S-4 1 v327948_s4.htm FORM S-4

 

 

As filed with the Securities and Exchange Commission on November 15, 2012

 

File No. 333-         

 

 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 FORM S-4

 

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933  

 

 

BDH ACQUISITION CORP.

 

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware 6770
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)

 

555 NE 15th Street, Suite 200
Miami, Florida 33132

 

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 Wei Li
Yiting Liu
Ye (Sophie) Tao
555 NE 15th Street, Suite 200
Miami, Florida 33132
(305) 981-6888

 

  

 

 (Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

 

 

Copies to:

Mitchell S. Nussbaum, Esq.
Giovanni Caruso, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
(212) 407-4159
Facsimile: (212) 504-3013

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after (i) this Registration Statement becomes effective, (ii) all other conditions to the merger of China VantagePoint Acquisition Company, a Cayman Islands corporation (“CVAC”), into the Registrant, with the Registrant surviving and the acquisition of Black Diamond Holdings LLC (“Black Diamond”), a Colorado limited liability company, by the Registrant, and (iii) all other conditions to the share exchange by and among CVAC, the Registrant, Black Diamond, Black Diamond Financial Group, LLC, a Delaware limited liability company and the Class A Members and Preferred Members of Black Diamond, pursuant to the Merger and Share Exchange Agreement attached as Appendix A to the Proxy Statement/Prospectus contained herein have been satisfied or, with respect to the share purchase only, waived.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. £

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

£ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ¨ Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company x

 

 
 

  

CALCULATION OF REGISTRATION FEE

 

Title of Securities  Amount to be Registered(3)(4)   Proposed Maximum Offering Price Per Security(1)   Proposed Maximum Aggregate Offering Price(1)   Amount of Registration Fee 
Units, each consisting of one Subunit and one-half Warrant   953,400   $5.93    5,653,662   $771.16 
Subunits included as part of the Units, each consisting of one share of Series A Convertible Participating Preferred Stock and one-half warrant   953,400    --    --    --(2)
Warrants included as part of the Units   476,700    --    --    --(2)
Common stock underlying the Warrants included as part of the Units(5)   476,700   $5.00    2,383,500   $325.11 
Warrants included as part of the Subunits included as part of the Units   476,700    --    --    --(2)
Common stock underlying the Warrants included as part of the Subunits included as part of the Units   476,700   $ 5.00        $325.11 
Subunits, each consisting of one share of Series A Convertible Participating Preferred Stock and one-half warrant   1,808,966    6.12    11,070,871.92   $1,510.07 
Series A Convertible Participating Preferred Stock included as part of the Subunits   1,808,966    --    --    --(2)
Warrants included as part of the Subunits   904,483    --    --    --(2)
Common stock underlying the Series A Convertible Participating Preferred Stock included in the Subunits   1,808,966    --         --(2)
Common stock underlying the Warrants included in the Subunits(5)   904,483   $5.00    4,522,415   $616.86 
Warrants to purchase Common Stock   3,747,406   $0.30    1,124,221.80   $153.34 
Common Stock underlying the Warrants to purchase Common Stock   3,747,406   $5.00    18,737,030   $2,555.73 
Series A Convertible Participating Preferred Stock held in escrow by initial shareholders of China VantagePoint Acquisition Company   790,625   $5.97(6)    4,720,031.25   $643.81 
Common stock underlying the Series A Convertible Participating Preferred Stock held in escrow by initial shareholders of China VantagePoint Acquisition Company   790,625   $--         --(2)
EarlyBirdCapital, Inc. Unit Purchase Option   1    100    100   $.01 
Units Underlying EarlyBirdCapital, Inc.’s Unit Purchase Option (“Underwriter’s Units”)   175,000    6.60    1,155,000.00   $157.54 
Common Stock included as part of EarlyBirdCapital, Inc.’s Units   175,000    --    --    --(2)
Warrants included as part of EarlyBirdCapital, Inc.’s Units   175,000    --    --    --(2)
Common stock underlying the Warrants included in EarlyBirdCapital, Inc.’s Units   175,000   $5.00    875,000   $119.35 
Total Fee                 $7,178.10 

 


 

(1)     Based on the market price of the units, subunits and warrants of China VantagePoint Acquisition Company on November 9, 2012 for the purpose of calculating the registration fee pursuant to rule 457(f)(1).

 

(2)     No fee pursuant to Rule 457(i).

 

(3)     Pursuant to Rule 416, there are also being registered such additional securities as may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.

 

(4)     The securities of the Registrant being registered will be exchanged on a one-for-one basis for securities of China VantagePoint Acquisition Company in connection with the merger of China VantagePoint Acquisition Company into the Registrant pursuant to which the current security holders of China VantagePoint Acquisition Company will become security holders of the Registrant, and the Registrant will become a public company domiciled in the state of Delaware.

 

(5)     Such common stock is being offered on a continuous basis to the holders of the related warrant following the redomestication described in the proxy statement/prospectus included in this registration statement.

 

(6)     As China VantagePoint Acquisition Company’s ordinary shares are not publicly traded, such offering price was determined based on (x) $6.12 (the market price of one of China VantagePoint Acquisition Company’s subunits on November 9, 2012) minus (y) $0.15 (the market price of one-half of a China VantagePoint Acquisition Company Warrant, determined by divididng $0.30 (the market price of a whole China VantagePoint Acquisition Company warrant on November 9, 2012) by two).

 


 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

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The information in this proxy statement/prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This proxy statement/prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROXY
STATEMENT/PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 15,
2012

 

PROXY STATEMENT FOR SPECIAL MEETING OF WARRANTHOLDERS AND SPECIAL MEETING OF SHAREHOLDERS
OF CHINA VANTAGEPOINT ACQUISITION COMPANY
AND PROSPECTUS FOR COMMON STOCK, SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK, WARRANTS, SUBUNITS AND UNITS
OF BDH ACQUISITION CORP.

 

Proxy Statement/Prospectus dated             , 201[2]
and first mailed to warrantholders and shareholders on or about             , 201[2]

 

Dear Warrantholders and Shareholders:

 

You are cordially invited to attend the special meeting of the warrantholders of China VantagePoint Acquisition Company, or CVAC, a Cayman Islands corporation and a special meeting of CVAC’s shareholders. CVAC is a blank check company formed on September 3, 2010 for the purpose of acquiring, through a merger, share exchange, asset acquisition, plan of arrangement, recapitalization, reorganization or similar business combination, one or more operating businesses, or control of such operating businesses through contractual arrangements.

 

Holders of CVAC’s warrants, each of which is exercisable for one CVAC ordinary share, par value $0.001 per share, issued in CVAC’s initial public offering, or the “CVAC warrants,” will be asked to approve an amendment to the warrant agreement that governs all of the CVAC warrants in order to provide that upon the merger, consolidation or reorganization of CVAC, the CVAC warrants will be convertible into warrants to purchase common stock, or other equivalent security, of the surviving entity of such merger, consolidation or reorganization.

 

Holders of CVAC’s ordinary shares will be asked to approve the merger and share exchange agreement dated as of August 24, 2012, as amended, or the Acquisition Agreement, by and among CVAC, BDH Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of CVAC, or BDH Acquisition, Black Diamond Holdings LLC, a Colorado limited liability company, or “Black Diamond,” Black Diamond Financial Group, LLC, a Delaware limited liability company, or “Manager,” and the Class A Members and Preferred Members of Black Diamond listed on Schedule I of the Acquisition Agreement who, as of the date hereof, hold approximately 96% of the outstanding membership units of Black Diamond and the other related proposals. We refer to the members of Black Diamond listed on Schedule I of the Acquisition Agreement as the selling shareholders.

 

The issuance of shares of BDH Acquisition to the selling shareholders is being consummated on a private placement basis, pursuant to Section 4(2) of the Securities Act of 1933, as amended. The aggregate value of the consideration to be paid by CVAC in the business combination is approximately $411 million (calculated based on 67,383,334 shares of common stock of BDH Acquisition and 1,433,333 shares of Series A Convertible Participating Preferred Stock to be issued to the selling shareholders at a market value of $5.97 per share (determined based on (x) $6.12 (the market price of one CVAC subunit on November 9, 2012) minus (y) $0.15 (the market price of one-half of a CVAC warrant, determined by dividing $0.30 (the market price of a whole CVAC warrant on November 9, 2012) by two). The transactions contemplated under the Acquisition Agreement relating to the business combination with Black Diamond are referred to in this proxy statement/prospectus as the Business Combination. The transactions contemplated under the Acquisition Agreement pursuant to which CVAC will be reorganized into a Delaware company by CVAC merging with BDH Acquisition immediately prior to the consummation of the Business Combination, are referred to in this proxy statement/prospectus as the Redomestication.

 

As of November 9, 2012, there was approximately $16,535,721 in CVAC’s Trust Account, or approximately $5.99 per outstanding subunit issued in CVAC’s initial public offering, or IPO. If the holders of 58.37% or more of CVAC’s subunits issued in the IPO exercise their redemption rights, CVAC will not complete the Business Combination. On             , 2012, the record date for the special meeting of shareholders, the last sale price of CVAC’s subunits was $            .

 

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Each shareholder’s vote is very important. Whether or not you plan to attend the CVAC special meeting in person, please submit your proxy card without delay. Warrantholders and Shareholders may revoke proxies at any time before they are voted at the meeting. Voting by proxy will not prevent a warrantholder or a shareholder from voting in person if such warrantholder or shareholder, as applicable, subsequently chooses to attend the CVAC special meeting. The proxy statement/prospectus constitutes a proxy statement of CVAC and a prospectus of BDH Acquisition for the securities of BDH Acquisition that will be issued to the securityholders of CVAC.

 

We encourage you to read this proxy statement/prospectus carefully. In particular, you should review the matters discussed under the caption “RISK FACTORS” beginning on page 27.

 

CVAC’s board of directors unanimously recommends that CVAC warrantholders vote “FOR” approval of each of the proposals.

 

CVAC’s board of directors unanimously recommends that CVAC shareholders vote “FOR” approval of each of the proposals.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the Acquisition or otherwise, or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

 

 

Yiting Liu
Co-Chair of the Board of Directors of
China VantagePoint Acquisition Company

 

 

Ye (Sophie) Tao
Co-Chair of the Board of Directors of
China VantagePoint Acquisition Company

 

                   , 2012

 

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HOW TO OBTAIN ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information about CVAC that is not included or delivered herewith. If you would like to receive additional information or if you want additional copies of this document, agreements contained in the appendices or any other documents filed by CVAC with the Securities and Exchange Commission, such information is available without charge upon written or oral request. Please contact the following:

 

China VantagePoint Acquisition Company
555 N.E. 15th Street, Suite 200
Miami, Florida 33132
Telephone: (305) 981-6888

 

If you would like to request documents, please do so no later than [●], 201[2] to receive them before CVAC’s special meetings. Please be sure to include your complete name and address in your request. Please see “Where You Can Find Additional Information” to find out where you can find more information about CVAC and Black Diamond. You should rely only on the information contained in this proxy statement/prospectus in deciding how to vote on the Business Combination. Neither CVAC nor Black Diamond has authorized anyone to give any information or to make any representations other than those contained in this proxy statement/prospectus. Do not rely upon any information or representations made outside of this proxy statement/prospectus. The information contained in this proxy statement/prospectus may change after the date of this proxy statement/ prospectus. Do not assume after the date of this proxy statement/prospectus that the information contained in this proxy statement/prospectus is still correct.

 

USE OF CERTAIN TERMS

 

Unless otherwise stated in this proxy statement/prospectus:

 

·references to “Black Diamond” in this proxy statement/prospectus refer to Black Diamond Holdings LLC and its consolidated subsidiaries, including Elkhorn Goldfields LLC, Transnetyx Holdings Corp., Carbon Fuels LLC, Rackwise Funding LLC, RB Newco Inc. d/b/a Barclay’s Wine, Global VR Inc., Quant Strategies LLC and Subterranean Mapping Systems LLC.

 

·EGI refers to Elkhorn Goldfields, Inc., a Montana corporation.

 

·Elkhorn refers to Elkhorn Goldfields LLC, a Delaware limited liability company.

 

·ESRI refers to Eastern Resources, Inc., a Delaware corporation.

 

·MFPI refers to MFPI Partners, LLC, a Delaware limited liability company, which is a partnership between Patrick Imeson and Michael Feinberg to invest in the Calim Funds, Elkhorn and various other private equity projects.

 

·MTMI refers to Montana Tunnels Mining Inc., a Delaware corporation.

 

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CHINA VANTAGEPOINT ACQUISITION COMPANY
555 N.E. 15th Street, Suite 200
Miami, FL 33132
Telephone: (305) 981-6888

 

NOTICE OF SPECIAL MEETING OF WARRANTHOLDERS OF
CHINA VANTAGEPOINT ACQUISITION COMPANY
To Be Held on         , 201[2]

 

To China VantagePoint Acquisition Company (“CVAC”) Warrantholders:

 

A special meeting of CVAC warrantholders owning warrants of CVAC, or the “CVAC warrants,”, each of which is exercisable for one CVAC ordinary share, par value $0.001 per share, issued in CVAC’s initial public offering will be held at        , on       , 201[2], at      a.m., for the following purposes:

 

1.      To approve an amendment (the “Warrant Amendment”) to the warrant agreement (the “Warrant Agreement”) that governs all of the CVAC warrants in order to provide that upon the merger, consolidation or reorganization of CVAC, the CVAC warrants will be convertible into warrants to purchase common stock of the surviving entity of such merger, consolidation or reorganization. This proposal is referred to as the Warrant Amendment Proposal.

 

2.      To approve the adjournment of the special meeting in the event CVAC does not receive the requisite warrantholder vote to approve the Warrant Amendment. This proposal is referred to as the Warrant Amendment Adjournment Proposal.

 

As of [●], 201[2], there were [●] CVAC warrants issued and outstanding and entitled to vote. Only CVAC warrantholders who hold warrants of record as of the close of business on       , 201[2] are entitled to vote at the special meeting or any adjournment of the special meeting. This proxy statement is first being mailed to warrantholders on or about        , 201[2]. Approval of the Warrant Amendment will require the affirmative vote of the holders of a majority of the CVAC warrants entitled to vote at the special meeting. Abstaining from voting will have the same effect as voting against the Warrant Amendment and failing to instruct your bank, brokerage firm or nominee to vote your shares will have the same effect as voting against the Warrant Amendment Proposal.

 

Whether or not you plan to attend the special meeting in person, please submit your proxy card without delay. Voting by proxy will not prevent you from voting in person if you subsequently choose to attend the special meeting. If you fail to return your proxy card, the effect will be the same as voting against the Warrant Proposal. You may revoke a proxy at any time before it is voted at the special meeting by executing and returning a proxy card dated later than the previous one, by attending the special meeting in person and casting your vote by ballot or by submitting a written revocation to CVAC at China VantagePoint Acquisition Company, 555 N.E. 15th Street, Suite 200, Miami, Florida 33132, that is received by CVAC before it takes the vote at the special meeting. If you hold your CVAC warrants through a bank or brokerage firm, you should follow the instructions of your bank or brokerage firm regarding revocation of proxies.

 

CVAC’s board of directors unanimously recommends that CVAC warrantholders vote “FOR” approval of each of the proposals.

By order of the Board of Directors,

 

 

Yiting Liu
Co-Chair of the Board of Directors of
China VantagePoint Acquisition Company

 

 

Ye (Sophie) Tao
Co-Chair of the Board of Directors of
China VantagePoint Acquisition Company

 

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CHINA VANTAGEPOINT ACQUISITION COMPANY
555 N.E. 15th Street, Suite 200
Miami, FL 33132
Telephone: (305) 981-6888

 

NOTICE OF SPECIAL MEETING OF
CHINA VANTAGEPOINT ACQUISITION COMPANY SHAREHOLDERS
To Be Held on         , 201[2]

 

To China VantagePoint Acquisition Company (“CVAC”) Shareholders:

 

A special meeting of shareholders of CVAC, will be held at             , on       , 201[2], at      a.m., for the following purposes:

 

1.         To approve the merger of CVAC with and into BDH Acquisition, its wholly-owned Delaware subsidiary, with BDH Acquisition surviving the merger. The merger will change CVAC’s place of incorporation from the Cayman Islands to Delaware. We refer to the merger as the Redomestication. This proposal is referred to as the Redomestication Proposal and consists of the merger of CVAC into BDH Acquisition. Holders of CVAC’s ordinary shares as of the record date are entitled to vote on the Redomestication Proposal.

 

2.         To approve the authorization for BDH Acquisition’s board of directors to complete the share exchange provided for in the Acquisition Agreement, or the “Business Combination.” This proposal is referred to as the Business Combination Proposal. Holders of CVAC’s ordinary shares as of the record date are entitled to vote on the Business Combination Proposal.

 

3.        To approve the adjournment of the special meeting in the event CVAC does not receive the requisite shareholder vote to approve either the Redomestication or the Business Combination. This proposal is called the Business Combination Adjournment Proposal.

 

As of [●], 201[2], there were [●] CVAC ordinary shares issued and outstanding and entitled to vote. Only CVAC ordinary shareholders who hold shares of record as of the close of business on       , 2012 are entitled to vote at the special meeting or any adjournment of the special meeting. This proxy statement is first being mailed to shareholders on or about [●], 201[2]. Approval of Redomestication and the Business Combination will each require the affirmative vote of the holders of a majority of the shares issued in CVAC’s initial public offering, or the “IPO,” present and entitled to vote at the special meeting; provided, however, that if 58.37% or more of the subunits purchased in the IPO demand redemption of their subunits, then the Business Combination will not be completed. Abstaining from voting will have the same effect as voting against the Redomestication and the Business Combination and failing to instruct your bank, brokerage firm or nominee to vote your shares will have no effect on the outcome of either of the Redomestication Proposal or the Business Combination Proposal but will be counted for purposes of determining if a quorum is present.

 

CVAC currently has authorized share capital of 55,000,000 shares consisting of 50,000,000 ordinary shares with a par value of $0.001 per share and 5,000,000 preferred shares with a par value of $0.001 per share. After consummation of the Business Combination, BDH Acquisition will have an authorized share capital of 100,000,000 shares of common stock with a par value of $0.001 per share and 10,000,000 shares of preferred stock with a par value of $0.001 per share.

 

Holders of CVAC’s ordinary shares will not be entitled to appraisal rights under Cayman Islands law in connection with either the Redomestication or the Business Combination.

 

Whether or not you plan to attend the special meeting in person, please submit your proxy card without delay. Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting. If you fail to return your proxy card, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. You may revoke a proxy at any time before it is voted at the special meeting by executing and returning a proxy card dated later than the previous one, by attending the special meeting in person and casting your vote by ballot or by submitting a written revocation to CVAC at China VantagePoint Acquisition Company, 555 N.E. 15th Street, Suite 200, Miami, Florida 33132, that is received by us before we take the vote at the special meeting. If you hold your shares through a bank or brokerage firm, you should follow the instructions of your bank or brokerage firm regarding revocation of proxies.

 

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CVAC’s board of directors unanimously recommends that CVAC shareholders vote “FOR” approval of each of the proposals.

