and property (including cash) to which such Holder
would have been entitled upon such consummation or in connection with such dissolution, as the case
may be, if such holder had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in this Article 4. The provisions of this
Section 4.3 shall similarly apply to successive capital reorganizations, reclassifications,
mergers, combinations or consolidations.

4.4 NOTICE OF ADJUSTMENT

     Whenever the number of Warrant Shares purchasable upon exercise of this Warrant or other terms
of this Warrant are adjusted pursuant to this Article 4, the Company will compute or
determine the adjusted terms in accordance with the foregoing provisions and will prepare a
certificate setting forth such adjusted terms and showing in reasonable detail the facts upon which
such adjustment is based. A copy of such certificate will be filed promptly with the Transfer
Agent, if one has been appointed. Promptly after delivery of such certificate, the Company will
prepare a notice setting forth the adjustments made and the date on which such adjustments become
effective and will mail such notice of such adjustment to the Holder. The Company will give
written notice to the Holder at least 10 days prior to the date on which the Company closes its
books or takes a record for determining rights to receive any dividends or distributions. The
Company will give written notice to the Holder at least 10 days prior to the date on which any
reorganization, consolidation or merger will take place.

4.5 STATEMENT OF WARRANT

     Irrespective of any adjustments in the number or kind of securities purchasable upon the
exercise of this Warrant or in the other terms of this Warrant, this Warrant may continue to
express the same terms but will be interpreted to reflect the adjustments.

5

 

ARTICLE 5

FRACTIONAL INTERESTS

     The Company may, but will not be required to, issue fractional Warrant Shares on the exercise
of this Warrant. If any fraction of a Warrant Share would be issuable on the exercise of this
Warrant (or specified portion thereof), then the Company may, in its sole discretion, issue such
fraction of a Warrant Share or pay to the Holder (or its permitted designee) an amount in cash
equal to the Market Price (as defined below) per share of Common Stock computed as of the Business
Day immediately preceding the date this Warrant is presented for exercise, multiplied by such
fraction (but in no event less than an amount equal to such fraction multiplied by the Exercise
Price in effect at such time).

     For purposes of Article 5, if the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or is listed on Nasdaq,
the Market Price as of a specified day will be the last reported sale price of Common Stock on such
exchange or on the Nasdaq on such date or if no such sale is made on such day, the mean of the
closing bid and asked prices for such day on such exchange or on Nasdaq, each as reported by
The Wall Street Journal, or if no such publication exists, a reasonably acceptable
alternative publication. If the Common Stock is not so listed or admitted to unlisted trading
privileges, the “Market Price” as of a specified day will be the mean of the last bid and
asked prices reported on such date by the National Quotation Bureau Incorporated. If the Common
Stock is primarily traded in another market, the Market Price will be determined in a manner
specified by the Board of Directors of the Company using quotations in such other market. If the
Common Stock is not traded in any market, the Market Price will be determined in good faith by a
resolution of the Board of Directors of the Company as of a date that is within 15 days of the date
as of which the determination is to be made.

ARTICLE 6

COMPANY’S REPRESENTATIONS AND WARRANTIES

     The Company represents and warrants to the Holder as follows:

6.1 AUTHORITY, VALIDITY AND EFFECT

     The execution and delivery by the Company of this Warrant and the performance of all
obligations of the Company hereunder, including the issuance to the Holder of the right to acquire
the Warrant Shares hereunder, have been duly authorized by all necessary corporate action on the
part of the Company, and this Warrant constitutes a legal, valid and binding agreement of the
Company, enforceable in accordance with its remaining terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors
generally, and subject to general principles of equity. The execution and delivery of this Warrant
by the Company does not violate or conflict with the Company’s Articles of Incorporation or Bylaws.

6.2 CONSENTS AND APPROVALS

     No consent or approval of, giving notice to, registration with, or taking of any other action
in respect of any state, federal or other governmental authority or agency is required in

6

 

connection with the execution, delivery and performance by the Company of its obligations under
this Warrant, except for any filing required by applicable Federal and state securities laws, which
filings will be made by the time required by such laws.

ARTICLE 7

HOLDER’S REPRESENTATIONS, WARRANTIES AND COVENANTS

The Holder represents and warrants to the Company as follows:

7.1 INVESTOR QUALIFICATIONS

     (a) The Holder has made an independent investigation of, and is familiar with, the
business of the Company, has had an opportunity to discuss the Company’s business,
management, properties and financial condition with management and has had the opportunity
to obtain (and has obtained to its satisfaction) such information about the Company’s
business, management, properties and financial condition as it has requested. The Holder
further represents that it has requested, received, reviewed and considered all information
it deems relevant in making its decision to purchase this Warrant and the Warrant Shares
issuable upon exercise of this Warrant.

