Tarragon obtains standstill agreement with holders of $125 million of unsecured subordinated notes

By Jennifer Lanning Drey

Portland, Ore., March 27 - Tarragon Corp. has obtained a standstill agreement from the holders of its $125 million of corporate unsecured subordinated notes and has been granted the option to purchase the subordinated notes at a discount, according to a company news release.

The standstill agreement is effective through Sept. 30, 2009 and includes a related waiver of compliance with the financial covenants applicable to the subordinated notes during the standstill period.

Additionally, Tarragon has been granted a 270-day option to purchase the subordinated notes from the holders at a discount that is dependent on when the option is exercised.

The noteholders granted the waiver and repurchase option in exchange for agreements made by company's chief executive officer, William Friedman, and its chief operating officer, Robert Rothenburg. Under the agreements, the executives will subordinate about $37 million of outstanding promissory notes owed by Tarragon to the executives to the $125 million of subordinated notes.

The executives have also agreed to limit future cash compensation, including interest payments on their notes, until the subordinated notes are retired.

Consideration to executives

In partial consideration of the executives' agreement to subordinate their promissory notes, a special committee of independent Tarragon directors has approved the issuance to the executives of warrants to purchase a total of 3.5 million share of Tarragon common stock. The warrants have a five-year term and exercise price of $2.35 per share.

In addition, the terms of the executives' outstanding promissory notes have been amended to provide for an increase in the annual interest rate payable to 12.5% to reflect the subordination, with the cash component of such interest capped at 5% as long as the subordination agreement remains in effect. As amended, the promissory notes would mature on the later of March 27, 2014 or two years after the $125 million of subordinated notes have been retired.

Tarragon is a New York homebuilder.

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