 

By order of the Board of Directors,

 

 

 

Yiting Liu
Co-Chair of the Board of Directors of
China VantagePoint Acquisition Company

 

 

Ye (Sophie) Tao
Co-Chair of the Board of Directors of
China VantagePoint Acquisition Company

 

_______________, 2012

 

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TABLE OF CONTENTS 

 

  PAGE
   
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR CVAC WARRANTHOLDERS AND CVAC SHAREHOLDERS 10
   
DELIVERY OF DOCUMENTS TO CVAC WARRANTHOLDERS AND CVAC SHAREHOLDERS 16
   
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS 17
   
PRICE RANGE OF SECURITIES AND DIVIDENDS 26
   
RISK FACTORS 27
   
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 64
   
DIVIDEND POLICY 66
   
SPECIAL MEETINGS OF CVAC WARRANTHOLDERS AND SHAREHOLDERS 67
   
THE WARRANT AMENDMENT PROPOSAL 75
   
THE WARRANT AMENDMENT ADJOURNMENT PROPOSAL 76
   
THE BUSINESS COMBINATION PROPOSAL 77
   
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES 90
   
THE ACQUISITION AGREEMENT 104
   
THE REDOMESTICATION PROPOSAL 108
   
THE BUSINESS COMBINATION ADJOURNMENT PROPOSAL 118
   
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF BLACK DIAMOND HOLDINGS 119
   
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 120
   
COMPARATIVE SHARE INFORMATION 130
   
BLACK DIAMOND’S BUSINESS 131
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BLACK DIAMOND 164
   
Overview 164
   
SELECTED HISTORICAL FINANCIAL INFORMATION OF CVAC 184
   
MANAGEMENT’S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION 185
   
CVAC BUSINESS 188
   
DIRECTORS, EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE 193
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 200
   
Security Ownership of the Combined Company after the BUSINESS COMBINATION 202
   
CERTAIN TRANSACTIONS 205
   
DESCRIPTION OF CVAC’S SECURITIES 211
   
DESCRIPTION OF THE COMBINED COMPANY’S SECURITIES FOLLOWING THE BUSINESS COMBINATION 216
   
EXPERTS 221
   
LEGAL MATTERS 221
   
SHAREHOLDER PROPOSALS AND OTHER MATTERS 221
   
WHERE YOU CAN FIND ADDITIONAL INFORMATION 221
   
INDEX TO FINANCIAL STATEMENTS 223

 

ANNEX A – ACQUISITION AGREEMENT

ANNEX B – AMENDED AND RESTATED WARRANT AGREEMENT

ANNEX C – VOTING AGREEMENT

ANNEX D – REGISTRATION RIGHTS AGREEMENT

ANNEX E – ASSESSMENT OF GOLDEN DREAM AND MONTANA TUNNELS MINE PROJECT DATED SEPTEMBER 20, 2012, ISSUED BY MICHAEL KACHANOVSKY

ANNEX F—FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BDH ACQUISITION

ANNEX G—FORM OF AMENDED AND RESTATED BYLAWS OF BDH ACQUISITION

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR CVAC WARRANTHOLDERS AND CVAC SHAREHOLDERS

 

Q:         What is the purpose of this document?

 

A:          China VantagePoint Acquisition Company, a corporation organized under the laws of the Cayman Islands, or CVAC, and Black Diamond Holdings LLC, a Colorado limited liability company, or Black Diamond, have agreed to a business combination under the terms of a Merger and Share Exchange Agreement, dated as of August 24, 2012, as amended, which we refer to as the Acquisition Agreement, by and among CVAC, BDH Acquisition Corp., a Delaware corporation, or BDH Acquisition, Black Diamond, the Class A Members of Black Diamond listed on Schedule I to the Purchase Agreement, the Preferred Members of Black Diamond listed on Schedule I to the Purchase Agreement and Black Diamond Financial Group, LLC, or the Manager. The consummation of the transactions contemplated by the Acquisition Agreement pursuant to which CVAC will be merged with and into BDH Acquisition are referred to as the Redomestication and the proposal to approve the Redomestication is referred to as the Redomestication Proposal. The consummation of the transactions contemplated by the Acquisition Agreement relating to the business combination with Black Diamond are referred to as the Business Combination and the proposal to approve the Business Combination is referred to as the Business Combination Proposal. The Acquisition Agreement is attached to this proxy statement/prospectus as Annex A, and is incorporated into this proxy statement/prospectus by reference. You are encouraged to read this proxy statement/prospectus, including “Risk Factors” and all the annexes hereto.

 

CVAC shareholders are being asked to consider and vote upon a proposal to adopt the Acquisition Agreement, pursuant to which, through a series of transactions, CVAC will be merged with and into BDH Acquisition, its wholly-owned Delaware subsidiary, with BDH Acquisition surviving the merger and Black Diamond will become a majority-owned subsidiary of BDH Acquisition.

 

The subunits that were issued in CVAC’s initial public offering, or the CVAC Subunits, each consist of one ordinary share of CVAC, par value $0.001 per share, or a CVAC ordinary share, and one-half of a warrant to purchase to a CVAC ordinary share, or a CVAC warrant. If the Business Combination is consummated, holders of the CVAC Subunits may redeem the CVAC Subunits held by them for cash. CVAC shareholders voting against the Business Combination Proposal will be entitled to redeem their CVAC Subunits for a pro rata share of the trust account up to a maximum of $5.96 per subunit. CVAC shareholders voting for the Business Combination Proposal will be entitled to redeem their CVAC Subunits for a full pro rata share of the trust account (currently anticipated to be no less than approximately $5.99 per subunit,) net of (i) taxes payable, and (ii) interest income earned on the trust account previously released to CVAC to fund its working capital and general corporate requirements in connection with the Business Combination. Any CVAC shareholder redeeming its subunits will forfeit the one-half warrant included in such subunit, without the payment of any additional consideration. Accordingly, redeeming shareholders voting against the proposed business combination will receive less consideration for their redeemed subunits than redeeming shareholders who vote in favor of the business combination.

 

The units that were issued in CVAC’s initial public offering, or the CVAC Units, each consist of one CVAC Subunit and one-half of a CVAC warrant. CVAC warrantholders owning CVAC warrants, who are referred to as the CVAC warrantholders, are being asked to consider and vote upon a proposal to approve an amendment, which is referred to herein as the Warrant Amendment, to the warrant agreement, which is referred to herein as the Warrant Agreement, that governs the CVAC warrants in order to provide that upon the merger, consolidation or reorganization of CVAC, the CVAC warrants will be convertible into warrants to purchase common stock of the surviving entity of such merger, consolidation or reorganization. This proposal to amend the Warrant Agreement is referred to herein as the Warrant Amendment Proposal. The form of the Warrant Amendment is attached to this proxy statement/prospectus as Annex B and is incorporated into this proxy statement/prospectus by reference.

 

The CVAC Units, CVAC Subunits and CVAC warrants are currently listed on the OTC Bulletin Board.

 

The approval of the Warrant Amendment Proposal by the CVAC warrantholders and the Redomestication Proposal and the Business Combination Proposal by CVAC shareholders are cross-conditioned on the approval of the others. Unless all three of these proposal are approved, none of them will take effect.

 

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This proxy statement/prospectus contains important information about the proposed Redomestication and Business Combination and the other matters to be acted upon at the special meeting of CVAC warrantholders and at the special meeting of CVAC shareholders. You should read it carefully.

 

Q:What is being voted on?

 

A:Below are the proposals on which CVAC warrantholders are being asked to vote:

 

·To approve the Warrant Amendment to the Warrant Agreement that governs all of the CVAC warrants in order to provide that upon the merger, consolidation or reorganization of CVAC, the CVAC warrants will be convertible into warrants to purchase common stock of the surviving entity of such merger, consolidation or reorganization. This proposal is referred to as the Warrant Amendment Proposal. For details, see “The Warrant Amendment Proposal” elsewhere in this proxy statement/prospectus.

 

·To approve the adjournment of the special meeting of CVAC warrantholders in the event that CVAC does not receive the requisite warrantholder vote to approve the Warrant Amendment. This proposal is referred to as the Warrant Amendment Adjournment Proposal. The Warrant Amendment Proposal is cross conditioned on the approval of the Redomestication Proposal and the Business Combination Proposal. For details, see “The Warrant Amendment Adjournment Proposal” elsewhere in this proxy statement/prospectus.

 

Below are the proposals on which CVAC shareholders are being asked to vote:

 

·To approve the merger of CVAC with and into BDH Acquisition, its wholly-owned Delaware subsidiary, with BDH Acquisition surviving the merger. The merger will change CVAC’s place of incorporation from the Cayman Islands to Delaware. We refer to the merger as the Redomestication. This proposal is referred to as the Redomestication Proposal and consists of the merger of CVAC into BDH Acquisition Corp. The Redomestication Proposal is cross-conditioned on the approval of the Warrant Amendment Proposal and the Business Combination Proposal. For details, see “The Redomestication Proposal” elsewhere in this proxy statement/prospectus.

 

·To approve the authorization for BDH Acquisition’s board of directors to complete the share exchange provided for in the Acquisition Agreement, or the “Business Combination.” This proposal is referred to as the Business Combination Proposal. The Business Combination Proposal is cross-conditioned on the approval of each of the Warrant Amendment Proposal and the Business Combination Proposal. For details, see “The Business Combination Proposal” elsewhere in this proxy statement/prospectus.

 

·To approve the adjournment of the special meeting in the event CVAC does not receive the requisite shareholder vote to approve either of the Redomestication or the Business Combination. This proposal is called the Business Combination Adjournment Proposal. For details, see “The Business Combination Adjournment Proposal.”

 

Q:Are the proposals conditioned on one another?

 

A:           Yes. Each of the Warrant Amendment Proposal, the Redomestication Proposal and the Business Combination Proposal, as described below, are cross-conditioned upon the approval of each other. Therefore, all three must be approved by the CVAC warrantholders and CVAC shareholders, as applicable, in order for any of these proposals to take effect. If any of the three proposals is not approved, the Business Combination will not be consummated and CVAC will liquidate and dissolve.

 

Q:Do any of CVAC’s directors or officers have interests that may conflict with my interests with respect to the Business Combination?

 

A:           CVAC’s directors and officers may have interests in the Business Combination that are different from your interests as a shareholder. You should keep in mind the following interests of CVAC’s directors and officers:

 

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In September, 2010, each of Wei Li, CVAC’s chief executive officer, Yiting Liu, CVAC’s Co-Chair of its Board of Directors and Ye (Sophie) Tao, CVAC’s co-chair of its Board of Directors, purchased an aggregate of 718,750 CVAC ordinary shares, for a purchase price of approximately $0.03 per share, or an aggregate purchase price of $25,000. Mr. Li, Ms. Liu and Ms. Tao are collectively referred to as our Initial Shareholders. These shares were placed in escrow upon the closing of the IPO. On February 10, 2011, CVAC effected a 1.10-for-1 stock split in the form of a share dividend. As a result, CVAC’s directors and officers hold an aggregate of 790,625 CVAC ordinary shares. In addition, simultaneously with the consummation of the IPO, CVAC consummated the sale of 1,500,000 CVAC warrants to the Initial Shareholders at a price of $0.35 per CVAC warrant. In light of the amount of consideration paid, CVAC’s directors and officers will likely benefit from the completion of the Business Combination even if the Business Combination causes the market price of CVAC’s securities to significantly decrease. The likely benefit to CVAC’s directors and officers may influence their motivation for promoting the Business Combination and/or soliciting proxies for the approval of the Business Combination Proposal.

 

IF CVAC does not consummate the Business Combination by February 25, 2013, CVAC will be required to dissolve and liquidate and the shares held by its directors and officers will not be released from escrow and will be worthless because such holders have agreed to waive their rights to any liquidation distributions. In addition, the CVAC warrants purchased by the Initial Shareholders will also expire worthless.

 

Approval of each of the Redomestication Proposal and the Business Combination Proposal requires the affirmative vote of the holders of a majority of the issued and outstanding CVAC ordinary shares entitled to vote thereon as of the record date, present in person or by represented by proxy, at the special meeting of CVAC shareholders. As of the record date of the special meeting of CVAC shareholders, 790,625 shares held by the Initial Shareholders, or approximately 22.3% of the outstanding CVAC ordinary shares, would be voted in favor of each of the Redomestication Proposal and the Business Combination Proposal. If CVAC or the Initial Shareholders purchase CVAC ordinary shares from existing CVAC shareholders that are likely to vote against either of the Redomestication Proposal or the Business Combination Proposal, the probability that either of the Redomestication Proposal or the Business Combination Proposal will be approved would increase.

 

If CVAC liquidates prior to the consummation of a business combination, its directors and officers have contractually agreed that they will be personally liable to ensure that the proceeds in the trust account are not reduced below $5.96 per share by the claims of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us. Therefore, our directors and officers have a financial interest in consummating the Business Combination, thereby resulting in a conflict of interest.

 

In addition, the exercise of CVAC’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes or waivers are appropriate and in CVAC shareholders’ best interests.

 

Q:When and where is the special meeting of CVAC shareholders and warrantholders?

 

A:           The special meeting of CVAC warrantholders and the special meeting of CVAC shareholders will take place at [●] on [●], 201[2], at [●] a.m. and [●] a.m., respectively.

 

Q:Who may vote at the special meeting of the CVAC warrantholders?

 

A:           Only holders of record of CVAC warrants as of the close of business on [●], 201[2] may vote at the special meeting of warrantholders. As of [●], 201[2], there were [●] CVAC warrants outstanding and entitled to vote. Please see “Special Meeting of CVAC warrantholders — Record Date; Who is Entitled to Vote” for further information.

 

Q:Who may vote at the special meeting of shareholders?

 

A:           Only holders of record of CVAC ordinary shares as of the close of business on [●], 201[2] may vote at the special meeting of shareholders. As of [●], 201[2], there were [●] CVAC ordinary shares outstanding and entitled to vote. Please see “Special Meeting of CVAC Shareholders — Record Date; Who is Entitled to Vote” for further information.

 

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Q:What is the quorum requirement for the special meeting of shareholders?

 

A:           Shareholders representing a majority of the CVAC ordinary shares issued and outstanding as of the record date and entitled to vote at the special meeting must be present in person or represented by proxy in order to hold the special meeting and conduct business. This is called a quorum. CVAC ordinary shares will be counted for purposes of determining if there is a quorum if the shareholder (i) is present and entitled to vote at the meeting, or (ii) has properly submitted a proxy card. In the absence of a quorum, shareholders representing a majority of the votes present in person or represented by proxy at such meeting, may adjourn the meeting until a quorum is present.

 

Q:What vote is required to approve the Proposals?

 

A:           Approval of the Warrant Amendment will require the affirmative vote of the holders of a majority of the CVAC warrants.

 

Approval of the Business Combination will require the affirmative vote of the holders of a majority of the CVAC ordinary shares issued in the IPO present and entitled to vote at the special meeting; provided, however, that if 58.37% or more of the holders of CVAC Subunits sold in the IPO exercise their redemption rights then the Business Combination will not be completed. Abstentions and broker non-votes will have the same effect as a vote against the approval of the Business Combination Proposal. Approval of the Redomestication Proposal will require the affirmative vote of the holders of a majority of the CVAC ordinary shares outstanding. The Business Combination Adjournment Proposal will require the affirmative vote of the holders of a majority of the shares present in person and by proxy at the meeting. Abstaining from voting and failing to instruct your bank, brokerage firm or nominee to vote your shares will have the same effect as voting against the Redomestication Proposal, and no effect on the Business Combination Adjournment Proposal.

 

Q:How will the Initial Shareholders vote?

 

A:           CVAC’s initial shareholders, who as of [●], 201[2] owned 790,625 CVAC ordinary shares, or approximately 22.3% of the outstanding CVAC ordinary shares, have agreed to vote their respective ordinary shares acquired by them prior to the initial public offering in favor of the Business Combination Proposal and related proposals. CVAC’s initial shareholders have also agreed that they will vote any shares they purchase in the open market in or after the IPO in favor of each of the Business Combination Proposal, the Redomestication Proposal and the Business Combination Adjournment Proposal.

 

In addition, CVAC’s initial shareholders, who as of [●], 201[2] owned 1,500,000 CVAC warrants, or approximately 26.8% of the outstanding CVAC warrants, have indicated that they will vote in favor of the Warrant Amendment Proposal and the Warrant Amendment Adjournment Proposal.

 

Q:Am I required to vote against the Business Combination Proposal or the Warrant Amendment Proposal, as applicable, in order to have my subunits redeemed?

 

A:            No. You are not required to vote against the Business Combination Proposal in order to have the right to demand that CVAC redeem your CVAC Subunits for cash equal to your pro rata share of the aggregate amount then on deposit in the trust account (before payment of deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of (i) taxes payable and (i) income on the trust account, previously released to CVAC to fund its working capital requirements). These rights to demand redemption of CVAC Subunits for cash are sometimes referred to herein as redemption rights. A CVAC warrantholder exercising its redemption rights will, however, forfeit the one-half of a CVAC warrant included in such subunit, without the payment of any additional consideration. If the Business Combination is not completed, or the Warrant Amendment Proposal is not approved, as the case may be, then holders of CVAC Subunits electing to exercise their redemption rights will not be entitled to receive such payments. In addition, CVAC’s Amended and Restated Memorandum and Articles of Association, or the CVAC charter, provides that a CVAC shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended, or the Exchange Act), will be restricted from seeking redemption rights in connection with the Business Combination with respect to more than an aggregate of 10% of the CVAC Subunits sold in the IPO.

 

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Q:How do I exercise my redemption rights?

 

A:           You may demand that CVAC redeem the subunits held by you for cash by marking the appropriate space on the applicable enclosed proxy card and providing physical or electronic delivery of your subunit certificates, as appropriate, prior to the special meetings of CVAC shareholders.

 

Any request for redemption, once made, may be withdrawn at any time up to the date of the special meeting of CVAC shareholders. The actual per share redemption price will be equal to the aggregate amount then on deposit in the trust account (before payment of deferred underwriting commissions and including interest earned on their pro rata portion of the trust account, net of (i) taxes payable and (ii) interest income on the trust account, previously released to CVAC to fund its working capital requirements) divided by the number of subunits sold in the IPO; provided, however that if you vote against the Business Combination Proposal, the maximum amount you may receive upon redeeming your CVAC subunit will be $5.96 per subunit. For illustrative purposes, based on funds in the trust account of approximately $16.5 million on November 9, 2012, the estimated per subunit redemption price for holders of CVAC Subunits voting in favor of the Business Combination Proposal would have been approximately $5.99. Please see the section entitled “Special Meetings of CVAC warrantholders and CVAC Shareholders—Redemption Rights” for the procedures to be followed if you wish to redeem your CVAC Subunits for cash.

 

Q:How can I vote?

 

A:           If you were a holder of record CVAC ordinary shares on [●], 201[2], the record date for the special meetings of CVAC shareholders, or a holder of record of CVAC warrants on [●], 201[2], the record date for the special meeting of CVAC warrantholders, you may vote with respect to the applicable proposals in person at the special meetings of CVAC shareholders or the special meeting of CVAC warrantholders, as the case may be, or by submitting a proxy by mail so that it is received prior to 9:00 a.m. on [●], 201[2], in the case of CVAC warrantholders, and prior to [●] a.m. on [●], 201[2], in the case of CVAC shareholders, in accordance with the instructions provided to you under “Special Meetings of CVAC warrantholders and CVAC Shareholders.” If you hold your shares or warrants in “street name,” which means your shares or warrants are held of record by a broker, bank or other nominee, your broker or bank or other nominee may provide voting instructions (including any telephone or Internet voting instructions). You should contact your broker, bank or nominee in advance to ensure that votes related to the shares or warrants you beneficially own will be properly counted. In this regard, you must provide the record holder of your shares or warrants with instructions on how to vote your shares or warrants or, if you wish to attend the special meeting of CVAC shareholders or the special meeting of CVAC warrantholders and vote in person, obtain a proxy from your broker, bank or nominee.

 

Q:If my shares are held in “street name” by my bank, brokerage firm or nominee, will they automatically vote my shares for me?

 

A:           No. Under the rules of various national and regional securities exchanges, your broker, bank or nominee cannot vote your shares or warrants with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. CVAC believes the Warrant Amendment Proposal, the Warrant Amendment Adjournment Proposal, the Redomestication Proposal, the Business Combination Proposal and the Business Combination Adjournment Proposal are non-discretionary and, therefore, your broker, bank or nominee cannot vote your shares or warrants without your instruction. Broker non-votes will not be considered present for the purposes of establishing a quorum and will have no effect on the Warrantholder Adjournment Proposal, the Redomestication Proposal, the Business Combination Proposal or the Business Combination Adjournment Proposal. A broker non-vote will have the effect of a vote “AGAINST” the Warrant Amendment Proposal. If you do not provide instructions with your proxy, your bank, broker or other nominee may submit a proxy card expressly indicating that it is NOT voting your shares or warrants; this indication that a bank, broker or nominee is not voting your shares or warrants is referred to as a “broker non-vote.” Your bank, broker or other nominee can vote your shares or warrants only if you provide instructions on how to vote. You should instruct your broker to vote your CVAC shares or warrants in accordance with directions you provide

 

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Q: What if I abstain from voting or fail to instruct my bank, brokerage firm or nominee?