     (b) The Holder has consulted with its own advisers as to the financial, tax, legal and
related matters concerning an investment in this Warrant and the Warrant Shares and on that
basis believes that an investment in this Warrant and the Warrant Shares is suitable and
appropriate for the Holder. The Holder and its advisers have such knowledge and experience
in financial, tax and business matters so as to enable the Holder to utilize the information
made available to the Holder in connection with the investment contemplated hereby to
evaluate the merits and risks of an investment in the Company and to make an informed
investment decision with respect thereto. The Holder is familiar with the type of
investment that this Warrant constitutes and recognizes that an investment in the Company
involves substantial risks, including significant risk of loss, including the loss of the
entire amount of such investment.

     (c) The Holder hereby acknowledges that this Warrant is not, and the Warrant Shares
issuable upon exercise of thereof will not be, registered under the Securities Act of 1933
(the “Securities Act”) or registered or qualified for sale pursuant to the
applicable securities or Blue Sky laws of any state or foreign jurisdiction by reason of a
specific exemption from the registration requirements thereof, the availability of which
depends upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Holder’s representations, warranties and covenants set forth herein. The
Holder is acquiring this Warrant, and the Warrant Shares issuable upon exercise thereof, for
its own account as principal, for investment purposes and has no present intention to
dispose of this Warrant or the Warrant Shares issuable upon exercise thereof, in whole or in
part, or of any interest in this Warrant or the Warrant Shares issuable upon exercise
thereof, to any other Person whether by public distribution or otherwise. The Holder
represents that it is an “accredited investor” (as defined in Rule 501(a) of Regulation D
under the Securities Act).

7

 

     (d) The Holder was offered this Warrant and the Warrant Shares through private
negotiations and not through any general solicitation or general advertising.

     (e) Neither the Company nor any other Person is under any obligation (except as
expressly set forth therein) to register this Warrant or any Warrant Shares issuable upon
the exercise thereof, under the Securities Act or any applicable securities laws of the
United States or any other country or any state or province of the United States or any
other country or to comply with the terms and conditions of any exemption thereunder.

7.2 TRANSFER RESTRICTIONS

     (a) This Warrant and the Warrant Shares shall bear a legend in substantially the
following form:

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
“ACT”) OR PURSUANT TO THE SECURITIES OR “BLUE SKY” LAWS OF ANY STATE OR FOREIGN
JURISDICTION. SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT WITH RESPECT
TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT, (B) RULE 144 UNDER THE ACT,
OR (C) ANY OTHER EXEMPTION FROM REGISTRATION UNDER THE ACT, PROVIDED THAT IN THE
CASE OF (C) ABOVE, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM, SCOPE AND SUBSTANCE IS FURNISHED TO THE COMPANY STATING
THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE.
AN INVESTOR SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF AN INVESTMENT IN THIS WARRANT OR THE SECURITIES ISSUABLE UPON EXERCISE,
CONVERSION OR EXCHANGE OF THIS WARRANT FOR AN INDEFINITE PERIOD OF TIME.

     (b) This Warrant and the Warrant Shares (and any other security) issuable upon
exercise, conversion or exchange of this Warrant have not been registered under the
Securities Act or pursuant to the applicable securities or Blue Sky laws of any state or
foreign jurisdiction and may not be offered, sold, transferred, pledged, hypothecated or
otherwise assigned, in whole or in part, without compliance with applicable federal
securities laws and the applicable securities or Blue Sky laws of any state or foreign
jurisdiction by the transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions reasonably satisfactory to
the Company).

8

 

     (c) Prior to any transfer of any Warrant Shares that are not registered pursuant to an
effective registration statement under the Securities Act (other than a transfer pursuant to
Rule 144 or any comparable rule under the Securities Act), the Holder shall give written
notice to the Company of its intention to effect such transfer and to comply in all other
respects with this Section 7.2. Each such notice shall designate counsel for the
Holder, which counsel shall be reasonably satisfactory to the Company and shall describe the
manner and circumstances of the proposed transfer in sufficient detail to enable counsel to
render the opinion referred to below. The following provisions shall then apply:

          (i) If in the written opinion of such counsel for the Holder, obtained at the Holder’s
sole cost and expense and a copy of which shall be furnished to, and shall be reasonably
satisfactory in form, scope and substance to, the Company, an exemption from the
registration requirements of the Securities Act is available with respect to the transfer of
this Warrant or Warrant Shares, the Holder shall thereupon be entitled to transfer this
Warrant or any Warrant Shares in accordance with the terms of the notice delivered by the
Holder to the Company. This Warrant and each Warrant Share or certificate, if any, issued
upon or in connection with such transfer shall bear the appropriate restrictive legend set
forth in Section 7.2(a) unless, in the opinion of such counsel, the first such
legend is no longer required to insure compliance with applicable federal securities laws
and the applicable securities or Blue Sky laws of any state or foreign jurisdiction.

