| Item 1.01. | Entry Into a Material Agreement |
On July 8, 2022, Cottonwood Multifamily Opportunity Fund, Inc. (“CMOF”), Cottonwood Multifamily Opportunity Fund O.P., LP (“CMOF OP”), Cottonwood Communities, Inc. (“CCI”), Cottonwood Residential O.P., LP (“CROP”) and Cottonwood Communities GP Subsidiary, LLC, a wholly owned subsidiary of CCI (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). As described in greater detail herein, the merger is a stock-for-stock transaction whereby CMOF will be merged with and into a wholly owned subsidiary of CCI.
CMOF’s investments are all held through separate joint ventures with CROP, CCI’s operating partnership. In addition, CCI, through Cottonwood Capital Property Management II, LLC (“CCPMII”), a wholly owned subsidiary of CROP, acts as the sponsor, property manager and asset manager for CMOF and CCPMII receives compensation for the management of CMOF’s assets.
The Merger
Subject to the terms and conditions of the Merger Agreement, (i) CMOF will merge with and into Merger Sub, with Merger Sub surviving as a direct, wholly owned subsidiary of CCI (the “Company Merger”) and (ii) CMOF OP will merge with and into CROP, with CROP surviving (the “Partnership Merger” and, together with the Company Merger, the “Merger”). At such time, the separate existence of CMOF and CMOF OP will cease.
At the effective time of the Company Merger, each issued and outstanding share of CMOF’s common stock, $0.01 par value per share (the “CMOF Common Stock”), will be converted into the right to receive 0.8669 shares of Class A common stock of CCI, $0.01 par value per share (the “CCI Common Stock”). Shares of CMOF Common Stock held as of immediately prior to the effective time of the Company Merger by CCI, any wholly owned subsidiary of CCI, or any wholly owned subsidiary of CMOF will be automatically canceled in connection with the Company Merger without receiving payment.
At the effective time of the Partnership Merger, each outstanding common unit of partnership interests in CMOF OP (“CMOF OP Partnership Unit”) will be converted into the right to receive 0.8669 common units of partnership interest in CROP (“CROP Common Units”). CMOF OP Partnership Units held as of immediately prior to the effective time of the Partnership Merger by CCI, any wholly owned subsidiary of CCI, CMOF, or any wholly owned subsidiary of CMOF will be canceled in connection with the Partnership Merger without receiving payment.
The Merger Agreement contains customary covenants, including covenants prohibiting CMOF and its subsidiaries and representatives from soliciting or providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. The Merger Agreement provides that prior to the approval by CMOF’s stockholders of the Company Merger (“CMOF Stockholder Approval”), the board of directors of CMOF may, in certain circumstances, make an Adverse Recommendation Change (as such term is defined in the Merger Agreement), subject to complying with certain conditions set forth in the Merger Agreement.
The Merger Agreement may be terminated under certain circumstances, including by either CCI or CMOF if (i) the Merger has not been consummated on or before 11:59 p.m. New York time on April 8, 2023 (the “Outside Date”), (ii) there is any final, non-appealable order issued by a governmental authority of competent jurisdiction that permanently restrains or otherwise prohibits the transactions contemplated by the Merger Agreement, or (iii) the CMOF Stockholder Approval has not been obtained at the meeting of the stockholders of CMOF to consider the Company Merger.
CMOF may terminate the Merger Agreement (i) if the CCI parties have breached any of their representations or warranties or failed to perform or comply with any obligations, covenants or other agreements set forth in the Merger Agreement, which cannot be cured or, if capable of cure, has not been cured by the earlier of 30 days following written notice thereof and two business days before the Outside Date, (ii) at any time prior to obtaining the CMOF Stockholder Approval, to permit CMOF to enter into an alternative acquisition agreement with respect to a Superior Proposal (as defined in the Merger Agreement), or (iii) if the conditions to CCI’s obligation to consummate the closing described in the Merger Agreement have been satisfied on or after the date closing was to occur, CMOF has given CCI written notice of the same, CMOF is ready to consummate the closing, and CCI fails to consummate the closing within three business days after delivery of notice. CCI may terminate the CMOF Merger Agreement (i) if the CMOF parties have breached any of their representations or warranties or failed to perform or comply with any obligations, covenants or other agreements set forth in the Merger Agreement, which cannot be cured or, if capable of cure, has not been cured by the earlier of 30 days following written notice thereof and two business days before the Outside Date, or (ii) if, at any time prior to obtaining the CMOF Stockholder Approval, the CMOF board of directors has made an Adverse Recommendation Change (as defined in the Merger Agreement), CMOF enters into an alternative acquisition agreement, or CMOF has breached or failed to comply in any material respect with any of the non-solicitation provisions of the Merger Agreement or taken certain other actions set forth in the Merger Agreement.
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