 

A:            CVAC will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for the purposes of determining whether a quorum is present at the special meeting of CVAC shareholders. For purposes of approval, an abstention on the Business Combination Proposal or the Business Combination Adjournment Proposal will have the same effect as a vote “AGAINST” the proposal. Additionally, failure to elect to exercise your redemption rights will preclude you from having your subunits redeemed for cash. In order to exercise your redemption rights, you must make an election on the applicable proxy card to redeem such CVAC Subunits or submit a request in writing to CVAC’s transfer agent at the address listed on page 109, and deliver your shares to CVAC’s transfer agent physically or electronically through DTC prior to the special meeting of CVAC shareholders.

 

An abstention from the Warrant Amendment Proposal and the Warrant Amendment Adjournment Proposal presented to CVAC warrantholders will have the same effect as a vote “AGAINST” this proposal.

 

Q:Can I change my vote after I have mailed my proxy card?

 

A:           Yes. You may change your vote at any time before your proxy is voted at the special meeting. You may revoke your proxy by executing and returning a proxy card dated later than the previous one, or by attending the special meeting in person and casting your vote by ballot or by submitting a written revocation stating that you would like to revoke your proxy that we receive prior to the special meeting. If you hold your shares through a bank, brokerage firm or nominee, you should follow the instructions of your bank, brokerage firm or nominee regarding the revocation of proxies. You should send any notice of revocation or your completed new proxy card, as the case may be, to:

 

China VantagePoint Acquisition Company
555 NE 15th Street, Suite 200
Miami, FL 33132
Telephone: (305) 981-6888

 

Q: Should I send in my stock certificates now?

 

A:            Yes. CVAC shareholders who intend to have their subunits redeemed, by electing to have those subunits redeemed for cash on the proxy card, should send their certificates by the day prior to the special meeting. Please see “Special Meeting of CVAC Shareholders — Redemption Rights” for the procedures to be followed if you wish to redeem your subunits for cash.

 

Q:When is the Business Combination expected to occur?

 

A:           Assuming the requisite warrantholder and shareholder approvals are received, CVAC expects that the Business Combination will occur no later than February 25, 2013.

 

Q:May I seek statutory appraisal rights or dissenter rights with respect to my shares?

 

A:           No. Appraisal rights are not available to holders of CVAC ordinary shares in connection with the proposed Redomestication or the Business Combination. For additional information, see the sections entitled “Special Meeting of CVAC warrantholders—Appraisal Rights” and “Special Meeting of CVAC Shareholders—Appraisal Rights.”

 

Q:What happens if the Business Combination is not consummated?

 

A:           If CVAC does not consummate the Business Combination by February 25, 2013 then pursuant to Article 163 of its amended and restated memorandum and articles of association, CVAC’s officers must take all actions necessary in accordance with the Cayman Islands Companies Law to dissolve and liquidate CVAC as soon as reasonably practicable. Following dissolution, CVAC will no longer exist as a company. In any liquidation, the funds held in the Trust Account, plus any interest earned thereon (net of (i) taxes payable and (ii) interest income earned on the trust account previously released to CVAC to fund its working capital and general corporate requirements), together with any remaining out-of-trust net assets will be distributed pro-rata to holders of CVAC Subunits who acquired such CVAC Subunits in CVAC’s IPO or in the aftermarket. If the Business Combination is not effected by February 25, 2013, the CVAC warrants will expire worthless. The estimated consideration that each CVAC Subunit would be paid at liquidation would be $5.96 per CVAC Subunit, based on amounts on deposit in the Trust Account as of November 9, 2012. The closing price of CVAC’s Subunit on the OTC Bulletin Board as of November 9, 2012 was $6.12 per CVAC Subunit. CVAC’s Initial Shareholders waived the right to any liquidation distribution with respect to any CVAC Subunits held by them.

 

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Q:What happens to the funds deposited in the Trust Account following the Business Combination?

 

A:           Following the closing of the Business Combination, funds in the Trust Account will be released to CVAC. Holders of CVAC subunits exercising redemption rights will receive their per subunit redemption price. The balance of the funds will be utilized to fund the Business Combination. As of November 9, 2012, there was approximately $16.5 million in the Trust Account, or approximately $5.96 per outstanding subunit issued in the IPO. The amount in the Trust Account that will be used to fund the Business Combination and the expenses related to the transaction is expected to be approximately $415,000 (such expenses are estimated to include the following amounts: (i) legal fees and CVAC closing and accounting fees of $400,000; (ii) consulting and other professional fees of $5,000; and (iii) insurance and other costs of $10,000) and the maximum amount that will be used if holders of up to 58.37% of the CVAC subunits issued in the IPO exercise their redemption rights will be approximately $11,056,312. Any funds remaining in the Trust Account after such uses will be used for future working capital and other corporate purposes of the combined entity.

 

Q:In accordance with which accounting standard will BDH Acquisition prepare its financial statements after the Redomestication and Business Combination?

 

A:           BDH Acquisition intends to continue providing its investors with financial statements prepared in accordance with US Generally Accepted Accounting Principles, or GAAP, and the relevant securities laws.

 

Q:What will I receive in the Redomestication?

 

A:           In connection with the Redomestication, CVAC’s issued and outstanding capital stock will be converted as follows:

 

·Each CVAC ordinary share will be converted automatically into one share of Series A Convertible Participating Preferred Stock of BDH Acquisition, or the BDH Series A Preferred Stock, which will entitle the holder thereof to, among other things, a dividend and liquidation preference.

 

·Each CVAC warrant will be converted into one substantially equivalent warrant, or a BDH Warrant, to purchase one share of common stock of BDH Acquisition, or the BDH Common Stock,

 

·Each CVAC subunit will be converted automatically into one subunit consisting of one share of BDH Series A Preferred Stock and one-half of a warrant to purchase BDH Common Stock, or a BDH Subunit,

 

·Each CVAC unit will be converted automatically into one BDH Acquisition unit, consisting of one BDH Subunit and one-half of a warrant to purchase BDH Common Stock, or a BDH Unit,

 

·Each unit purchase option of CVAC will be converted into one substantially equivalent unit purchase option to purchase one BDH Unit.

 

DELIVERY OF DOCUMENTS TO CVAC WARRANTHOLDERS AND CVAC SHAREHOLDERS

 

Pursuant to the rules of the SEC, CVAC and services that it employs to deliver communications to its shareholders are permitted to deliver to two or more shareholders sharing the same address a single copy of the proxy statement/prospectus, unless CVAC has received contrary instructions from one or more of such shareholders. Upon written or oral request, CVAC will deliver a separate copy of the proxy statement/prospectus to any shareholder at a shared address to which a single copy of the proxy statement/prospectus was delivered and who wishes to receive separate copies in the future. Shareholders receiving multiple copies of the proxy statement/prospectus may likewise request that CVAC deliver single copies of the proxy statement/prospectus in the future. Shareholders may notify CVAC of their requests by calling CVAC at (305) 981-6888 or writing CVAC at its principal executive offices at 555 NE 15th Street, Suite 200, Miami, FL 33132.

 

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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

 

This summary highlights selected information from this proxy statement/prospectus but may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement/prospectus, including the Acquisition Agreement attached as Annex A. Please read these documents carefully as they are the legal documents that govern the Redomestication and Business Combination and your rights in the Redomestication and Business Combination. Unless the context otherwise requires, references to “CVAC,” “we,” “us” or “our” in this proxy statement/prospectus refers to China VantagePoint Acquisition Company, before the consummation of the Redomestication and Business Combination and to BDH Acquisition, including its consolidated subsidiaries, after the consummation of the Redomestication and Business Combination.

 

The Parties

 

CVAC

 

China VantagePoint Acquisition Company
555 NE 15th Street, Suite 200
Miami, Florida 33132
Telephone: (305) 981-6888

 

China VantagePoint Acquisition Corp., or CVAC, is a blank check company organized under the laws of Cayman Islands on September 3, 2010 as an exempted company with limited liability. CVAC was formed with the purpose of acquiring, through a merger, share exchange, asset acquisition, plan of arrangement, recapitalization, reorganization or similar business combination, one or more operating businesses, or control of such operating businesses through contractual arrangements.

 

CVAC completed its initial public offering on February 17, 2011 of 2,750,000 units at $6.00 per unit. Each unit included one subunit (“Subunit”) and one-half of a warrant. Each Subunit consisted of one ordinary share and one-half of a warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase from us one ordinary share at an exercise price of $5.00. The underwriters for CVAC’s public offering subsequently exercised the over-allotment option with respect to the offering, for a total of additional 412,500 units. Concurrent with the initial public offering, 2,642,856 warrants were sold at $0.35 per warrant in a private placement. The offerings yielded total net proceeds to CVAC of approximately $18,944,851. Of the net proceeds, $18,835,874 was placed in a trust account. As of June 30, 2012, approximately $16,542,970 was held in deposit in CVAC’s trust account.

 

CVAC’s units, subunits and warrants are each quoted on the OTC Bulletin Board, under the symbols “CHVPF,” “CHVQF” and “CHPVF,” respectively. Each of CVAC’s units consist of one subunit and one-half of a warrant to purchase an additional ordinary share of CVAC. Each of CVAC’s subunits consists of one ordinary share and one-half of a warrant to purchase an additional ordinary share of CVAC. CVAC’s units commenced trading on February 22, 2011. CVAC’s subunits and warrants commenced trading on March 15, 2011.

 

Black Diamond Holdings LLC

 

Black Diamond Holdings LLC
c/o Black Diamond Financial Group, LLC
1610 Wynkoop Street, Ste. 400
Denver, Colorado 80202
Telephone:

 

Black Diamond Holdings LLC, a Colorado limited liability company, or Black Diamond, was formed on April 15, 2011 to consolidate the investments and assets of four limited partnerships formed by Calim Private Equity between 2001 and 2007 and Black Diamond Fund I LLC formed in 2007 by Black Diamond Financial Group LLC.

 

 

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The funds were formed to make controlling seed, venture and opportunistic investments in private companies that are developing and bringing new processes and technologies to existing and established business markets. Once it is able to do so, Black Diamond plans to continue to acquire interests in developing companies with significant growth potential, including pre-revenue opportunities.

 

Black Diamond’s focus with the companies it acquires an interest in is to assist with their development and growth, market penetration strategies, and growth opportunities. Black Diamond intends to remain a shareholder in each of its subsidiaries for an indefinite period of time, with the ultimate goal of realizing cash flow from its subsidiaries. Periodically, Black Diamond assesses each subsidiary for the potential of future growth, capital appreciation and its ability to produce cash flow along with the risks and other opportunities for Black Diamond to invest capital. Upon making such assessments, Black Diamond will determine whether it should continue to hold or liquidate its interests in a particular company. Due to its large positions, the liquidation of an investment may take years to fully complete.

 

The Redomestication, Business Combination and Acquisition Agreement

 

Redomestication to Delaware

 

CVAC, the current Cayman Islands corporation, will effect a merger in which it will merge with and into BDH Acquisition Corp., its wholly-owned Delaware subsidiary, with BDH Acquisition Corp. surviving the merger (the Redomestication). BDH Acquisition is a newly formed shell company formed for the purposes of effectuating the Business Combination. Its Chief Executive Officer is Wei Li, CVAC’s Chief Executive Officer and Director, and its Secretary is Yiting Liu, CVAC’s Co-Chair of the Board of Directors.

 

At the time of the Redomestication:

 

·Each CVAC ordinary share will be converted automatically into one share of Series A Convertible Participating Preferred Stock of BDH Acquisition, or the BDH Series A Preferred Stock, which will entitle the holder thereof to, among other things, a dividend and liquidation preference.

 

·Each CVAC warrant will be converted into one substantially equivalent warrant, or a BDH Warrant, to purchase one share of common stock of BDH Acquisition, or the BDH Common Stock,

 

·Each CVAC subunit will be converted automatically into one subunit consisting of one share of BDH Series A Preferred Stock and one-half of a warrant to purchase BDH Common Stock, or a BDH Subunit,

 

·Each CVAC unit will be converted automatically into one BDH Acquisition unit, consisting of one BDH Subunit and one-half of a warrant to purchase BDH Common Stock, or a BDH Unit,

 

·Each unit purchase option of CVAC will be converted into one substantially equivalent unit purchase option to purchase one BDH Unit.

 

CVAC will cease to exist and BDH Acquisition will be the surviving corporation. In connection therewith, BDH Acquisition will assume all the property, rights, privileges, agreements, powers and franchises, debts, liabilities, duties and obligations of CVAC, including any and all agreements, covenants, duties and obligations of CVAC set forth in the Acquisition Agreement. For further information regarding the Acquisition Agreement, see “The Acquisition Agreement” elsewhere in this proxy statement/prospectus.

 

 

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Business Combination with Black Diamond; Business Combination Consideration

 

Immediately following the Redomestication, BDH Acquisition will acquire all of the issued and outstanding Class A membership units of Black Diamond and 45.6% of the Preferred membership units held by the selling shareholders in exchange for 67,383,334 shares of BDH Common Stock and 1,433,333 shares of BDH Series A Preferred Stock. The issuance of shares of BDH Acquisition to the post-Business Combination shareholders is being consummated on a private placement basis pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

After the Business Combination assuming no redemptions of subunits for cash, CVAC’s current public shareholders will own approximately 3.8% of BDH Acquisition, CVAC’s current directors, officers and affiliates will own approximately 1.1% of BDH Acquisition, and Black Diamond will own approximately 95.1% of BDH Acquisition. Assuming redemption by holders of 33.33% of CVAC’s outstanding subunits, CVAC public shareholders will own approximately 2.2% of BDH Acquisition, CVAC’s current directors, officers and affiliates will own approximately 1.1% of BDH Acquisition, and Black Diamond will own approximately 95.1% of BDH Acquisition.

 

Each of the Redomestication Proposal, the Business Combination Proposal and the Warrant Amendment Proposal, as described below, are conditioned upon the approval of each other. Therefore, all three must be approved by shareholders in order for the Business Combination to be consummated. If any of the three proposals is not approved, the Business Combination will not be consummated and CVAC will liquidate and dissolve. Upon consummation of the Business Combination, BDH Acquisition will own approximately 96% of the issued and outstanding membership interests of Black Diamond.

 

The consummation of the Business Combination is conditioned upon the majority of the ordinary shares voted by CVAC’s public shareholders present and entitled to vote at the special meeting voting in favor of the Business Combination and holders of less than 58.37% of CVAC’s subunits issued in the IPO exercise their redemption rights, consistent with the disclosure set forth in CVAC’s S-1.

 

Warrant Amendment Proposal

 

In connection with the proposed Business Combination, CVAC is proposing the Warrant Amendment in order to provide that upon the merger, consolidation or reorganization of CVAC, the CVAC warrants will be convertible into warrants to purchase common stock of the surviving entity of such merger, consolidation or reorganization. The Warrant Amendment is an isolated transaction and is not made pursuant to a plan to periodically increase the proportionate interest of a CVAC shareholder (or a CVAC subunit holder) in the assets or earnings and profits of CVAC (or its successors, BDH Acquisition).

 

Under the terms of the current Warrant Agreement, the CVAC warrantholders would be entitled to receive shares of BDH Series A Preferred Stock, which provide for, among other things, dividends and other liquidation preferences. However, the effect of the Warrant Amendment will be that holders of CVAC warrants will receive, upon exercise of their warrants, shares of common stock of BDH Acquisition and will not be entitled to any of the dividend, liquidation or other preferences to which holders of BDH Series A Preferred Stock will be entitled. Black Diamond required that this amendment to the CVAC warrants be a condition to the closing of the Business Combination.

 

Pursuant to Section 9.8 of the Warrant Agreement, the Warrant Agreement may be amended upon the consent of the holders of a majority of the outstanding CVAC warrants. Other than the Warrant Amendment described above, the terms of the CVAC warrants will remain essentially the same.

 

In the event that the Warrant Amendment Proposal is not approved at the special meeting of CVAC warrantholders, the Business Combination Proposal will not be presented to CVAC Shareholders for a vote. If CVAC is unable to consummate the Business Combination by February 25, 2013, it will be required to liquidate and all CVAC warrants will expire worthless.

 

 

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Management

 

Effective the closing date, the board of directors of BDH Acquisition will consist of five members. The members will include Patrick Imeson, Michael Feinberg and General Michael Hagee (USMC Ret.) of Black Diamond and Ye (Sophie) Tao and Yiting Liu of CVAC, of whom everyone other than Mr. Imeson will be deemed to be independent. Mr. Imeson will be the Chief Executive Officer of BDH Acquisition after the consummation of the Business Combination. See “Directors and Executive Officers after the Business Combination” elsewhere in this proxy statement/prospectus.

 

The Acquisition Agreement

 

On August 24, 2012, CVAC, BDH Acquisition, Black Diamond, all of the Class A members of Black Diamond, certain Preferred Members of Black Diamond and Black Diamond Financial Group, LLC, or the Manager, entered into the Acquisition Agreement, pursuant to which CVAC will redomicle to Delaware and BDH Acquisition will acquire all of the issued and outstanding Class A Units of Black Diamond and 45.6% of the Preferred Units of Black Diamond in exchange for 1,433,333 shares of BDH Series A Preferred Stock and 67,383,334 shares of BDH Acquisition Common Stock. See “The Acquisition Agreement — Business Combination with Black Diamond; Business Combination Consideration” for more detailed information.

 

Pursuant to the Acquisition Agreement, the Redomestication will not be consummated unless the Business Combination is also approved. Similarly, the Business Combination will not take place unless the Redomestication is also approved. Upon consummation of the Business Combination, BDH Acquisition will own approximately 96% of the outstanding membership interests of Black Diamond.

 

Within six months of the closing date of the Business Combination, BDH Acquisition is obligated to file a registration statement relating to the resale of the shares of common stock issued pursuant to the Acquisition Agreement and cause such registration statement to be declared effective by the SEC as soon as reasonably practicable after the filing of such registration statement. BDH Acquisition has also granted the selling shareholders piggy-back registration rights during the one year period following the closing date of the Business Combination.

 

Consummation of the Acquisition Agreement is conditioned on, among other things, (a) holders of a majority of CVAC’s public shareholders present and entitled to vote at the special meeting approving the Business Combination in accordance with its Amended and Restated Memorandum and Articles of Association, with holders of less than 58.37% of CVAC’s subunits issued in the IPO exercise their rights to redeem such public ordinary shares for cash; (b) the absence of any proceeding pending or threatened to enjoin or otherwise restrict the acquisition and (c) the representations and warranties of the other parties being true on and as of the closing date of the Acquisition Agreement, and compliance with all required covenants in the Acquisition Agreement.

 

The obligations of CVAC to consummate the transactions contemplated by the Acquisition Agreement, in addition to the conditions described above in the paragraph above, are conditioned upon each of the following (none of which have been satisfied as of the date hereof), among other things:

 

·there having been no material adverse effect to Black Diamond’s business;
·BDH Acquisition being satisfied with the results of its review of Black Diamond’s business, units and that of its subsidiaries and portfolio companies.
·receipt by BDH Acquisition of a general release of all claims by the Class A Members against Black Diamond and its subsidiaries and portfolio companies and their officers, directors, employees and affiliates;
·BDH Acquisition receiving a legal opinion from Black Diamond’s counsel;
·CVAC and BDH Acquisition having received final disclosure schedules to the Acquisition Agreement; and
·a majority of the CVAC warrantholders shall have approved the Warrant Amendment Proposal.

 

See “The Acquisition Agreement — Conditions to Closing” for more details.