          (ii) If the opinion of such counsel rendered pursuant to the foregoing subdivision (i)
is not to the effect that an exemption from the registration requirements of the Securities
Act is available with respect to the transfer of this Warrant or any Warrant Shares (such
opinion to state the basis of the legal conclusions reached therein), the Holder shall not
be entitled to transfer this Warrant or such Warrant Shares (other than a transfer in
compliance with Rule 144 or any comparable rule under the Securities Act) until receipt by
the Company of a further notice and a further opinion of counsel for the Holder to the
effect stated in subdivision (i) above or until registration of this Warrant or such Warrant
Shares under applicable federal securities laws and the applicable securities or Blue Sky
laws of any state or foreign jurisdiction has become effective.

     (d) The Holder is aware of the provisions of Rule 144 promulgated under the Securities
Act. Any sale of this Warrant, or any Warrant Shares issuable upon the exercise thereof,
made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of this Warrant or any Warrant Shares
issuable upon the exercise thereof, under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as the term is defined in
the Securities Act) may require compliance with some other exemption under the Securities
Act or the rules and regulations of the Securities and Exchange Commission thereunder.

9

 

7.3 MARKET STANDOFF

     The Holder agrees that if so requested by the Company or any representative of the
underwriters in connection with registration of a public offering of any securities of the Company
under the Securities Act, the Holder shall not sell or otherwise transfer any Warrant Shares or
other securities of the Company during the 10 days prior and the 90-day period following the
effective date of such registration statement. The Company may impose stop transfer instructions
with respect to securities subject to the foregoing restrictions until the end of such 90-day
period.

7.4 INDEMNIFICATION

     The Holder hereby agrees to indemnify the Company and hold it harmless against all
liabilities, claims, costs or expenses arising out of or resulting from any misrepresentation or
breach of any covenant made by the Holder in this Warrant.

ARTICLE 8

MISCELLANEOUS

8.1 TERMINATION

     The purchase right represented by this Warrant shall expire at 5:00 p.m., New York City time,
on the fifth anniversary of the Issue Date, unless earlier terminated in accordance with
Section 2.2 hereof (any such time, the “Termination Time”). If this Warrant is not
exercised on or before the Termination Time, it shall become void, and all rights hereunder shall
thereupon cease.

8.2 AMENDMENT AND MODIFICATION

     This Warrant may not be amended or modified, nor may any provision hereof be waived, unless
such amendment, modification or waiver is set forth in writing executed by the Company and the
Holder. If there is a waiver of any provision of this Warrant, the remainder of this Warrant will
not be affected. No course of dealing or course of conduct between or among any person or entity
having any interest in this Warrant will be deemed effective to modify, amend or waive any part of
this Warrant or any rights or obligations of any person or entity under or by reason of this
Agreement.

8.3 WAIVER

     The parties’ rights hereunder are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power, or privilege hereunder will operate as a waiver
of such right, power, or privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent permitted by applicable
law: (a) no claim or right arising out of this Warrant can be discharged by a party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a

10

 

waiver of any obligation of such party or of the right of the party giving such notice or demand to
take further action without notice or demand as provided herein.

8.4 FURTHER ASSURANCES

     The parties will cooperate reasonably with each other and with their respective
representatives in connection with any steps required to be taken as part of their respective
obligations under this Warrant, and the parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other documents and (c) to
do such other acts and things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Warrant.

8.5 SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT

     This Agreement and all of the provisions hereof will be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. This Warrant sets forth the
entire agreement and understanding between the parties as to the subject matter hereof and merges
and supersedes all prior discussions, agreements and understandings of any and every nature among
them.

8.6 SEVERABILITY

     If any provision of this Warrant or the application of any provision hereof is declared to be
illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Warrant will not be affected.

