Related Party Transactions and Outside Related Director Information

Tarragon Corporation (TARR)

4/28/2006 Proxy Information

With the approval of our Board of Directors, affiliates of William S. Friedman and his wife, Lucy N. Friedman, made a $20 million unsecured line of credit available to us. Advances under this line of credit bear interest at LIBOR plus 1% per annum or the lowest rate at which credit is offered to us by any third party. The largest aggregate amount of indebtedness under the line of credit in 2005 was $12,488,107. Interest of $49,000 accrued during the year. As of December 31, 2005, there were no amounts outstanding under this line of credit. Effective in January 2006, the line of credit was increased to $30 million and its term extended until January 2008.

As an accommodation to us, Mr. and Mrs. Friedman and their affiliates have pledged 975,000 shares of Tarragon common stock as partial security for a line of credit with a bank. We have agreed to indemnify Mr. and Mrs. Friedman and their affiliates from any loss, cost, or liability associated with this accommodation pledge or the line of credit. As collateral for our indemnification obligations, we have agreed to pledge shares of our treasury stock to Mr. and Mrs. Friedman and their affiliates.

In February 2000, we entered into an agreement to acquire the interests of Robert C. Rohdie and his affiliates in ten apartment communities. Mr. Rohdie, our partner in the development of these projects, contributed his equity interests to Tarragon Development Company, LLC (“TDC”), an operating entity we formed, in exchange for a preferred interest in TDC of $10 million. Mr. Rohdie joined us as the President and Chief Executive Officer of Tarragon Development Corporation, our wholly owned subsidiary, and a member of our Board of Directors, in February 2000.

Mr. Rohdie’s preferred interest earns a guaranteed return. For 80% of the preferred interest, it is a guaranteed fixed return of 5% for the first two years, increasing by 1% per year until it reaches 10% in year seven. The remaining 20% of the preferred interest earns an amount equal to the cash dividends payable, if any, on 668,096 shares of our common stock. Mr. Rohdie received distributions of $623,556 in 2005 in payment of this guaranteed return.

Mr. Rohdie can convert his preferred interest in TDC into 668,096 shares of our common stock and preferred stock with a face value of up to $8 million and a like dividend to his guaranteed fixed return. If we do not have available a class of preferred stock outstanding at the time of the conversion, or at our discretion, we may pay Mr. Rohdie the cash value of his preferred interest over three years. Beginning in February 2006, Mr. Rohdie may elect to convert his preferred interest into cash, payable over three years. The cash value that would be payable to Mr. Rohdie for the conversion of his preferred interest is equal to the sum of (i) the liquidation preference multiplied by the number of shares of preferred stock payable upon conversion (550,000 shares as of December 31, 2005) and (ii) the market value of 668,096 shares of our common stock. As of December 31, 2005, the cash value of Mr. Rohdie’s preferred interest was $20,376,148.

In 1997, we formed Ansonia Apartments, L.P., a Delaware limited partnership (“Ansonia”), with Ansonia LLC, a New York limited liability company. Richard S. Frary, Joel Mael, Robert Rothenberg, Saul Spitz and Eileen Swenson are members in Ansonia LLC, which is the limited partner in Ansonia. TDC is the general partner of Ansonia. Messrs. Rothenberg and Spitz and Ms. Swenson became officers of Tarragon and Mr. Rothenberg was appointed to our Board of Directors in September 2000. Mr. Frary joined our Board of Directors in April 2004.

Our investment in Ansonia was fully recovered in 2002 from distributions to the partners of cash proceeds from property sales, mortgage refinancings, supplemental mortgages and property operations.

In November 2000, we formed Ansonia Liberty LLC, a Connecticut limited liability company, for the purpose of acquiring a 124-unit apartment community known as the “Liberty Building” located in New Haven, Connecticut. In October 2001, Mr. Frary acquired a 10% member interest in Ansonia Liberty LLC. Our investment in Ansonia Liberty LLC was fully recovered in 2002 from distributions to the members of cash proceeds from refinancing of the mortgage secured by the property.

In November 2005, we contributed our interests in fourteen apartment properties, including the Liberty Building, to Ansonia in exchange for an increased ownership interest in Ansonia, and Mr. Frary contributed his interest in Ansonia Liberty LLC in exchange for an individual ownership interest in Ansonia. Simultaneously, Ansonia closed a $391 million non-recourse structured financing secured by first and second lien mortgages on 23 of its 25 properties and pledges of equity interests in the related property-owning entities.

In 2005, we received $64.4 million in cash distributions from Ansonia, including $64 million representing our share of the net proceeds from the structured financing transaction. We also received property management fees of $1,142,087 from properties owned by Ansonia. Mr. Rothenberg, Mr. Spitz, Mr. Frary, and Ms. Swenson received cash distributions of $2,802,593, $1,868,298, $1,167,760 and $500,404, respectively, from Ansonia in 2005. Mr. Frary also received $23,769 in cash distributions from Ansonia Liberty in 2005.

In November 1999, we formed Tarragon Calistoga LLC, a Nevada limited liability company, with Mr. Frary. We have an 80% managing member interest in Tarragon Calistoga LLC, and Mr. Frary holds the remaining 20% member interest. Tarragon Calistoga LLC owns (i) a 5% member interest in Calistoga Ranch Owners LLC, a California limited liability company, which owns a property development in Napa Valley, California, and (ii) a 25% member interest in CR Tarragon Palm Springs LLC, a California limited liability company, which owns a Palm Springs, California resort development. In June 2001, Frary received $133,289.50 in distributions from Tarragon Calistoga LLC, of which $100,000 was a return of his initial investment contribution, and we received $533,157.99. Frary has since made additional net contributions to Tarragon Calistoga LLC of approximately $222,451.

We believe that the foregoing transactions were at least as advantageous to us as we could have obtained from unrelated third parties.