 

 

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Other Agreements Relating to the Business Combination

 

Voting Agreement

 

As a condition to the closing of the Redomestication and Business Combination, BDH Acquisition, the selling shareholders and certain shareholders of CVAC will enter into a Voting Agreement to set forth their agreements and understandings with respect to how shares of BDH Acquisition common stock held by them will be voted on in connection with, and following, the transactions contemplated by the Acquisition Agreement. The parties will agree to vote their shares of BDH Acquisition common stock as necessary to ensure that the size of the Board of Directors of BDH Acquisition after the consummation of the Redomestication and Business Combination will be five members until [●]. The parties will also agree to vote their shares of BDH Acquisition common stock to ensure the election of two members of the Board of Directors of BDH Acquisition designated by the CVAC shareholders party to the agreement, who shall initially be Yiting Liu and Ye (Sophie) Tao, and three members designated by the selling shareholders, of which one designee shall qualify as an independent director pursuant to the rules of any stock exchange on which BDH Acquisition may be listed. A copy of the Voting Agreement is attached to this proxy statement/prospectus as Annex C.

 

Registration Rights Agreement

 

As a condition to the closing of the Redomestication and Business Combination, BDH Acquisition and the selling shareholders will enter into a Registration Rights Agreement to provide for the registration of the common stock and BDH Series A Preferred being issued to the selling shareholders in connection with the Business combination. The selling shareholders are entitled to make up to two demands that we register such securities. The holders of a majority of the common stock and BDH Series A Preferred Stock issued in the Business Combination to the selling shareholders can elect to exercise these registration rights at any time commencing six months after the consummation of the Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed at least six months following the consummation of the Business Combination. BDH Acquisition will bear the expenses incurred in connection with the filing of any such registration statements. A copy of the Registration Rights Agreement is attached to this proxy statement/prospectus as Annex D.

 

Recommendations of the Boards of Directors and Reasons for the Redomestication and Business Combination

 

After careful consideration of the terms and conditions of the Acquisition Agreement, the board of directors of CVAC has determined that the Redomestication, the Business Combination and the transactions contemplated thereby are fair to and in the best interests of CVAC and its shareholders. In reaching its decision with respect to the Redomestication and Business Combination and the transactions contemplated thereby, the board of directors of CVAC reviewed various industry and financial data and the due diligence and evaluation materials provided by Black Diamond. The board of directors did not obtain a fairness opinion on which to base its assessment. CVAC’s board of directors recommends that CVAC shareholders vote:

 

·FOR the Warrant Amendment Proposal;
·FOR the Warrant Amendment Adjournment Proposal;
·FOR the Redomestication Proposal;
·FOR the Business Combination Proposal; and
·FOR the Business Combination Adjournment Proposal.

 

Interests of Certain Persons in the Business Combination

 

When you consider the recommendation of CVAC’s board of directors in favor of adoption of the Business Combination Proposal and other proposals, you should keep in mind that CVAC’s directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as a shareholder, including:

 

·If the proposed Business Combination is not completed by February 25, 2013, CVAC will be required to liquidate. In such event, the 790,625 CVAC ordinary shares held by CVAC officers, directors and affiliates, which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless, as will the 1,500,000 warrants that were acquired prior to the IPO for an aggregate purchase price of $525,000. Such ordinary shares and warrants had an aggregate market value of approximately $5.3 million based on the closing price of CVAC’s subunits of $6.12 and CVAC’s warrants $0.30, on the OTC Bulletin Board as of November 9, 2012;

 

 

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·Unless CVAC consummates the Business Combination, its officers, directors and Initial Shareholders will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceeded the amount of its working capital. As of November 9, 2012, CVAC’s officers, directors and Initial Shareholders were entitled to approximately $161,000 (including $158,525 payable to Ray Shi Capital Group, LLC, an affiliate of Yiting Liu, one of CVAC’s directors, Ye (Sophie) Tao, one of CVAC’s directors and Wei Li, CVAC’s Chief Executive Officer and a director, for office space, administrative services and secretarial support) in reimbursable expenses. As a result, the financial interest of CVAC’s officers, directors and Initial Shareholders or their affiliates could influence its officers’ and directors’ motivation in selecting Black Diamond as a target and therefore there may be a conflict of interest when it determined that the Business Combination is in the shareholders’ best interest.

 

·CVAC’s Initial Shareholders have contractually agreed that, if it liquidates prior to the consummation of a business combination, they will be personally liable to ensure that the proceeds in the trust account are not reduced below $5.96 per share by the claims of target businesses or claims of vendors or other entities that are owed money by CVAC for services rendered or contracted for or products sold to it. Therefore, CVAC’s initial shareholders have a financial interest in consummating a business combination, thereby resulting in a conflict of interest. CVAC’s Initial Shareholders or their affiliates could influence our officers’ and directors’ motivation in selecting a target business and therefore there may be a conflict of interest when determining whether the Business Combination is in the shareholders’ best interest.

 

·If the Business Combination with Black Diamond is completed, Ye (Sophie) Tao and Yiting Liu will serve as directors of BDH Acquisition and Black Diamond will designate three members to the Board of Directors of BDH Acquisition; and

 

·In addition, the exercise of CVAC’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in our shareholders’ best interest.

 

Voting Securities

 

As of [●], 201[2], there were [●] CVAC warrants issued and outstanding. Only CVAC warrantholders who hold warrants of record as of the close of business on [●], 201[2] are entitled to vote at the special meeting of warrantholders or any adjournment of the special meeting. Approval of the Warrant Amendment Proposal requires the affirmative vote of the holders of a majority of the issued and outstanding CVAC warrants.

 

As of [●], 201[2], there were [●] CVAC ordinary shares issued and outstanding. Only CVAC shareholders who hold ordinary shares of record as of the close of business on [●], 201[2] are entitled to vote at the special meeting shareholders or any adjournment of the special meeting. Approval of the Redomestication Proposal, the Business Combination Proposal and the requires the affirmative vote of the holders of a majority of the issued and outstanding CVAC ordinary shares entitled to vote thereon as of the record date present in person or represented by proxy at the special meeting. Abstentions are considered present for the purposes of establishing a quorum but will have the same effect as a vote “AGAINST” the Redomestication Proposal, the Business Combination Proposal and the Business Combination Adjournment Proposal. Broker non-votes will not be considered present for the purposes of establishing a quorum. A broker non-vote will have the effect of a vote “AGAINST” the Warrant Amendment Proposal and will have no effect on the Redomestication Proposal, the Business Combination Proposal or the Business Combination Adjournment Proposal.

 

As of [●], 201[2], CVAC’s initial shareholders, either directly or beneficially, owned and were entitled to vote 1,500,000 warrants, or approximately 26.8% of CVAC’s outstanding warrants and 790,625 ordinary shares, or approximately 22.3% of CVAC’s outstanding ordinary shares. With respect to the Business Combination, CVAC’s initial shareholders have agreed to vote their respective CVAC ordinary shares acquired by them in favor of the Business Combination Proposal and related proposals. They have indicated that they intend to vote their warrants and shares, as applicable, “FOR” each of the other proposals although there is no agreement in place with respect to these proposals.

 

 

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Appraisal Rights

 

Holders of CVAC ordinary shares are not entitled to appraisal rights under the Companies Law.

 

Material U.S. Federal Income Tax Consequences

 

The Redomestication should qualify as a reorganization for U.S. federal income tax purposes under Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. However, due to the absence of guidance directly on point on how the provisions of Section 368(a) apply in the case of a merger of a corporation with no active business and only investment-type assets, this result is not entirely free from doubt. Accordingly, due to the absence of such guidance, it is not possible to predict whether the IRS or a court considering the issue would take a contrary position.

 

If the Redomestication qualifies as a reorganization under Section 368(a), except as otherwise provided below in the sections entitled “Material U.S. Federal Income Tax Consequences—U.S. Holders—PFIC Considerations” and “Material U.S. Federal Income Tax Consequences—U.S. Holders—Effect of Section 367,” a U.S. Holder (as that term is defined in the section entitled “Material U.S Federal Income Tax Consequences—General”) of CVAC securities should not recognize gain or loss upon the exchange of its CVAC securities solely for BDH Acquisition securities pursuant to the Redomestication. A U.S. Holder’s aggregate tax basis in the BDH Acquisition securities received in connection with the Redomestication should be the same as the aggregate tax basis of the CVAC securities surrendered in the transaction, increased by any amount included in the income of such U.S. Holder under the PFIC rules or Section 367(b) of the Code. See the discussion under “Material U.S. Federal Income Tax Consequences—U.S. Holders—PFIC Considerations” and “Material U.S. Federal Income Tax Consequences—U.S. Holders—Effect of Section 367,” below. In addition, the holding period of the BDH Acquisition securities received in the Redomestication generally should include the holding period of the CVAC securities surrendered in the Redomestication.

 

If the Redomestication should fail to qualify as a reorganization under Section 368(a), a U.S. Holder of CVAC securities generally would recognize gain or loss with respect to its CVAC securities in an amount equal to the difference, if any, between the U.S. Holder’s adjusted tax basis in its CVAC securities and the fair market value of the corresponding BDH Acquisition securities received in the Redomestication. In such event, the U.S. Holder’s basis in the BDH Acquisition securities would be equal to their fair market value, and such U.S. Holder’s holding period for the BDH Acquisition securities would begin on the day following the date of the Redomestication.

 

See “Material U.S. Federal Income Tax Consequences” below for further discussion of these and other tax consequences.

 

Anticipated Accounting Treatment

 

The Merger will be accounted for as a “reverse merger” and recapitalization since the sellers of Black Diamond will control the combined company immediately following the completion of the transaction. Black Diamond will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of Black Diamond. Accordingly, the assets and liabilities and the historical operations that are reflected in the financial statements will be those of Black Diamond and will be recorded at the historical cost basis of Black Diamond. CVAC’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of Black Diamond after consummation of the acquisition.

 

Regulatory Approvals

 

The Business Combination and the other transactions contemplated by the Acquisition Agreement are not subject to any additional federal or state regulatory requirements or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for filings with the State of Delaware and the Cayman Islands necessary to effectuate the transactions contemplated by the Acquisition Agreement.

 

 

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BLACK DIAMOND SUMMARY FINANCIAL INFORMATION

 

The data below as for the years ended December 31, 2011 and 2010 has been derived from Black Diamond’s audited consolidated/combined financial statements for such years, which are included in this prospectus/proxy statement. The data as of and for the six months ended June 30, 2012 and 2011 have been derived from Black Diamond’s consolidated/combined financial statements as of such dates and for such period, which are unaudited, but which, in management’s opinion, including all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the data, and which are included elsewhere in this prospectus/proxy statement. Black Diamond’s unaudited consolidated/combined results of operations for the six months ended June 30, 2011 and 2010 may not be indicative of the results that may be expected for the full year.

 

The information presented below should be read in conjunction with “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Black Diamond’s audited and unaudited financial statements and notes thereto included elsewhere in this prospectus/proxy statement.

 

 

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   For the Years Ended   For the Six Months Ended 
   December 31,   June 30, 
   2011   2010   2012   2011 
           (unaudited)   (unaudited) 
Consolidated/Combined Statements of Operations                  
Revenues  $25,411,838   $24,351,508   $10,462,718   $12,076,376 
Cost of revenues   13,348,477    11,581,577    4,681,269    6,681,783 
Gross profit   12,063,361    12,769,931    5,781,449    5,394,593 
Operating expenses                    
Selling, general and administrative   22,312,854    20,714,574    9,751,780    9,625,487 
Accretion expense   1,327,221    1,535,632    703,981    761,598 
Depreciation and amortization   784,272    1,791,471    403,918    391,684 
Total operating expenses   24,424,347    24,041,677    10,859,679    10,778,769 
Loss from operations   (12,360,986)   (11,271,746)   (5,078,230)   (5,384,176)
Other income (expense)                    
Interest expense   (12,849,311)   (12,787,026)   (5,845,286)   (6,240,775)
Loss from equity method investments   (2,006,270)   -    (2,135,377)   - 
Amortization of debt discount and deferred financing   (947,707)   (1,980,224)   (392,575)   (424,075)
Change in fair value of derivative liabilities   542,283    787,433    -    377,220 
Other   (172,289)   (10,178)   (2,397)   (168,497)
Gain on deconsolidation   7,588,825    -    -    - 
Total other expense   (7,844,469)   (13,989,995)   (8,375,635)   (6,456,127)
Net loss before non-controlling interest   (20,205,455)   (25,261,741)   (13,453,865)   (11,840,303)
Net loss attributable to non-controlling interest   (11,928,080)   (10,147,689)   (3,770,656)   (4,619,194)
Net loss attributable to Black Diamond Holdings, LLC  $(8,277,375)  $(15,114,052)  $(9,683,209)  $(7,221,109)
                     
Consolidated/Combined Statements of Cash Flows                    
Net cash used in operating activities  $(9,978,397)  $(2,741,462)  $(904,260)  $(3,845,717)
Net cash used in investing activities   (7,920,836)   (1,000,529)   (1,056,878)   (1,910,421)
Net cash used in financing activities   18,165,513    3,855,358    1,510,837    7,656,149 
                     
Consolidated/Combined Balance Sheets                    
Cash and cash equivalents  $644,291   $378,011   $193,990   $2,278,022 
Total Assets   61,031,311    49,490,037    59,809,101    51,884,687 
Total Members' Deficit   (63,292,867)   (73,258,917)   (74,202,816)   (77,436,312)

 

 

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PRICE RANGE OF SECURITIES AND DIVIDENDS

 

CVAC’s units, subunits and warrants are each quoted on the OTC Bulletin Board, under the symbols “CHVPF,” “CHVQF” and “CHPVF,” respectively. Each of CVAC’s units consist of one subunit and one-half of a warrant to purchase an additional ordinary share of CVAC. Each of CVAC’s subunits consists of one ordinary share and one-half of a warrant to purchase an additional ordinary share of CVAC. CVAC’s units commenced trading on February 22, 2011. CVAC’s subunits and warrants commenced trading on March 15, 2011.

 

The table below sets forth the high and low bid prices of CVAC’s subunits, warrants, and units as reported on the OTC Bulletin Board for the period from March 15, 2011 (the date on which our subunits and warrants were first quoted on the OTC Bulletin Board) through November 9, 2012 and for the period from February 22, 2011 (the date on which our units were first quoted on the OTC Bulletin Board) through November 9, 2012.

 

   Subunits   Warrants   Units 
   High   Low   High   Low   High   Low 
2012                              
Fourth Quarter (through November 9, 2012)   6.12    5.85    0.30    0.30    5.93    5.91 
Third Quarter   5.85    5.85    0.46    0.08    6.00    5.90 
Second Quarter   5.85    5.78    0.46    0.25    6.05    5.90 
First Quarter   5.78    5.70    0.50    0.35    5.95    5.89 
2011                              
Fourth Quarter   5.70    5.70    0.50    0.30    6.00    5.91 
Third Quarter   5.70    5.70    0.35    0.35    6.00    5.90 
Second Quarter   5.75    5.69    0.35    0.29    5.95    5.90 
First Quarter (Period from March 15, 2011 (subunits and warrants)  and February 22, 2011 (units)   5.71    5.70    0.35    0.25    6.03    5.90 

 

Black Diamond’s units are not publicly traded.

 

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RISK FACTORS

 

You should consider carefully the following risk factors, as well as the other information set forth in this proxy statement/prospectus, before making a decision on the Acquisition.

 

Risks Related to Black Diamond’s Business and Structure

 

Black Diamond is a company with limited history and may not be able to continue to successfully manage its businesses on a combined basis.

 

Black Diamond was formed on March 15, 2011 and has conducted operations since such date. Although its management team has extensive experience in investing in and managing development and emerging businesses, its failure to continue to develop and maintain effective systems and procedures, including accounting and financial reporting systems, to manage its operations as a consolidated company, may negatively impact its ability to optimize the performance of the company, which could adversely affect capital appreciation and its ability to pay distributions to its shareholders. In addition, in that case, Black Diamond’s consolidated financial statements might not be indicative of its financial condition, business and results of operations.

 

There are doubts about Black Diamond’s ability to continue as a going concern.

 

Due to recurring losses and no revenues from operations, accumulated debt and insufficient cash reserves and limited alternative sources of capital to implement Black Diamond’s business, Black Diamond may not be able to continue operating. Black Diamond has generated net losses since inception, and Black Diamond’s cash resources are insufficient to meet its planned business objectives, which together raises doubt about Black Diamond’s ability to continue as a going concern.

 

Black Diamond’s future success is dependent on the employees of its Manager and the management teams of its businesses, the loss of any of whom could materially adversely affect Black Diamond’s financial condition, business and results of operations.

 

Black Diamond’s future success depends, to a significant extent, on the continued services of the employees of its Manager. Black Diamond’s Manager does not currently have employment agreements with any of its employees, and the employees of Black Diamond’s Manager may leave or compete with Black Diamond in the future. The future success of Black Diamond’s business also depends on the management teams of each of its subsidiaries and other companies in which it is a minority shareholder. The loss of services of one or more members of Black Diamond’s management team or the members of the management teams of Black Diamond’s subsidiaries and other companies could materially adversely affect Black Diamond’s financial condition, business and results of operations.

 

Black Diamond may have difficulty meeting its current and future capital requirements.

 

Black Diamond’s costs and planned expenditures for its business require significant amounts of additional capital.  As a result, Black Diamond will need to explore raising additional capital during fiscal year 2012 and beyond.  Such financing may not be available on acceptable terms, if at all.  If Black Diamond is unable to fund future operations by way of financing, including public or private offerings of equity or debt securities, its business activities and financial condition will be adversely impacted.

 

Black Diamond faces risks with respect to potential acquisitions.

 

A component of Black Diamond’s business strategy is to expand its business through the acquisition of additional subsidiaries and/or minority interests in other companies. In the event that any of these potential acquisition targets are privately held, Black Diamond may experience difficulty in evaluating such targets, as the information concerning these businesses is not publicly available. In addition, Black Diamond may have difficulty effectively managing or integrating new businesses into its existing businesses. Black Diamond may experience greater than expected costs or difficulties relating to acquiring new businesses, in which case, Black Diamond might not achieve the anticipated returns from any particular acquisition, which may have a material adverse effect on its financial condition, business and results of operations.

 

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Black Diamond may have conflicts of interest with the minority shareholders of the businesses in which it has equity investments, but does not own entirely.

 

Black Diamond does not own 100% of all of its operating companies. The boards of directors of such companies have fiduciary duties to all their shareholders, including their minority shareholders. As a result, they may make decisions that are in the best interests of their shareholders, generally, but which are not necessarily in the best interest of Black Diamond

 

Black Diamond may engage in a business transaction with one or more target businesses that have relationships with its officers or the Manager, which may create potential conflicts of interest.

 

Black Diamond may decide to invest in one or more businesses with which its officers, the Manager or Black Diamond have a pre-existing relationship giving rise to potential conflicts of interest. As a result, the terms of any transaction with a business in which Black Diamond, the Manager or any of Black Diamond’s officers have a pre-existing relationship may not be as advantageous to its shareholders as it would have been absent any pre-existing relationship.

 

If, in the future, Black Diamond ceases to control and operate its subsidiaries and other companies in which it is a minority shareholder, it may be deemed to be an investment company under the Investment Company Act of 1940, as amended.

 

Black Diamond has the ability to make investments in businesses that it will not operate or control. If Black Diamond makes significant investments in businesses that it does not operate or control or ceases to operate and control its existing subsidiaries and other companies in which it holds equity, it may be deemed to be an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. If Black Diamond was deemed to be an investment company, it would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify its investments or organizational structure or its contract rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially adversely affect Black Diamond’s financial condition, business and results of operations, materially limit its ability to borrow funds or engage in other transactions involving leverage and require it to add directors who are independent of it or its Manager and otherwise will subject it to additional regulation that will be costly and time-consuming.

 

Black Diamond has a going concern opinion from its auditors, indicating the possibility that it may not be able to continue to operate.

 

At December 31, 2011, Black Diamond had not generated any revenues to fund its operations. The continuation as a going concern is dependent upon its ability to meet financial requirements and raise additional capital, which will likely involve the issuance of debt and/or equity securities. These factors raise substantial doubt as to Black Diamond’s ability to continue as a going concern. If Black Diamond is unable to raise additional capital and continue as a going concern its stockholders may lose their entire investment in it.

 

Black Diamond will exhaust its current cash balances if it does not raise additional capital.