8.7 NOTICES

     Any notice, demand, delivery or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or facsimile, or sent, postage
prepaid, by registered, certified or express mail, or reputable overnight courier service and shall
be deemed given when so delivered by hand or facsimile, or if mailed, five business days after
mailing (two business days in the case of express mail or overnight courier service), as follows
(or at such other address as may have been furnished to the Company or the Holder, as the case may
be, in writing by the Company or the Holder from time to time):

if to the Company:

Tarragon Corporation

423 West 55th Street, 12th Floor

New York, New York 10019

Attention: William S. Friedman

Facsimile: (212) 949-8001

11

 

with a copy to:

Tarragon Corporation

3100 Monticello Avenue, Suite 200

Dallas, Texas 75205

Attn: Kathryn Mansfield

Facsimile: (214) 599-2220

if to the Holder:

Robert P. Rothenberg

423 West 55th Street

New York, New York 10019

Facsimile: 212 949-8001

8.8 GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS

     The validity, performance, construction and effect of this Agreement will be governed by and
construed in accordance with the internal law of the State of Nevada, without giving effect to
principles of conflicts of law thereof and all parties, including their successors and assigns,
consent to the jurisdiction of the state and federal courts of the State of Nevada. The parties
hereto hereby declare that it is their intention that this Agreement will be regarded as made under
the laws of the State of Nevada and that the laws of the State of Nevada will be applied in
interpreting its provisions in all cases where legal interpretation will be required. Each of the
parties hereto hereby irrevocably and unconditionally agrees (a) to be subject to the exclusive
jurisdiction of the courts of the State of Nevada and of the federal courts sitting in the State of
Nevada, and (b)(i) to the extent such party is not otherwise subject to service of process in the
State of Nevada, to appoint and maintain an agent in the State of Nevada as such party’s agent for
acceptance of legal process, and (ii) that, to the fullest extent permitted by applicable law,
service of process may also be made on such party by prepaid certified mail with a proof of mailing
receipt validated by the United States Postal Service constituting evidence of valid service, and
that service made pursuant to (b) (i) or (ii) above shall, to the fullest extent permitted by
applicable law, have the same legal force and effect as if served upon such party personally within
the State of Nevada.

8.9 THIRD PARTY BENEFICIARIES

     Nothing in this Warrant will be construed to give to any person or entity other than the
Company and the Holder and their respective permitted transferees and assigns any legal or
equitable right, remedy or claim under this Warrant and this Warrant will be for the sole and
exclusive benefit of the Company and the Holder and their respective permitted transferees and
assigns.

8.10 HEADINGS

     The headings in this Agreement are for convenience of reference only and will not constitute a
part of this Agreement, nor will they affect their meaning, construction or effect.

12

 

8.11 COUNTERPARTS

     This Agreement may be executed in counterparts, each of which when so executed will be deemed
to be an original, and all of which taken together will constitute one and the same instrument.

(Signature Page Follows)

13

 

     The Company and the Holder have caused this Warrant to be executed on the date first written
above.

	 	 	 	 	 
	 	TARRAGON CORPORATION

 	 
	 	By:  	/s/ Charles D. Rubenstein
 	 
	 	 	Charles D. Rubenstein 	 
	 	 	Executive Vice President 	 
	 
	 	 	 
	 	                                           /s/ Robert P. Rothenberg
 	 
	 	     Robert P. Rothenberg 	 
	 	 	 

S-1

 

	 	 	 	 	 

PURCHASE FORM

(To be executed upon exercise of Warrant)

     The undersigned hereby irrevocably elects to exercise the right, represented by the attached
Warrant, to purchase
                     shares of Common Stock as provided for therein and pursuant to the
terms of Section 2.1 of the attached Warrant, tenders to the Company herewith cash by wire
transfer or other immediately available funds, or a combination thereof, the amount of $                    ,
as payment of the purchase price for such shares in full.

     The undersigned requests that a certificate for such shares of Common Stock be registered in
the name of and delivered to :

	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

     If the number of shares of Common Stock being surrendered is less than all of the shares of
Common Stock purchasable hereunder, then the undersigned requests that a new Warrant representing
the right to purchase the remaining balance of the shares of Common Stock be registered in the name
of and delivered to:

	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 

Date:                                          

	 	 	 
	 
	 

(Insert I.R.S. Employer Identification Number, social security

or other identifying number of the Holder)

	 	 

	 	 	 	 	 
	 

	 	 

(print name of the Holder)
	 	 

	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Note:
	 	Signature must conform in all
respects to name of the Holder as specified
on the face of the attached Warrant in every
particular, without alteration or enlargement
or any change whatsoever, unless the attached
Warrant has been validly assigned in
accordance with its terms.	 	 

 

 

ASSIGNMENT

(To be executed only upon assignment

of the Warrant)

     For value received, and in compliance with Section 1.2 of the attached Warrant, the
undersigned hereby sells, assigns and transfers unto:

	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 

the attached Warrant, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint                          , attorney, to transfer the Warrant on the
books of the Company, with full power of substitution in the premises.

Date:                                                             

	 	 	 	 	 
	 

	 	 

(print name of the Holder)
	 	 

	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Note:
	 	Signature must conform in all
respects to name of the Holder as specified
on the face of the attached Warrant in every
particular, without alteration or
enlargement or any change whatsoever, unless
the attached Warrant has been validly
assigned in accordance with its terms.

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