 

Black Diamond had $644,291 in Cash and Cash Equivalents as of December 31, 2011 and $193,990 as of June 30, 2012. Black Diamond has raised $1,160,000 since June 30, 2012, however; without additional capital, Black Diamond will exhaust its cash resources in November of 2012.

 

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Risks Relating to BDH Acquisition’s Manager

 

After consummation of the Business Combination, BDH Acquisition’s Chief Executive Officer, Chief Financial Officer, Manager and other members of its management team may allocate some of their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to BDH Acquisition’s affairs, which may materially adversely affect its operations.

 

After consummation of the Business Combination, BDH Acquisition’s Chief Executive Officer, Chief Financial Officer, Manager and other members of its management team may engage in other business activities. This may result in a conflict of interest in allocating their time between BDH Acquisition’s operations and the management and operations of other businesses. Conflicts of interest that arise over the allocation of time may not always be resolved in BDH Acquisition’s favor and may materially adversely affect BDH Acquisition’s operations. See the section entitled “Certain Relationships” for the potential conflicts of interest of which you should be aware.

 

After consummation of the Business Combination, BDH Acquisition’s Manager and its affiliates, including members of its management team, may engage in activities that compete with BDH Acquisition or its subsidiaries or other companies in which it is a minority shareholder.

 

While BDH Acquisition’s management team intends to devote a substantial majority of their time to the affairs of BDH Acquisition, neither BDH Acquisition’s management team nor its Manager is expressly prohibited from investing in or managing other entities, including those that are in the same or similar line of businesses as its subsidiaries and other companies in which it is a minority shareholder. In this regard, the management services agreement and the obligation to provide management services will not create a mutually exclusive relationship between BDH Acquisition’s Manager and its affiliates, on the one hand, and BDH Acquisition, on the other.

 

After consummation of the Business Combination, BDH Acquisition cannot remove the Manager solely for poor performance, which could limit BDH Acquisition’s ability to improve its performance and could materially adversely affect the market price of its shares.

 

Under the terms of the management services agreement, BDH Acquisition’s Manager cannot be removed as a result of underperformance. Instead, BDH Acquisition’s shareholders can only remove its Manager in certain limited circumstances or upon a vote by the 66.66% majority of BDH Acquisition’s shareholders to terminate the management services agreement. This limitation could limit BDH Acquisition’s ability to change the Manager and materially adversely affect the market price of its shares.

 

After consummation of the Business Combination, BDH Acquisition’s Manager can resign on 90 days’ notice and it may not be able to find a suitable replacement within that time, resulting in a disruption in its operations that could materially adversely affect its financial condition, business and results of operations as well as the market price of its shares.

 

After consummation of the Business Combination, BDH Acquisition’s Manager has the right, under the management services agreement, to resign at any time on 90 days’ written notice, whether BDH Acquisition has found a replacement or not. If BDH Acquisition’s Manager resigns, it may not be able to contract with a new manager or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 90 days, or at all, in which case BDH Acquisition’s operations are likely to experience a disruption, its financial condition, business and results of operations, as well as its ability to pay distributions are likely to be adversely affected, and the market price of its shares may decline. In addition, the coordination of BDH Acquisition’s internal management, acquisition activities and supervision of its businesses is likely to suffer if it is unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by its Manager and its affiliates. Even if BDH Acquisition is able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with BDH Acquisition’s businesses may result in additional costs and time delays that could materially adversely affect BDH Acquisition’s financial condition, business and results of operations.

 

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After consummation of the Business Combination, BDH Acquisition must pay its Manager the management fee regardless of its performance.

 

After consummation of the Business Combination, BDH Acquisition’s Manager is entitled to receive a management fee of 2% of contributed capital plus net debt outstanding, as defined in the management services agreement, regardless of the performance of its businesses. The calculation of the management fee is unrelated to BDH Acquisition’s net income or net assets. As a result, the Manager is entitled to its fee regardless of the performance of the business and it may sell BDH Acquisition’s assets in order to generate the necessary cash in order to pay its management fee.

 

The fees to be paid to BDH Acquisition’s Manager pursuant to the management services agreement, the offsetting management services agreements and transaction services agreements may significantly reduce the amount of cash available for distribution to BDH Acquisition’s shareholders.

 

Under the management services agreement, BDH Acquisition will be obligated to pay a management fee to and, subject to certain conditions, reimburse the costs and out-of-pocket expenses of its Manager incurred on behalf of BDH Acquisition in connection with the provision of services to BDH Acquisition. Similarly, BDH Acquisition’s subsidiaries and other entities in which it is a minority shareholder will be obligated to pay fees to, and reimburse the costs and expenses of, BDH Acquisition’s Manager pursuant to any offsetting management services agreements entered into between the Manager and any such entities, or any transaction services agreements to which such entities are a party. As a result, the payment of these amounts may significantly reduce the amount of cash flow available for distribution to BDH Acquisition’s shareholders.

 

After consummation of the Business Combination, BDH Acquisition’s Manager’s influence on conducting its operations, including on how it will conduct transactions, gives it the ability to increase its fees, which may reduce the amount of cash flow available for distribution to its shareholders.

 

Under the terms of the management services agreement, BDH Acquisition’s Manager is paid a management fee of 2% of BDH Acquisition’s contributed capital plus net debt outstanding and is unrelated to net income, net assets or any other performance base or measure. BDH Acquisition’s Manager may advise BDH Acquisition to consummate transactions, incur third party debt or conduct its operations in a manner that, in the Manager’s reasonable discretion, are necessary to the future growth of BDH Acquisition’s subsidiaries and other companies in which it is a minority shareholder and are in the best interests of BDH Acquisition’s shareholders. These transactions, however, may increase the amount of fees paid to the Manager. The Manager’s ability to increase its fees through the influence it has over BDH Acquisition’s operations, may increase the compensation paid by the Manager. The Manager’s ability to influence the management fee paid to it by BDH Acquisition could reduce the amount of cash flow available for distribution to BDH Acquisition’s shareholders.

 

After the consummation of the Business Combination, fees paid by BDH Acquisition and its subsidiaries and other companies in which it is a minority shareholder pursuant to transaction services agreements do not offset fees payable under the management services agreement and will be in addition to the management fee payable by BDH Acquisition under the management services agreement.

 

The management services agreement provides that BDH Acquisition’s subsidiaries and other companies in which it is a minority shareholder may enter into transaction services agreements with the Manager pursuant to which such entities will pay fees to the Manager. See the section entitled “Certain Relationships and Related Party Transactions” for more information about these agreements. Unlike fees paid under the offsetting management services agreements, fees that are paid pursuant to such transaction services agreements will not reduce the management fee payable by BDH Acquisition. Therefore, such fees will be in excess of the management fee payable by BDH Acquisition.

 

The fees to be paid to the Manager pursuant to these transaction service agreements will be paid prior to any principal, interest or dividend payments to be paid to BDH Acquisition by its subsidiaries and other companies in which it is a minority shareholder, which will reduce the amount of cash flow available for distributions to unitholders.

 

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The obligations to pay the management fee may cause BDH Acquisition to liquidate assets or incur debt.

 

If BDH Acquisition does not have sufficient liquid assets to pay the management fee, it may be required to liquidate assets or incur debt in order to make such payments. This circumstance could materially adversely affect BDH Acquisition’s liquidity and ability to make distributions to its unitholders.

 

Risks Relating Generally to Black Diamond’s Businesses

 

Current economic conditions have impacted and will continue to impact Black Diamond’s business.

 

Many industries, including those of Black Diamond’s subsidiaries and other companies in which it is a minority shareholder, have been affected by current economic factors, including the significant deterioration of global economic conditions, declines in employment levels, and shifts in consumer spending patterns. The recent disruptions in the overall economy and volatility in the financial markets have greatly reduced, and may continue to reduce, consumer confidence in the economy, negatively affecting consumer spending, all of which could be harmful to Black Diamond’s financial position. Disruptions in the overall economy may also lead to a lower collection rate on billings as consumers or businesses are unable to pay their bills in a timely fashion. In addition, macro-economic disruptions, as well as the restructuring of various commercial and investment banking organizations, could adversely affect Black Diamond’s ability to access the credit markets. The disruption in the credit markets may also adversely affect the availability of financing to support Black Diamond’s strategy for growth through future acquisitions. There is a risk that government responses to the disruptions in the financial markets will not restore consumer confidence, stabilize the markets, or increase liquidity and the availability of credit.

 

Some of Black Diamond’s subsidiaries and other entities in which it is a minority shareholder rely on their intellectual property and licenses to use others’ intellectual property, for competitive advantage. If such businesses are unable to protect their intellectual property, are unable to obtain or retain licenses to use other’s intellectual property, or if they infringe upon or are alleged to have infringed upon others’ intellectual property, it could have a material adverse effect on their financial condition, business and results of operations.

 

The success of some of Black Diamond’s subsidiaries and other entities in which it is a minority shareholder depends, in part, on their, or licenses to use others’, brand names, proprietary technology and manufacturing techniques. These businesses rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality procedures and contractual provisions to protect their intellectual property rights. The steps they have taken to protect their intellectual property rights may not prevent third parties from using their intellectual property and other proprietary information without their authorization or independently developing intellectual property and other proprietary information that is similar. In addition, the laws of foreign countries may not protect these businesses’ intellectual property rights effectively or to the same extent as the laws of the United States. Stopping unauthorized use of their proprietary information and intellectual property, and defending claims that they have made unauthorized use of others’ proprietary information or intellectual property, may be difficult, time-consuming and costly. The use of their intellectual property and other proprietary information by others, and the use by others of their intellectual property and proprietary information, could reduce or eliminate any competitive advantage they have achieved, cause them to lose sales, or otherwise harm their business.

 

Black Diamond’s subsidiaries may become involved in legal proceedings and claims in the future either to protect their intellectual property or to defend allegations that they have infringed upon others’ intellectual property rights. These claims and any resulting litigation could subject them to significant liability for damages and invalidate their property rights. In addition, these lawsuits, regardless of their merits, could be time consuming and expensive to resolve and could divert management’s time and attention. The costs associated with any of these actions could be substantial and could have a material adverse effect on their financial condition, business and results of operations.

 

The operations and development of some of the services and technology of our subsidiaries depends on the collective experience of their technical employees. If these employees were to leave and take this knowledge, the operations of Black Diamond’s subsidiaries and their ability to compete effectively could be materially adversely impacted.

 

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The future success of some of Black Diamond’s subsidiaries and other companies in which it is a minority shareholder depends upon the continued service of their technical personnel who have developed and continue to develop their technology and products. If any of these employees leave these businesses, the loss of their technical knowledge and experience may materially adversely affect the operations and research and development of current and future services. They may also be unable to attract technical individuals with comparable experience because competition for such technical personnel is intense. If these businesses are not able to replace their technical personnel with new employees or attract additional technical personnel, their operations may suffer as they may be unable to keep up with innovations in their respective industries. As a result, their ability to continue to compete effectively and their operations may be materially adversely affected.

 

If some of our subsidiaries or other companies in which we are minority shareholders are unable to continue the technological innovation and successful commercial introduction of new products and services, their financial condition, business and results of operations could be materially adversely affected.

 

The industries in which some of Black Diamond’s subsidiaries operate, or may operate, experience periodic technological changes and ongoing product improvements. Their results of operations depend significantly on the development of commercially viable new products, product grades and applications, as well as production technologies and their ability to integrate new technologies. Their future growth will depend on their ability to gauge the direction of the commercial and technological progress in all key end-use markets and upon their ability to successfully develop, manufacture and market products in such changing end-use markets. In this regard, they must make ongoing capital investments.

 

In addition, their customers may introduce new generations of their own products, which may require new or increased technological and performance specifications, requiring these businesses to develop customized products. These businesses may not be successful in developing new products and technology that satisfy their customers’ demand and their customers may not accept any of their new products. If these businesses fail to keep pace with evolving technological innovations or fail to modify their products in response to their customers’ needs in a timely manner, then their financial condition, business and results of operations could be materially adversely affected as a result of reduced sales of their products and sunk developmental costs. These developments may require our personnel staffing business to seek better educated and trained workers, who may not be available in sufficient numbers.

 

Black Diamond’s subsidiaries and other entities in which it is a minority shareholder could experience fluctuations in the costs of raw materials as a result of inflation and other economic conditions, which fluctuations could have a material adverse effect on their financial condition, business and results of operations.

 

Changes in inflation could materially adversely affect the costs and availability of raw materials used in Black Diamond’s businesses, and changes in fuel costs likely will affect the costs of transporting materials from suppliers and shipping goods to customers, as well as the effective areas from which temporary staffing personnel can be recruited. Prices for these key raw materials may fluctuate during periods of high demand. The ability by these businesses to offset the effect of increases in raw material prices by increasing their prices is uncertain. If these businesses are unable to cover price increases of these raw materials, their financial condition, business and results of operations could be materially adversely affected.

 

Black Diamond’s businesses may not have long-term contracts with their customers and clients and the loss of customers and clients could materially adversely affect their financial condition, business and results of operations.

 

Black Diamond’s subsidiaries and other companies in which it is a minority shareholder are, and may be, based primarily upon individual orders and sales with their customers and clients. Black Diamond’s businesses historically have not entered into long-term supply contracts with their customers and clients. As such, their customers and clients could cease using their services or buying their products from them at any time and for any reason. The fact that they do not enter into long-term contracts with their customers and clients means that they have no recourse in the event a customer or client no longer wants to use their services or purchase products from them. If a significant number of their customers or clients elect not to use their services or purchase their products, it could materially adversely affect their financial condition, business and results of operations.

 

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Black Diamond’s businesses are, and may be, subject to federal, state and foreign environmental laws and regulations that expose them to potential financial liability. Complying with applicable environmental laws requires significant resources, and if Black Diamond’s businesses fail to comply, they could be subject to substantial liability.

 

Some of the facilities and operations of Black Diamond’s businesses are and may be subject to a variety of federal, state and foreign environmental laws and regulations, including laws and regulations pertaining to the handling, storage and transportation of raw materials, products and wastes, which require and will continue to require significant expenditures to remain in compliance with such laws and regulations currently in place and in the future. Compliance with current and future environmental laws is a major consideration for Black Diamond’s businesses as any material violations of these laws can lead to substantial liability, revocations of discharge permits, fines or penalties. Because some of Black Diamond’s businesses use hazardous materials and generate hazardous wastes in their operations, they may be subject to potential financial liability for costs associated with the investigation and remediation of their own sites, or sites at which they have arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if they fully comply with applicable environmental laws and are not directly at fault for the contamination, Black Diamond’s subsidiaries and other companies in which it is a minority shareholder may still be liable. Costs associated with these risks could have a material adverse effect on the financial condition, business and results of operations of Black Diamond’s subsidiaries and other entities in which it is a minority shareholder.

 

 Some of Black Diamond’s businesses are subject to certain risks associated with the movement of businesses offshore.

 

Some of Black Diamond’ businesses are potentially at risk of losing business to competitors operating in lower cost countries. An additional risk is the movement offshore of some of Black Diamond’s businesses’ customers, leading them to procure products or services from more closely located companies. Either of these factors could negatively impact the financial condition, business and results of operations of these businesses.

 

Loss of key customers of some of Black Diamond’s businesses could negatively impact financial condition.

 

Some of Black Diamond’s subsidiaries and other companies in which it is a minority shareholder have significant exposure to certain key customers, the loss of which could negatively impact our financial condition, business and results of operations.

 

Black Diamond’s businesses are subject to certain risks associated with customers in foreign jurisdictions.

 

Some of Black Diamond’s subsidiaries and other entities in which it is a minority shareholder have customers located outside the United States. Certain risks are inherent in doing business with customers in foreign jurisdictions, including difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; longer payment cycles for foreign customers; adverse currency exchange controls; exposure to risks associated with changes in foreign exchange rates; potential adverse changes in political environments; export and import restrictions; difficulties in enforcing intellectual property rights; and required compliance with a variety of foreign laws and regulations. These risks individually and collectively have the potential to negatively impact Black Diamond’s financial condition, business and results of operations.

 

The imposition of new laws and regulations pertaining to reductions in energy consumption or emissions of greenhouse gasses could impact the ability of Black Diamond’s subsidiaries and other companies in which it is a minority shareholder to conduct future operations.

 

Global climate change is an international issue and receives an enormous amount of publicity. Black Diamond expects that the imposition of international treaties or federal, state or local laws or regulations pertaining to mandatory reductions in energy consumption or emissions of greenhouse gasses could affect the feasibility of mining or coal process technology project and increase operating costs.

 

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Most of the businesses from which Black Diamond derives its revenues will continue to incur losses for the foreseeable future.

 

In the immediate future, Black Diamond anticipates that most of its subsidiaries and other companies in which it is a minority shareholder will incur increased operating expenses without realizing any revenues. For example, Elkhorn expects to incur continuing and significant losses until such time as we achieve commercial production from our mining operations on our mineral claims.  As a result of continuing losses, Black Diamond’s subsidiaries and other companies in which it is a minority shareholder may exhaust all of its resources and be unable to complete their respective business plans. The accumulated deficits of Black Diamond’s subsidiaries and other companies in which it is a minority shareholder will continue to increase as they continue to incur losses. Black Diamond’s subsidiaries and other companies in which it is a minority shareholder may not be able to generate profits or continue operations if they are unable to generate significant revenues and such entities will most likely fail.

 

Risks Related to Elkhorn

 

Elkhorn may have difficulty meeting its current and future capital requirements.

 

The continued development and care and maintenance of Elkhorn’s mineral properties require significant amounts of additional capital.  As a result, Elkhorn may need to explore raising additional capital during fiscal 2012 and beyond so that Elkhorn can continue to fully fund its planned activities.  Elkhorn’s ability to obtain this financing will depend upon, among other things, the price of gold and the industry’s perception of the future price of gold. The availability of funding is dependent largely upon factors outside of Elkhorn’s control, and cannot be accurately predicted. Debt or equity financing may not be available to Elkhorn on acceptable terms, if at all.  If Elkhorn is unable to fund future operations by way of financing, including public or private offerings of equity or debt securities, its business, financial condition and exploration activities will be adversely impacted.

 

The outstanding debt instruments of Elkhorn contain restrictive covenants relating to its mining operations.

 

The Tri-Party Agreement by and among Elkhorn, the secured lenders and Elkhorn’s subsidiary, ESRI, requires ESRI to comply with various financial covenants set forth in the mortgages encumbering all of the assets and property of ESRI’s subsidiaries, EGI and MTMI. In addition, the Loan Reinstatement Agreement by and among MFPI, Gordon Snyder as Administrative Agent for the secured creditors and Elkhorn requires MFPI to comply with various financial covenants. A breach of the covenants in either of these agreements could result in an acceleration of the debt obligations of Elkhorn and MFPI and if a waiver or modification is not agreed upon with the Secured Lenders, Elkhorn’s ability to continue as a going concern would be affected and the Secured Lenders would be able to foreclose on the assets and property of EGI and MTMI as provided for in the loan reinstatement and modification agreement by and among Elkhorn and the Secured Lenders.

 

Elkhorn relies on estimates of mineralized material. Such estimates are based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.

 

There are numerous uncertainties inherent in estimating quantities of mineralized material such as gold, zinc, lead, copper and silver, including many factors beyond our control and no assurance can be given that the recovery of mineralized material will be realized. In general, estimates of mineralized material are based upon a number of factors and assumptions made as of the date on which the estimates were determined, including:

 

  § geological and engineering estimates that have inherent uncertainties and the assumed effects of regulation by governmental agencies;
     
  § the judgment of the engineers preparing the estimates;
     
  § estimates of future metals prices and operating costs;
     
  § the quality and quantity of available data;
     
  § the interpretation of that data; and

 

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  § the accuracy of various mandated economic assumptions, all of which may vary considerably from actual results.

 

Until mineralized material is actually mined and processed, it must be considered an estimate only.  These estimates are imprecise and depend on geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable.  Elkhorn cannot assure you that these mineralized material estimates will be accurate or that this mineralized material can be mined or processed profitably.  Any material changes in estimates of mineralized material will affect the economic viability of placing a property into production and such property’s return on capital.  There can be no assurance that minerals recovered in small scale metallurgical tests will be recovered at production scale.

 

The volatility of the price of gold, zinc, lead, copper or silver could adversely affect Elkhorn’s future operations and, if warranted, Black Diamond’s ability to develop Elkhorn’s properties.

 

The potential for profitability of Elkhorn’s operations, the value of Elkhorn properties and Elkhorn’s ability to raise funding to conduct continued exploration and development, if warranted, are directly related to the market prices of gold, zinc, lead, copper, silver and other precious metals.  The prices of such metals fluctuate widely and are affected by numerous factors beyond Elkhorn’s control, including interest rates, expectations for inflation, speculation, currency values (in particular the strength of the U.S. dollar), global and regional demand, political and economic conditions and production costs in major metal producing regions of the world. The price of gold may also have a significant influence on the market price of our common stock and preferred stock.  Elkhorn’s decision to put a mine into production and to commit the funds necessary for that purpose must be made long before revenues from production would be generated.  A decrease in the prices of gold, zinc, lead, copper or silver may prevent our property from being economically mined or result in the write-off of assets whose value is impaired as a result of lower gold, zinc, lead, copper or silver prices.  The prices of gold, zinc, lead, copper and silver are affected by numerous factors beyond our control, including inflation, fluctuation of the United States dollar and foreign currencies, global and regional demand, the sale of gold, zinc, lead, copper and silver by central banks, and the political and economic conditions of major gold and silver producing countries throughout the world.  

 

The volatility in gold, silver and copper prices is illustrated by the following table, which sets forth for each of the past five calendar years, the average annual market prices in U.S. dollars per ounce of gold and silver, based on the daily London P.M. fixing, and per ounce of copper, based on the Mundi Index:

 

Mineral  2007   2008   2009   2010   2011 
                     
Gold  $695.39   $871.96   $972.35   $1,224.52   $1,571.52 
                          
Silver  $13.41   $15.00   $14.69   $20.20   $35.26 
                          
Copper  $3.23   $3.16   $2.34   $3.42   $4.00 

 

The volatility of mineral prices represents a substantial risk which no amount of planning or technical expertise can fully eliminate.  In the event gold prices decline or remain low for prolonged periods of time, we might be unable to develop our properties, which may adversely affect our results of operations, financial performance and cash flows.

 

The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses.

 

Exploration for and the production of minerals is highly speculative and involves greater risk than many other businesses.  Many exploration programs do not result in the discovery of mineralization, and any mineralization discovered may not be of sufficient quantity or quality to be profitably mined.  Elkhorn’s operations are, and any future development or mining operations Elkhorn may conduct will be, subject to all of the operating hazards and risks normally incident to exploring for and development of mineral properties, such as, but not limited to:

 

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  § Economically insufficient mineralized material;
     
  § Fluctuation in production costs that make mining uneconomical;
     
  § Labor disputes;
     
  § Unanticipated variations in grade and other geologic problems;
     
  § Environmental hazards;
     
  § Water conditions;
     
  § Difficult surface or underground conditions;
     
  § Industrial accidents;
     
  § Metallurgic and other processing problems;
     
  § Mechanical and equipment performance problems;
     
  § Failure of pit walls or dams;
     
  § Unusual or unexpected rock formations;
     
  § Personal injury, fire, flooding, cave-ins and landslides; and
     
  § Decrease in the value of mineralized material due to lower gold, zinc, lead, copper or silver prices.

 

Any of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures, potential revenues and production dates.  Elkhorn currently has limited insurance to guard against some of these risks.  If Elkhorn determines that capitalized costs associated with any of Elkhorn’s mineral interests are not likely to be recovered, Black Diamond would incur a write down of its investment in these interests.  All of these factors may result in losses in relation to amounts spent which are not recoverable, or result in additional expenses.

 

Title to Elkhorn’s properties may be challenged or defective.

 

Elkhorn attempts to confirm the validity of its title to, or contract rights with respect to, each mineral property in which it has a material interest. However, Elkhorn cannot guarantee that title to its properties will not be challenged. Elkhorn’s mineral properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by undetected defects. There may be valid challenges to the title of any of the claims comprising its mineral properties that, if successful, could impair possible development and/or operations with respect to such properties in the future. Challenges to permits or property rights, whether successful or unsuccessful; changes to the terms of permits or property rights; or a failure to comply with the terms of any permits or property rights that have been obtained, could have a material adverse effect on Elkhorn’s business by delaying or preventing or making continued operations economically unfeasible.

 

Elkhorn’s operations are subject to permitting requirements which could require us to delay, suspend or terminate our operations on our mining properties.

 

Elkhorn’s operations, including ongoing exploration drilling programs, require permits from the state and federal governments, including permits for the use of water and for drilling wells for water.

 

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Elkhorn may be unable to obtain these permits in a timely manner, on reasonable terms or on terms that provide it with sufficient resources to develop its properties, if at all. Even if Elkhorn is able to obtain such permits, the time required by the permitting process can be significant. If Elkhorn cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits, Elkhorn’s timetable and business plan for exploration of its properties will be adversely affected, which may in turn adversely affect its results of operations, financial condition and cash flows.

 

In addition, Elkhorn’s planned future operations, including its activities at the Golden Dream Mine and Montana Tunnels Mine projects and other exploration and activities, may require amendments to Elkhorn’s currently approved permits from various governmental authorities. Elkhorn’s operations are, and will continue to be, governed by laws and regulations governing prospecting, mineral exploration, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, mining royalties and other matters. There can be no assurance that Elkhorn will be able to acquire all required licenses, permits, amendments or property rights on reasonable terms or in a timely manner, or at all, and that such terms will not be adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties.

 

Elkhorn may face a shortage of supplies, equipment and materials.

 

The mineral industry has experienced from time to time shortages of certain supplies, equipment and materials necessary in the exploration, evaluation, development and production of mineral deposits. The prices at which such supplies and materials are available have also greatly increased. Elkhorn’s planned operations could be subject to delays due to such shortages and further price escalations could increase its costs for such supplies, equipment and materials. Elkhorn’s experience and that of others in the industry is that suppliers are often unable to meet contractual obligations for supplies, equipment, materials, and services, and that alternate sources of supply may not exist.

 

The market for obtaining desirable properties, investment capital, and outside engineers and consultants is highly competitive.

 

Presently, Elkhorn employs a limited number of full-time employees, utilizes outside consultants, and in large part relies on the personal efforts of its officers and directors (several of whom are also officers and/or directors of Black Diamond). Its success will depend, in part, upon the ability to attract and retain qualified outside engineers and other professionals to develop and operate its mineral properties, in addition to obtaining investment capital to conduct its mining operations. Elkhorn believes that it will be able to attract competent employees and consultants, but no assurance can be given that it will be successful in this regard as competition for these professionals is highly competitive. If Elkhorn is unable to engage and retain the necessary personnel, its business would be materially and adversely affected.

 

Elkhorn has incurred substantial losses since inception and may never be profitable.

 

Elkhorn has accumulated substantial losses, and it has had very limited revenue from operations since the previous owners of Montana Tunnels Mine placed the mine in “care and maintenance” in 2009 (meaning that production has stopped but that the site is still being managed to ensure that it remains in a safe and stable condition, ready to be reopened in the future). During the fiscal years ended December 31, 2011 and 2010, Elkhorn reported net losses of approximately $30 million and $10 million, respectively.  Elkhorn had an accumulated deficit of approximately $71 million and an accumulated stockholders’ deficit of $59 million as of December 31, 2011.  Elkhorn expects to continue to incur losses unless, and until, it generates sufficient revenue from production to fund continuing operations including exploration and development costs.

 

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Except for the MPRPA, Elkhorn currently has not entered into forward sales, commodity, derivatives or hedging arrangements with respect to its gold production and, as a result, Elkhorn is exposed to the impact of any significant decrease in the prices of gold, zinc, lead, copper and silver.

 

Elkhorn expects to sell the gold, zinc, lead, copper and silver it produces at prevailing market prices. Currently, except for a minerals product receivables purchase agreement, or MPRPA, by and among EGI, Elkhorn and Black Diamond, Elkhorn has not entered into forward sales, commodity, derivative or hedging arrangements to establish a price in advance for the sale of future production, although it may do so in the future. As a result, Elkhorn is not protected against decreases in the prices of gold, zinc, lead, copper and silver, and if gold, zinc, lead, copper and silver prices decrease significantly, Elkhorn’s expected future revenues may be materially adversely affected.

 

Elkhorn has significant obligations at the Montana Tunnels Mine, which may adversely impact liquidity.

 

The Montana Tunnels Mine in Montana operates under a number of permits issued by local, state and federal agencies. Those agencies require Elkhorn to post a total of $33.6 million in reclamation bonds in order to commence development of the “M” Pit expansion. Elkhorn has partially collateralized the surety bonds at the Montana Tunnels Mine with $16 million in cash and reclamation bonds and $3.6 million in a security interest in real property mineral interests. In addition, the Golden Dream Mine has provided regulatory agencies with $604,021 in cash for its reclamation obligations pursuant to its operating and exploration permits.

 

Elkhorn’s operating costs could be adversely affected by inflationary pressures especially with respect to labor and fuel costs.

 

The global economy is currently experiencing a period of high commodity prices and as a result the mining industry is attempting to increase production. This has caused significant upward price pressures in the operating costs of mining companies especially in the area of skilled labor. The skilled labor needed by the mining industry is in tight supply and its cost is increasing. Elkhorn’s competitors may have lower costs or their mines may be located in better locations that may give them a competitive advantage in hiring and retaining employees.

 

The cost of fuel to run machinery and generate electricity is closely correlated to the price of oil and energy. Over the past two years the price of oil has risen significantly and has increased the operating cost of mines dependent on fuel to run their business. Continued upward price pressures in Elkhorn’s operating costs may cause it to generate significantly less operating cash flows than expected, which would have an adverse impact to its business.

 

Risks Related to Transnetyx

 

A reduction or delay in government funding of research and development institutions may adversely affect Transnetyx’s business.

 

A majority of Transnetyx’s sales is derived from clients at academic institutions and research laboratories whose funding is partially dependent on both the level and timing of funding from government sources, such as the U.S. National Institutes of Health (NIH) and similar domestic and international agencies, which can be affected if Transnetyx’s clients delay or discontinue research as a result of uncertainties surrounding the approval of government budget proposals. Also, government proposals to reduce or eliminate budgetary deficits have sometimes included reduced allocations to the NIH and other government agencies that fund research and development activities. Government funding of research and development is subject to the political process, which is inherently fluid and unpredictable. Budgetary pressures may result in reduced allocations to government agencies that fund research and development activities. Although the stimulus packages implemented by the US government in 2009 and 2010 included increases in NIH funding, NIH funding had otherwise remained fairly flat in recent years (including into 2012). A reduction in government funding for the NIH or other government research agencies could adversely affect Transnetyx’s business and its financial results. Also, there is no guarantee that NIH funding will be directed towards projects and studies that require use of Transnetyx’s products and services.

 

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Negative attention from special interest groups may impair the business of Transnetyx.

 

Certain special interest groups categorically object to the use of animals for valid research purposes. Research activities with animals have been the subject of adverse attention in recent years. Any negative attention, threats or acts of vandalism directed against animal research activities in the future could impair the ability of Transnetyx’s customer’s to send its samples for testing.

 

Transnetyx may not be able to successfully develop and market new services and products.

 

Transnetyx may seek to develop and market new services and products that complement or expand its existing business or service offerings. If it is unable to develop new services and products and/or create demand for those newly developed services and products, Transnetyx’s future business, results of operations, financial condition, and cash flows could be adversely affected.

 

If Transnetyx fails to comply with extensive laws and regulations, it could suffer fines and penalties or be required to make significant changes to its operations.

 

Transnetyx is subject to extensive and frequently changing federal, state and local laws and regulations. In addition, legislative provisions relating to healthcare fraud and abuse give federal enforcement personnel substantially increased funding, powers and remedies to pursue suspected fraud and abuse. While Transnetyx believes that it is in compliance with all applicable laws, many of the regulations applicable to it, including those relating to billing and reimbursement of tests and those relating to relationships with physicians and hospitals, are vague or indefinite and have not been interpreted by the courts. They may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require it to make changes in its operations, including its pricing and/or billing practices. If Transnetyx fails to comply with applicable laws and regulations, it could suffer civil and criminal damages, fines and penalties, including the loss of licenses or its ability to participate in Medicare, Medicaid and other federal and state healthcare programs and additional liabilities from third-party claims.

 

The Clinical Laboratory Improvement Amendments of 1988 (CLIA) regulates virtually all clinical laboratories by requiring that they be certified by the federal government and comply with various operational, personnel and quality requirements intended to ensure that their clinical laboratory testing services are accurate, reliable and timely. Furthermore, CLIA does not preempt state laws that are more stringent than federal law. Some state laws may require additional personnel qualifications, quality control, record maintenance and/or proficiency testing. Intentional and serious failures to comply with these requirements can lead to loss of licenses, exclusion from the Medicare and Medicaid programs, fines, and other penalties.

 

Billing and reimbursement for clinical laboratory testing is subject to significant and complex federal and state regulation. Penalties for violations of laws relating to billing federal healthcare programs and for violations of federal fraud and abuse laws include: (1) exclusion from participation in the Medicare/Medicaid programs; (2) asset forfeitures; (3) civil and criminal fines and penalties; and (4) the loss of various licenses, certificates and authorizations necessary to operate some or all of a clinical laboratory's business. Civil monetary penalties for a wide range of violations are not more than $10,000 per violation plus three times the amount claimed and, in the case of kickback violations, not more than $50,000 per violation plus up to three times the amount of remuneration involved. A parallel civil remedy under the federal False Claims Act provides for damages not more than $11,000 per violation plus up to three times the amount claimed.

 

Failure in Transnetyx’s information technology systems, including failures resulting from its systems conversions, could significantly increase turnaround time, otherwise disrupt its operations, or lead to increased competition by other providers of laboratory services, all of which could reduce its customer base and result in lost net revenues.

 

Information systems are used extensively in virtually all aspects of Transnetyx’s business, including laboratory testing, billing, customer service, logistics and management of medical data. Transnetyx’s success depends, in part, on the continued and uninterrupted performance of its information technology, or IT, systems. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security measures, some of Transnetyx’s servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures Transnetyx has taken to prevent unanticipated problems that could affect its IT systems, sustained or repeated system failures that interrupt its ability to process test orders, deliver test results or perform tests in a timely manner could adversely affect its reputation and result in a loss of customers and net revenues.

 

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Failure to timely or accurately bill for Transnetyx’s services could have a material adverse effect on its net revenues and bad debt expense.

 

Billing for laboratory services is complicated. Transnetyx provides testing services to a range of research institutions and healthcare providers. Transnetyx considers a “payer” to be the party that pays for the test and a “customer” to be the party who refers the test to it. Depending on the billing arrangement and applicable law, Transnetyx must bill various payers, such as research laboratories, universities, corporations, patients, insurance companies, Medicare, Medicaid, doctors and employer groups, all of which have different billing requirements. Additionally, auditing for compliance with applicable laws and regulations as well as internal compliance policies and procedures add further complexity to the billing process. Among many other factors complicating billing are:

 

  pricing differences between Transnetyx’s fee schedules and the reimbursement rates of the payers;
     
  disputes with payers as to which party is responsible for payment; and
     
  disparity in coverage and information requirements among various carriers.

 

Transnetyx incurs significant additional costs as a result of its participation in Medicare and Medicaid programs, as billing and reimbursement for clinical laboratory testing is subject to considerable and complex federal and state regulations. These additional costs include those related to: (1) complexity added to Transnetyx’s billing processes; (2) training and education of its employees and customers; (3) compliance and legal costs; and (4) costs related to, among other factors, medical necessity denials and advanced beneficiary notices. Compliance with applicable laws and regulations, as well as internal compliance policies and procedures, adds further complexity and costs to the billing process. Changes in laws and regulations could negatively impact Transnetyx’s ability to bill its clients.

 

Professional liability litigation could have an adverse financial impact on Transnetyx’s client base and reputation.

 

As a general matter, providers of clinical laboratory testing services may be subject to lawsuits alleging negligence or other similar legal claims. Some of these suits involve claims for substantial damages. Any professional liability litigation could have an adverse impact on our client base and reputation. We maintain various liability insurance programs for claims that could result from providing or failing to provide clinical laboratory testing services, including inaccurate testing results and other exposures. Transnetyx’s insurance coverage limits its maximum exposure on individual claims; however, it is essentially self-insured for a significant portion of these claims. Transnetyx’s management believes that present insurance coverage and reserves are sufficient to cover currently estimated exposures. Although Transnetyx has never had a liability claim filed against it, it is possible that such a claim might be made in the future and, as a result, could have an adverse financial impact on Transnetyx and could harm Transnetyx’s reputation.

 

Failure to provide a higher quality of service than that of its hospital affiliates and other laboratories could have a material adverse effect on Transnetyx’s net revenues and profitability.

 

Transnetyx primarily competes with numerous laboratory providers, including researchers’ in in-house laboratories, centralized testing laboratories at research institutions, hospital-affiliated laboratories, other independent clinical laboratories and physician-office laboratories. Most researchers have the knowledge and ability to perform the genetic test manually within their laboratory. In addition, several research institutions have created centralized testing facilities for their researchers to utilize. Hospitals generally maintain an on-site laboratory to perform testing on their patients. In addition, many hospitals compete with independent clinical laboratories for outreach (non-hospital patients) testing. Most physicians have admitting privileges or other relationships with hospitals as part of their medical practice and many hospitals leverage their relationships with community physicians and encourage the physicians to send their outreach testing to the hospital's laboratory. In addition, hospitals that own physician practices generally require the physicians to refer tests to the hospital's laboratory. As a result of this affiliation between hospitals and community physicians, Transnetyx competes against these affiliated laboratories based on accuracy, speed, customer experience and price. Transnetyx’s failure to provide service superior to affiliated laboratories and other laboratories could have a material adverse effect on its net revenues and profitability.

 

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FDA regulation of laboratory-developed tests or genetic testing could lead to increased costs and delay in introducing new genetic tests.

 

The FDA has regulatory responsibility over instruments, test kits, reagents and other devices used to perform diagnostic testing by clinical laboratories. In the past, the FDA has claimed regulatory authority over laboratory-developed tests, but has exercised enforcement discretion in not regulating tests performed by high complexity CLIA-certified laboratories. In December 2000, the Health and Human Services (“HHS”) Secretary's Advisory Committee on Genetic Testing recommended that the FDA be the lead federal agency to regulate genetic testing. In late 2002, a new HHS Secretary's Advisory Committee on Genetics, Health and Society, or SACGHS, was appointed to replace the prior Advisory Committee. Ultimately, SACGHS decided that it would continue to monitor the progress of the Federal agencies in the oversight of genetic technologies, but it did not believe that further action was warranted. FDA interest in, or actual regulation of, laboratory-developed tests or increased regulation of the various medical devices used in laboratory-developed testing could lead to periodic inquiry letters from the FDA and increased costs and delays in introducing new tests, including genetic tests.

 

The development of new, more cost-effective tests that can be performed by researchers in their laboratories or physicians in their offices or by patients could negatively impact Transnetyx’s testing volume and net revenues.

 

The diagnostics testing industry is faced with changing technology and new product introductions. Advances in technology may lead to the development of more cost-effective tests that can be performed outside of an independent clinical laboratory such as point-of-care tests that can be performed by researchers in the laboratories or physicians in their offices, esoteric tests that can be performed by hospitals in their own laboratories or home testing that can be performed by patients in their homes, by physicians in their offices or technicians in laboratories. Development of such technology and its use by our customers would reduce the demand for Transnetyx’s laboratory-based testing services and negatively impact its net revenues.

 

Transnetyx’s tests and business processes may infringe on the intellectual property rights of others, which could cause it to engage in costly litigation, pay substantial damages or prohibit it from selling certain of its tests.

 

Other companies or individuals, including Transnetyx’s competitors, may obtain patents or other property rights that would prevent, limit or interfere with its ability to develop, perform or sell its tests or operate its business. As a result, Transnetyx may be involved in intellectual property litigation and it may be found to infringe on the proprietary rights of others, which could force it to do one or more of the following:

 

· cease developing, performing or selling products or services that incorporate the challenged intellectual property;
   
· obtain and pay for licenses from the holder of the infringed intellectual property right;
   
· redesign or reengineer its tests;
   
· change its business processes; or
   
· pay substantial damages, court costs and attorneys' fees, including potentially increased damages for any infringement held to be willful.

 

Patents generally are not issued until several years after an application is filed. The possibility that, before a patent is issued to a third party, Transnetyx may be performing a test or other activity covered by the patent is not a defense to an infringement claim. Thus, even tests that it develops could become the subject of infringement claims if a third party obtains a patent covering those tests.

 

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Infringement and other intellectual property claims, regardless of their merit, can be expensive and time-consuming to litigate. In addition, any requirement to reengineer its tests or change its business processes could substantially increase its costs, force us to interrupt product sales or delay new test releases. Transnetyx has never been the subject of an infringement claim, however, such claims could arise in the future as patents could be issued on tests or processes that we may be performing.

 

Risks Related to Carbon Fuels

 

Carbon Fuels has a history of losses, deficits, and negative operating cash flows and will likely continue to incur losses in the future. Such losses may impair its ability to pursue its business plan.

 

Carbon Fuels may incur operating losses and continued negative cash flows from operations for the foreseeable future. Carbon Fuels has made, and will continue to make, substantial capital and other expenditures before it has sufficient operating income and cash flow to recover all of its investments. Carbon Fuels is not able to accurately estimate when, if ever, its cash flows from operating activities will increase sufficiently to cover these investments. Further, Carbon Fuels may never achieve or maintain profitability or generate cash from operations in future periods.

 

Carbon Fuels has substantial capital requirements and, as a result, it has been, and continues to be, dependent on financing activities or sales of its equity securities to fund its operating costs. The inability to raise funds through traditional financing means or sale of its equity securities may require it to sell assets to fund its operating costs.

As a result of negative cash flows from operations, Carbon Fuels has been, and continues to be, dependent on financing activities and sales of its equity securities to fund the operating and substantial capital costs associated with its business. Carbon Fuels’s need for additional capital may further increase as it continues to pursue its vertical integration strategy. Carbon Fuels’s success is dependent on its ability to utilize existing resources and to generate sufficient cash flows to meet its obligations on a timely basis, to obtain financing or refinancing as may be required, to attain profitability, or a combination thereof. The continued credit crisis and related turmoil in the global financial system has had, and may continue to have, an impact on Carbon Fuels’s business and its financial condition. In addition, the global financial crisis may present significant challenges for it if conditions in the financial markets do not improve or continue to worsen. Carbon Fuels’s ability to access capital markets, for example, may be severely restricted at times when it needs adequate funding to pay its existing indebtedness, pursue its business strategy, respond to changing business and economic conditions and competitive pressures, absorb negative operating results and fund its continuing operations, capital expenditures or increased working capital requirements. Carbon Fuels may also need to sell assets to fund its operating costs to the extent that it is unable to raise adequate funds in the capital markets. Carbon Fuels may not be able to sell assets on favorable terms, if at all.

 

Carbon Fuels has a limited operating history as an energy solutions company, and its business and prospects should be considered in light of the risks and difficulties typically encountered by a company with a limited operating history.

 

You should consider Carbon Fuels’s business and prospects in light of the risks and difficulties typically encountered by a company with a limited operating history. The specific risks include whether Carbon Fuels will be able to:

 

·enter into agreements for the purpose of building Charfuel® Coal Refining facility or licensing that technology;

 

·enter into agreements for site location, supply and offtake agreements for a Charfuel® Coal Refining

 

·raise additional capital;

 

·accurately assess potential markets and effectively respond to competitive developments;

 

·attract and retain customers for product sales;

 

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·attract and retain credit-worthy customers;

 

·effectively manage expanding operations;

 

·successfully market its products;

 

·economically transport coal to processing facilities;

 

·execute its business strategy; and
   
·attract and retain key personnel.

 

Carbon Fuels may not be successful in addressing these and other risks. As a result, its financial condition, results of operations and cash flows may be adversely affected.

 

Carbon Fuels relies on key personnel and if it is unable to retain or attract qualified personnel, it may not be able to execute its business plan.

 

The success of Carbon Fuels is currently dependent on the performance of a small group of senior managers, key technical personnel and independent contractors that have a wide range of technical experience and expertise. For the Charfuel® Coal Refining Process, this experience and expertise includes coal refining, coal handling, combustion engineering, gas separation and general plant operations. In addition, Carbon Fuels’s business strategy requires it to attract and retain a substantially greater number of qualified personnel and/or hire additional contractors in these key areas. The inability to retain key managerial and technical personnel or attract and retain additional highly qualified managerial or technical personnel in the future could harm Carbon Fuels’s business or financial condition.

 

Competition from other companies in the coal refining industry, other uses of coal, crude oil, natural gas and alternative fuels, including competition resulting from deregulation in the United States power industry, could adversely affect Carbon Fuels’s competitive position.

 

Competition from other companies in the coal refining industry, other uses of coal, crude oil, natural gas, alternative fuel and emission-reducing equipment industries could impact Carbon Fuels’s ability to generate revenue from its Charfuel® Coal Refining process. Many of the companies in these industries have financial resources greater than those of Carbon Fuels. Providers of alternative or competing technologies in these industries may be subject to less regulation, or, alternatively, may enjoy subsidies that provide them with increased financial strength, or make their products or services more attractive to energy consumers. Due to any of these competitive advantages, Carbon Fuels’s existing and future competitors may be able to offer products more competitively priced and more widely available than those of Carbon Fuels. These companies also may have the resources to create new technologies and products that could make Carbon Fuels’s process and products obsolete. Carbon Fuels’s future revenues may depend on its ability to address competition in these industries. In addition, deregulation in the United States power generating industry may result in increased competition from other producers of energy-efficient products, other clean fuel sources, and other products, services and technologies designed to provide environmental and operating cost benefits similar to those which Carbon Fuels believes are available from its Charfuel® Coal Refining process.

 

Overseas development of the Charfuel® Coal Refining business is subject to international risks, which could adversely affect Carbon Fuels’s ability to license, construct overseas plants or profitably operate its business overseas.

 

Carbon Fuels believes that a portion of the growth opportunity for its business lies outside the United States. Doing business in foreign countries may expose it to many risks that are not present domestically. Carbon Fuels lacks significant experience dealing with such risks, including political, military, privatization, technology piracy, currency exchange and repatriation risks, and higher credit risks associated with customers. In addition, it may be more difficult for Carbon Fuels to enforce legal obligations in foreign countries, and it may be at a disadvantage in any legal proceeding within local jurisdictions. Local laws may also limit its ability to hold a majority interest in the projects that it develops.

 

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If the national and world-wide financial crisis continues or intensifies it could adversely impact demand for Carbon Fuels’s technology and products.

 

Continued market disruptions could cause broader economic downturns, which may lead to lower demand for Carbon Fuels’s technology or products, increased incidence of customers' inability to pay their accounts, or insolvency of Carbon Fuels’s customers, any of which could adversely affect its results of operations, liquidity, cash flows, and financial condition.

 

Carbon Fuels’s inability to adequately protect and defend its proprietary Charfuel® Coal Refining processes could harm its business, increase its costs and decrease sales of its products and services.

 

Carbon Fuels’s success depends upon its proprietary processes. It relies on a combination of trademark and trade secret rights to establish and protect its proprietary rights. If its intellectual property is not adequately protected, this may have a material adverse impact on its financial condition, results of operations, cash flows and future prospects.

 

Third parties could copy or otherwise obtain and use Carbon Fuels’s technologies without authorization or develop similar technologies independently. The protection of its proprietary rights may be inadequate and its competitors could independently develop similar technology, duplicate its solutions, or design around any patents or other intellectual property rights it holds.

 

Any actions taken by Carbon Fuels to enforce its patents or other property rights could result in significant expense as well as the diversion of management time and resources. In addition, detecting infringement and misappropriation of patents or intellectual property can be difficult, and there can be no assurance that Carbon Fuels would detect any infringement or misappropriation of its proprietary rights. Even if it is able to detect infringement or misappropriation of its proprietary rights, litigation to enforce its rights could cause Carbon Fuels to divert significant financial and human resources from its business operations, and may not ultimately be successful. If Carbon Fuels is required to divert significant resources and time to the enforcement of its proprietary rights, even if the enforcement is successful, its business could be materially adversely affected.

 

Carbon Fuels’s success will depend on our ability to operate without infringing on or misappropriating the proprietary rights of others.

 

Carbon Fuels may be sued for infringing or misappropriating the proprietary rights of others. Intellectual property litigation is costly, and, even if it prevails, the cost of such litigation could adversely affect Carbon Fuels’s business. In addition, litigation is time consuming and could divert management attention and resources away from its business. If Carbon Fuels does not prevail in any litigation, it could be required to stop the infringing activity and/or pay substantial damages. Under some circumstances, these damages could be triple the actual damages the patent holder incurs. If Carbon Fuels has supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, it may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder.

 

If a third party holding rights under a patent successfully asserts an infringement claim with respect to any of Carbon Fuels’s products or processes, it may be prevented from manufacturing or marketing its infringing product in the country or countries covered by the patent it infringes, unless it can obtain a license from the patent holder. Any required license might not be available to it on acceptable terms, if at all. Some licenses may be non-exclusive, and therefore, Carbon Fuels’s competitors may have access to the same technology licensed to it. If Carbon Fuels fails to obtain a required license or is unable to design around a patent, it may be unable to market future products, which could have a material adverse effect on its business.

 

Carbon Fuels faces integration and commercialization risks.

 

As in many new commercial industrial plants, the integration of many processes is often a challenge. It is possible that Carbon Fuels may fail to integrate all of the components of the process which may cause delays or modifications to achieve full integration of a commercial scale Charfuel® Coal Refining facility.

 

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Carbon Fuels does not know if the co-products from the Charfuel® Coal Refining process are commercially viable.

 

Carbon Fuels has not completed the finishing process on a commercial scale and there are no guarantees that it will be able to achieve the finished products without design modifications or additional costs. Additionally, one of Carbon Fuels’s co-products, Char, is not a commercial commodity and there is no guarantee that it will be able to market and sell that product.

 

Construction of future Charfuel® Coal Refining facilities will require substantial lead time and significant additional financing.

 

Carbon Fuels does not currently have any definitive contracts to construct additional Charfuel® Coal Refining facilities. To the extent that it identifies appropriate sites for future Charfuel® Coal Refining plants, it will then be required to begin a lengthy permitting and construction process. Carbon Fuels estimates that it could take at least six months or longer to obtain necessary permits and approvals and that, depending on local circumstances, the required time could be much longer. Thereafter, construction of a facility would take an estimated further period of 18 to 24 months. Thus, assuming that Carbon Fuels locates an appropriate site by June 30, 2013, Carbon Fuels does not expect to obtain any revenues from any such facility before at least 2016.

 

If Carbon Fuels is unable to construct and commercialize Charfuel® Coal Refining plants, its ability to generate profits from this process will be impaired.

 

Carbon Fuels’s future success will be adversely affected if it cannot locate, develop and construct future commercial Charfuel® Coal Refining production plants and operate them at a profit. A number of different variables, risks and uncertainties affect Carbon Fuels’s successful construction of future Charfuel® Coal Refining production plants and its ability to operate such plants at a profit including:

 

·the complex, lengthy and costly regulatory permit and approval process;

 

·local opposition to development of projects, which can increase costs and delay timelines;

 

·increases in construction costs such as for contractors, workers and raw materials;

 

·transportation costs and availability of transportation;

 

·its inability to acquire adequate amounts of feedstock coal at forecasted prices to meet its projected goals;

 

·engineering, operational and technical difficulties, as discussed above;

 

·expenditures related to researching and investigating future Charfuel® Coal Refining production sites, which it may not be able to recover.

 

If Carbon Fuels is unable to successfully address these risks, its results from operations, financial condition and cash flows may be adversely affected.

 

Compliance with environmental laws and regulations may increase Carbon Fuels’s costs and reduce its future sales.

 

Carbon Fuels’s operations are subject to stringent and complex federal, state and local environmental laws and regulations. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. Certain environmental statutes impose strict, joint and several liabilities for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of substances or other waste products into the environment.

 

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Future changes in the law may adversely affect Carbon Fuels’s ability to sell its products and services.

 

A significant factor in expanding the potential U.S. market for co-products produced from the Charfuel® Coal Refining process is the numerous federal, state and local environmental regulations, which provide various air emission requirements for power generating facilities and industrial coal users. While more stringent laws and regulations, including mercury emission standards, limits on sulfur dioxide emissions and nitrogen oxide emissions, may increase demand for Carbon Fuels’s process as its co-product char is cleaner than utilizing raw coal, such regulations may result in reduced coal use and increased reliance on alternative fuel sources. While Carbon Fuels believes that refining coal through the Charfuel® Coal Refining process has value over just using raw coal, it is possible that amendments to the numerous federal and state environmental regulations that relax emission limitations would have a material adverse effect on its prospects.

 

Risks Related to Barclay’s Wine

 

Barclay’s Wine operates in an industry that is extremely competitive, and some of its competitors have greater resources, longer histories, more customers and greater brand recognition.

 

Barclay’s Wine competes with sellers of wine via e-commerce and brick & mortar retail stores. Many of Barclay’s Wine’s current and potential competitors have greater resources, longer histories, more customers, and greater brand recognition. They may secure better terms from vendors, adopt more aggressive pricing and devote more resources to technology, infrastructure, fulfillment, and marketing.

 

Barclay’s Wine expansion plans could place a significant strain on its management, operational, financial and other resources

 

Barclay’s Wine is expanding and increasing its product and service offerings and scaling its infrastructure to support its retail business. This expansion increases the complexity of Barclay’s Wine’s business and places significant strain on its management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. Barclay’s Wine may not be able to manage growth effectively, which could damage its reputation, limit its growth and negatively affect its operating results.

 

Barclay’s Wine may experience significant fluctuations in its operating results and growth rate

 

Barclay’s Wine may not be able to accurately forecast its growth rate. It bases its expense levels and investment plans on sales estimates. A significant portion of Barclay’s Wine’s expenses and investments are fixed, and it may not be able to adjust its spending quickly enough if its sales are less than expected.

 

Barclay’s Wine’s revenue growth may not be sustainable, and its percentage growth rates may decrease. Its revenue and operating profit growth depends on the continued growth of demand for the products and services offered by it or its sellers, and its business is affected by general economic and business conditions worldwide. A softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.

 

Barclay’s Wine’s sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in this section and the following:

 

    its ability to retain and increase sales to existing customers, attract new customers, and satisfy its customers’ demands;
       
    its ability to offer products on favorable terms, manage inventory, and fulfill orders;
       
    the introduction of competitive websites, products, services, price decreases, or improvements;
       
    changes in usage or adoption rates of e-commerce,;

 

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    timing, effectiveness, and costs of expansion and upgrades of its systems and infrastructure;
       
    variations in the mix of products it sells;
       
    variations in its level of merchandise returns;
       
    the extent to which it offers free shipping, continues to reduce product prices, and provides additional benefits to its customers;
       
    the extent to which it invests in technology and content, fulfillment and other expense categories;
       
    increases in the prices of fuel and gasoline, as well as increases in the prices of other energy products and commodities like paper and packing supplies;
       
    its ability to collect amounts owed to it when they become due;
       
    the extent to which use of its services is affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions and similar events; and
       
    terrorist attacks and armed hostilities.

 

The seasonality of Barclay’s Wine’s business places increased strain on our operations

 

Barclay’s Wine expects a disproportionate amount of its net sales to occur during the fourth quarter. If it does not stock or restock popular products in sufficient amounts such that it fails to meet customer demand, it could significantly affect Barclay’s Wine’s revenue and its future growth. If Barclay’s Wine overstocks products, it may be required to take significant inventory markdowns or write-offs, which could reduce profitability. Barclay’s Wine may experience an increase in its net shipping costs in order to ensure timely delivery for the holiday season. If too many customers access its websites within a short period of time due to increased holiday demand, it may experience system interruptions that make its websites unavailable or prevent it from efficiently fulfilling orders, which may reduce the volume of goods it sells and the attractiveness of its products and services. In addition, it may be unable to adequately staff its fulfillment and customer service centers during these peak periods and may be unable to meet the seasonal demand.

 

Barclay’s Wine generally has payment terms with its suppliers that are due at shipment of the product and often several months before collecting proceeds from its customers. As a result, it may experience difficulty in financing inventory purchases to fulfill its holiday sales requirements.

 

Barclay’s Wine has foreign exchange risk

 

As a result of sourcing product in international markets, Barclay’s Wine is exposed to foreign exchange rate fluctuations. Barclay’s Wine may experience higher product prices due to less favorable exchange rates at the time of the purchase of products that settle in currencies other than the US dollar.

 

Barclay’s Wine could be harmed by data loss or other security breaches

 

As a result of Barclay’s Wine’s services being web-based and the fact that it processes, store and transmit large amounts of data, including personal information, for its customers, failure to prevent or mitigate data loss or other security breaches could expose it or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for it and otherwise harm its business. Although it has developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, such measures cannot provide absolute security. In addition, Barclay’s Wine relies on third party technology and systems in certain aspects of its businesses, including for encryption and authentication technology to securely transmit confidential information.

 

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Barclay’s Wine faces risks related to system interruption and lack of redundancy

 

Barclay’s Wine experiences occasional system interruptions and delays that make its websites and services unavailable or slow to respond and prevent it from efficiently fulfilling orders or providing services to third parties, which may reduce its net sales and the attractiveness of its products and services. If it is unable to continually add software and hardware, effectively upgrade its systems and network infrastructure and take other steps to improve the efficiency of its systems, it could cause system interruptions or delays and adversely affect its operating results.

 

Barclay’s Wine’s computer and communications systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins, and similar events or disruptions. Any of these events could cause system interruption, delays, and loss of critical data, and could prevent Barclay’s Wine from accepting and fulfilling customer orders and providing services, which could make its product and service offerings less attractive and subject it to liability. Barclay’s Wine’s systems are not fully redundant and its disaster recovery planning may not be sufficient. In addition, it may have inadequate insurance coverage to compensate for any related losses. Any of these events could damage Barclay’s Wine’s reputation and be expensive to remedy.

 

Barclay’s Wine faces significant inventory risk

 

Barclay’s Wine is exposed to significant inventory risks that may adversely affect its operating results as a result of seasonality, new product launches, changes in product cycles and pricing, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to its products, spoilage and other factors. Barclay’s Wine endeavors to accurately predict these trends and avoid overstocking or understocking products it sells. Demand for products, however, can change significantly between the time inventory or components are ordered and the date of sale. In addition, when Barclay’s Wine begins selling a new product, it may be difficult to establish vendor relationships, determine appropriate product or component selection, and accurately forecast demand. The acquisition of certain types of inventory or components may require significant lead-time and prepayment and they may not be returnable. Barclay’s Wine carries a broad selection and significant inventory levels of certain products and it may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect our operating results.

 

Government regulation is evolving and unfavorable changes could harm Barclay’s Wine’s business

 

The regulations controlling the industry are complex and vary by state. Wine shipping laws are often different for wine producers and wine retailers; additionally, litigation is pending in several states to open markets and allow everyone to ship wine directly to both in-state and out-of-state. A tightening in wine shipping laws could make shipping wine prohibitively expensive and diminish the demand for Barclay’s Wine’s products and services, while a removal of all wine shipping laws could reduce its competitive advantage and value of its shipping knowledge and reduce the barriers of entry into the business.

 

Barclay’s Wine does not collect sales or consumption taxes in some jurisdictions

 

U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales taxes with respect to remote sales. However, an increasing number of states have considered or adopted laws that attempt to impose obligations on out-of-state retailers to collect taxes on their behalf. More than half of Barclay’s Wine’s revenue is already earned in jurisdictions where it collects sales tax or its equivalent. A successful assertion by one or more states or foreign countries requiring it to collect taxes where it does not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest.

 

Barclay’s Wine’s supplier relationships subject it to a number of risks

 

Barclay’s Wine has significant suppliers, that are important to its sourcing. It does not have long-term arrangements with most of its suppliers to guarantee availability of product, particular payment terms, or the extension of credit limits. If its current suppliers were to stop selling product to it on acceptable terms, or delay delivery, including as a result of one or more supplier bankruptcies due to poor economic conditions, as a result of natural disasters or for other reasons, Barclay’s Wine may be unable to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

 

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Barclay’s Wine may be subject to product liability claims if people or property are harmed by the products it sells

 

Some of the products sold by Barclay’s Wine may expose it to product liability claims relating to personal injury, death, and may require product recalls or other actions. Although it maintains liability insurance, Barclay’s Wine cannot be certain that its coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to it on economically reasonable terms, if at all. In addition, some of the agreements with Barclay’s Wine’s vendors and sellers do not indemnify it from product liability.

 

Barclay’s Wine’s is subject to payment-related risks

 

Barclay’s Wine accepts payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing) and gift certificates. As it offers new payment options to its customers, Barclay’s Wine may be subject to additional regulations, compliance requirements, and fraud. For certain payment methods, including credit and debit cards, Barclay’s Wine pays interchange and other fees, which may increase over time and raise its operating costs and lower profitability. Barclay’s Wine relies on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing, and it could disrupt its business if these companies become unwilling or unable to provide these services to it. Barclay’s Wine is also subject to payment card association operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for it to comply. If Barclay’s Wine’s fails to comply with these rules or requirements, or if its data security systems are breached or compromised, it may be liable for card issuing banks’ costs, subject to fines and higher transaction fees and lose its ability to accept credit and debit card payments from its customers, process electronic funds transfers, or facilitate other types of online payments, and its business and operating results could be adversely affected.

 

Risks Related to Global VR

 

GLOBAL VR’s business is intensely competitive and “hit” driven. If it does not deliver “hit” products and services, or if consumers prefer its competitors’ products or services over its own, its operating results could suffer.

 

Competition in GLOBAL VR’s industry is intense and it expects new competitors to continue to emerge throughout the world. Its competitors range from large established companies to emerging start-ups. In GLOBAL VR’s industry, though many new products and services are regularly introduced, only a relatively small number of “hit” titles account for a significant portion of total revenue for the industry. GLOBAL VR has significantly reduced the number of games that it develops, publishes and distributes.

 

GLOBAL VR’s operating results will be adversely affected if it does not consistently meet its product development schedules or if key events with which it ties the release of its products are delayed or cancelled.

 

GLOBAL VR’s business is highly seasonal. If GLOBAL VR misses a key selling period for any reason, including product delays, product cancellations, or delayed introduction of a new platform for which its developed products, its sales will suffer disproportionately. GLOBAL VR’s ability to meet product development schedules is affected by a number of factors, including the creative processes involved, the coordination of large and sometimes geographically dispersed development teams required by the increasing complexity of its products and the platforms for which they are developed, and the need to fine-tune its products prior to their release. GLOBAL VR has experienced development delays for its products in the past, which caused it to push back or cancel release dates. GLOBAL VR also seeks to release certain products in conjunction with specific events, such as the beginning of a sports season or major sporting event, or the release of a related movie. If a key event or sports season to which a product release schedule is tied were to be delayed or cancelled, GLOBAL VR’s sales would also suffer disproportionately. In the future, any failure to meet anticipated production or release schedules would likely result in a delay of revenue and/or possibly a significant shortfall in its revenue, increase its development expense, harm its profitability, and cause its operating results to be materially different than anticipated.

 

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If GLOBAL VR releases defective products or services, its operating results could suffer.

 

Products and services such as those offered by GLOBAL VR are extremely complex software programs, and are difficult to develop and distribute. GLOBAL VR has quality controls in place to detect defects in its products and services before they are released. Nonetheless, these quality controls are subject to human error, overriding, and resource constraints. Therefore, these quality controls and preventative measures may not be effective in detecting defects in GLOBAL VR’s products and services before they have been released into the marketplace. In such an event, GLOBAL VR could be required to, or may find it necessary to, recall a product or suspend the availability of the product or service, which could significantly harm its business and operating results.

 

If GLOBAL VR’s marketing and advertising efforts fail to resonate with its customers, its business and operating results could be adversely affected.

 

If the marketing for GLOBAL VR’s products and services fail to resonate with its customers, particularly during the critical holiday season or during other key selling periods, or if advertising rates or other media placement costs increase, these factors could have a material adverse impact on its business and operating results.

 

The majority of GLOBAL VR’s sales are made to a relatively small number of key customers.

 

The majority of GLOBAL VR’s sales are made to a relatively small number of key customers. If these customers reduce their purchases of its products or become unable to pay for them, GLOBAL VR’s business could be harmed.

 

GLOBAL VR may be subject to claims of infringement of third-party intellectual property rights, which could harm its business.

 

From time to time, third parties may assert claims against GLOBAL VR relating to patents, copyrights, trademarks, personal publicity rights, or other intellectual property rights to technologies, products or delivery/payment methods that are important to its business. Although GLOBAL VR believes that it makes reasonable efforts to ensure that its products do not violate the intellectual property rights of others, it is possible that third parties still may claim infringement. For example, it may be subject to intellectual property infringement claims from certain individuals and companies who have acquired patent portfolios for the sole purpose of asserting such claims against other companies. In addition, many of its products are highly realistic and feature materials that are

based on real world examples, which may be the subject of intellectual property infringement claims of others.

 

From time to time, GLOBAL VR receives communications from third parties regarding such claims. Existing or future infringement claims against GLOBAL VR, whether valid or not, may be time consuming and expensive to defend. Such claims or litigations could require GLOBAL VR to pay damages and other costs, stop selling the affected products, redesign those products to avoid infringement, or obtain a license, all of which could be costly and harm its business. In addition, many patents have been issued that may apply to potential new modes of delivering, playing or monetizing game software products and services, such as those that GLOBAL VR produces or would like to offer in the future. We may discover that future opportunities to provide new and innovative modes of game play and game delivery to consumers may be precluded by existing patents that it is unable to license on reasonable terms.

 

GLOBAL VR’s products are subject to the threat of piracy and unauthorized copying.

 

A security breach that results in the disclosure of pre-release software or other confidential assets could lead or contribute to piracy of GLOBAL VR’s games or otherwise compromise its product plans. Further, entertainment software piracy is a persistent problem in GLOBAL VR’s industry. The growth in peer-to-peer networks and other channels to download pirated copies of its products, the increasing availability of broadband access to the Internet and the proliferation of technology designed to circumvent the protection measures used with its products all have contributed to an expansion in piracy. Though GLOBAL VR takes technical steps to make the unauthorized copying of its products more difficult, as do the manufacturers of consoles on which its games are played, these efforts may not be successful in controlling the piracy of its products. While legal protections exist to combat piracy and other forms of unauthorized copying, preventing and curbing infringement through enforcement of its intellectual property rights may be difficult, costly and time consuming, particularly in countries where laws are less protective of intellectual property rights. Further, the scope of the legal protection of copyright and prohibitions against the circumvention of technological protection measures to protect copyrighted works are often under scrutiny by courts and governing bodies. The repeal or weakening of laws intended to combat piracy, protect intellectual property and prohibit the circumvention of technological protection measures could make it more difficult for GLOBAL VR to adequately protect against piracy. These factors could have a negative effect on GLOBAL VR’s growth and profitability in the future.

 

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GLOBAL VR’s success in the gaming industry depends, in large part, on its ability to manage and frequently introduce innovative products on a timely basis. If GLOBAL VR fails to keep pace with rapid innovations in new technologies or product design and deployment, its business could be adversely affected.

 

GLOBAL VR’s success is dependent on its ability to develop and sell new products that are attractive to casino operators and other gaming enterprises and their customers, for both land-based and online gaming operations. Furthermore, if GLOBAL VR’s land-based or online gaming content does not meet or sustain revenue and profitability expectations, they may be replaced by its competitors' products or removed altogether or it may experience a reduction in fees generated from its arrangements. Therefore, GLOBAL VR’s success depends upon its ability to continue to design, manage and frequently market and update technologically sophisticated land-based and online products that meet its customers' needs regarding ease of use and adaptability, and that are unique and entertaining such that they achieve high levels of player appeal and sustainability. If GLOBAL VR’s competitors develop new game content and technologically innovative products and it fails to keep pace or it is otherwise unable to obtain, maintain or manage the level of complexities arising from new gaming technologies, whether land-based or online, its business could be adversely affected. Further, its land-based products could suffer a loss of floor space to table games or other more technologically advanced games.

 

Global VR’s investments in research and development may not prove to be successful.

 

GLOBAL VR has invested, and intends to continue to invest, significant resources in research and development efforts. It invests heavily in a number of areas including product engineering development for game and system-based hardware, software and game content. There is no assurance that GLOBAL VR’s investments in research and development will lead to successful new technologies or timely new products. If a new product does not gain market acceptance, its business could be adversely affected. Most directly, if a product is unsuccessful it could incur losses and also be required to increase its inventory obsolescence charges.

 

If Global VR is unable to adapt its manufacturing infrastructure to produce new products in an efficient manner, if at all, its margins will suffer.

 

GLOBAL VR’s newer products are generally technologically more sophisticated than those it has produced in the past and it must continually refine its production capabilities to meet the needs of its product innovation. If it cannot adapt its manufacturing infrastructure to meet the needs of its product innovations, if it is unable to make upgrades to its production capacity in a timely manner, or if it commits significant resources to upgrades for products that are ultimately unsuccessful, its business could be adversely affected. In addition, because of the sophistication of its newer products and the resources committed to their development, they are generally more expensive to produce. If the increase in the average selling price of these new products is not proportionate to the increase in production cost, in each case as compared to GLOBAL VR’s prior products or, if the average cost of production does not go down over time, whether by reason of long-term customer acceptance, GLOBAL VR’s ability to find greater efficiencies in the manufacturing process as it refines its production capabilities or a general decrease in the cost of the technology, its margins will suffer.

 

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Consumer spending on leisure activities is affected by changes in the economy and consumer tastes, as well as other factors that are difficult to predict and beyond the control of GLOBAL VR. Decreases in consumer spending adversely affecting the gaming industry could harm GLOBAL VR’s business, and unfavorable economic conditions have impacted and could continue to negatively impact the play levels of its participation games and purchases of its sale games.

 

The demand for entertainment and leisure activities tends to be highly sensitive to consumers disposable incomes, and thus can be affected by changes in the economy and consumer tastes, both of which are difficult to predict and beyond GLOBAL VR’s control. Unfavorable changes in general economic conditions, including recession, economic slowdown, sustained high levels of unemployment, and higher fuel or other transportation costs, may reduce disposable income of casino patrons or result in fewer patrons visiting casinos, whether land-based or online. As a result, GLOBAL VR cannot ensure that demand for its products or services will remain constant. Continued adverse developments affecting economies throughout the world, including a general tightening of the availability of credit, decreased liquidity in many financial markets, increasing interest rates, increasing energy costs, acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in stock markets, as well as concerns regarding epidemics and the spread of contagious diseases, could lead to a further reduction in discretionary spending on leisure activities such as gambling. Any significant or prolonged decrease in consumer spending on leisure activities could greatly affect the gaming industry, causing some or all of GLOBAL VR’s customers to decrease spending or ultimately declare bankruptcy, each of which would adversely affect its business. If GLOBAL VR experiences a significant unexpected decrease in demand for its products, we could incur losses and also be required to increase its inventory obsolescence charges.

 

GLOBAL VR may not be able to attract and retain the management or employees necessary to remain competitive in its industry.

 

The competition for qualified personnel in the gaming industry is intense. GLOBAL VR’s ability to continue to develop new technologies and create innovative products depends on its ability to recruit and retain talented employees. GLOBAL VR’s future success depends on the retention and continued contributions of its key management, finance, marketing, development and staff personnel, many of whom would be difficult or impossible to replace. GLOBAL VR’s success is also tied to its ability to recruit additional key personnel in the future. GLOBAL VR may not be able to retain its current personnel or recruit any additional key personnel required. The loss of services of any of its personnel or its inability to recruit additional necessary key personnel could have a material adverse effect on its business, financial condition, results of operations and prospects.

 

Changes in ownership of any of GLOBAL VR’s customers or consolidation within the gaming industry could affect its business.

 

GLOBAL VR is becoming more heavily dependent on the gaming industry. A decline in demand for its products in the gaming industry could adversely affect its business. Demand for its products is driven primarily by the replacement of existing products, as well as the expansion of existing casinos and the opening of new properties in existing and new jurisdictions as well as the opening of new channels of distribution, such as mobile and online gaming. Because a significant portion of GLOBAL VR’s sales come from repeat customers, its business could be affected if one of its customers is sold to or merges with another entity that utilizes the products and services of one of its competitors or that reduces spending on its products or causes downward pricing pressures. Such consolidations could lead to order cancellations or negatively impact pricing and purchasing decisions or result in the removal of some or all of its products. Also, any fragmentation within the industry creating a number of smaller, independent operators with fewer resources could also adversely affect GLOBAL VR’s business as these operators might cause a further slowdown in the replacement cycle for its products or otherwise adjust the number and frequency of orders they place with GLOBAL VR to save money.

 

The gaming industry is heavily regulated, and regulatory changes may adversely impact GLOBAL VR’s ability to operate or expand.

 

The manufacture and distribution of gaming devices, development of systems and the conduct of gaming operations, whether land-based or online, are subject to extensive federal, state, local and foreign regulation by various gaming authorities. Each of GLOBAL VR’s games and systems hardware and software targeted for the gaming industry must be approved in each jurisdiction in which it is placed. GLOBAL VR’s ability to continue to operate in certain jurisdictions or its ability to expand into new jurisdictions or its ability to launch new product offerings could be adversely affected by:

 

• delays in the adoption of or, changes to legislation to permit or expand gaming in new and existing jurisdictions;

 

• unfavorable public referendums, such as referendums to increase taxes on gaming revenues;

• unfavorable legislation affecting or directed at manufacturers or gaming operators;

 

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• adverse changes to and new interpretations of existing gaming regulations and findings of non-compliance with applicable gaming regulations;

• delays in approvals from regulatory agencies;

• a limitation, conditioning, suspension or revocation of any of its gaming licenses or approvals of our games or system hardware or software;

• unfavorable determinations or challenges of suitability by gaming regulatory authorities with respect to our officers, directors, major stockholders or key personnel; and

• the adoption of new laws and regulations, or the repeal or amendment of existing laws and regulations, including, but not limited to, internet gaming.

 

The enactment of unfavorable legislation or government efforts affecting or directed at manufacturers or gaming operators, whether land-based or online, such as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on GLOBAL VR’s operations.

 

Public opinion can also exert a significant influence over the regulation of the gaming industry. A negative shift in the public's perception of gaming could affect future legislation in individual jurisdictions. Among other things, such a shift could cause jurisdictions to abandon proposals to legalize gaming, thereby limiting the number of new jurisdictions into which we could expand. Negative public perception could also lead to new restrictions on or the prohibition of gaming in jurisdictions in which GLOBAL VR currently operates.

 

Although the jurisdictions in which GLOBAL VR operates vary in their specific requirements, virtually all jurisdictions, including those into which it may expand in the future, require licenses, permits, qualification documentation, including evidence of integrity and financial stability, and other forms of approval to engage in gaming operations or the manufacture and distribution of gaming devices. In properties in existing and new jurisdictions as well as the opening of new channels of distribution, such as mobile and online gaming. Because a significant portion of GLOBAL VR’s sales come from repeat customers, its business could be affected if one of its customers is sold to or merges with another entity that utilizes the products and services of one of its competitors or that reduces spending on its products or causes downward pricing pressures. Such consolidations could lead to order cancellations or negatively impact pricing and purchasing decisions or result in the removal of some or all of its products. Also, any fragmentation within the industry creating a number of smaller, independent operators with fewer resources could also adversely affect its business as these operators might cause a further slowdown in the replacement cycle for its products or otherwise adjust the number and frequency of orders they place with GLOBAL VR to save money.

 

GLOBAL VR’s gaming products, particularly its wide area progressive networks, centrally determined systems and its mobile and online gaming platform, may experience losses due to technical difficulties or fraudulent activities.

 

GLOBAL VR’s success depends on its ability to avoid, detect, replicate and correct software and hardware errors and fraudulent manipulation of its products. All of GLOBAL VR’s products are designed with security features to prevent fraudulent activity. However, GLOBAL VR cannot guarantee that these features will effectively stop all fraudulent or subversive activities. If GLOBAL VR’s security features do not prevent these types of activities, its business could be adversely affected. To the extent any of GLOBAL VR’s products experience errors or fraudulent manipulation, its customers may replace its products with those of its competitors. In addition, the occurrence of errors in, or fraudulent manipulation of, GLOBAL VR’s products may give rise to claims for lost revenues and related litigation by its customers and may subject it to investigation or other action by gaming regulatory authorities, including shutting down our products, suspension or revocation of its gaming licenses or disciplinary action. Additionally, in the event of such issues with our products, substantial engineering and marketing resources may be diverted from other areas to rectify the problem.

 

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Systems, network, telecommunications or other technological failures or cyber-attacks may disrupt GLOBAL VR’s business and have an adverse effect on operations.

 

Any disruption in GLOBAL VR’s network or telecommunications services could affect its ability to operate its gaming or financial systems, which would result in reduced revenues and customer down time. GLOBAL VR’s networks are susceptible to outages due to fire, flood, power loss, break-ins, cyber-attacks, network penetration, data privacy or security breaches, denial of service attacks and similar events. Despite GLOBAL VR’s implementation of what it believes to be reasonable and adequate network security measures and data protections safeguards, its servers and computer resources are vulnerable to viruses, malicious software, hacking, break-ins or theft, third-party security breaches, employee error or malfeasance, and other potential compromises. Anyone that is able to circumvent its security measures could misappropriate confidential or proprietary information, including that of third parties, cause interruption in GLOBAL VR’s operations, damage its computers or otherwise damage its reputation and business. Any of the foregoing matters related to unauthorized access to or tampering with GLOBAL VR’s systems or networks in any such event could have a material adverse effect on its financial condition, operating results or prospects.

 

GLOBAL VR’s online gaming products are part of a new and evolving industry, which presents significant uncertainty and business risks.

 

Online gaming is a nascent industry. The success of this industry and our online gaming products such as our mobile and online gaming platform will be affected by future developments in social networks, mobile platforms, regulatory developments, data privacy laws and regulations and other factors that GLOBAL VR is unable to predict or control. This environment can make it difficult to plan and can provide opportunities for competitors to grow revenues at its expense. Consequently, GLOBAL VR’s future revenues related to its online gaming products may be difficult to predict and it cannot provide any assurance that these products will gain market acceptance, that they will generate revenues at the rates it expects or will be successful in the long run.

 

Current borrowings, as well as potential future financings, may substantially increase GLOBAL VR’s current indebtedness.

 

No assurance can be given that GLOBAL VR will be able to generate the cash flows necessary to permit it to meet its fixed charges and payment obligations with respect to its debt. GLOBAL VR could be required to incur additional indebtedness to meet these fixed charges and payment obligations. Incurring additional debt could:

 

• adversely affect GLOBAL VR’s ability to expand its business, market its products and make investments and capital expenditures;

• adversely affect the cost and availability of funds from commercial lenders, debt financing transactions and other sources; and

• create competitive disadvantages compared to other companies with lower debt levels.

 

Any inability to service GLOBAL VR’s fixed charges and payment obligations, or the incurrence of additional debt, would have an adverse effect on its cash flows, results of operations and business generally.

 

An inability to maintain sufficient liquidity could negatively affect expected levels of operations and new product development.

 

Future revenue may not be sufficient to meet operating, product development and other cash flow requirements. Sufficient funds to service GLOBAL VR’s debt and maintain new product development efforts, and expected levels of operations may not be available. Additional capital, if and when needed by us, may not be available on terms acceptable to us. If GLOBAL VR cannot obtain sufficient capital on acceptable terms when needed, it may not be able to carry out its planned product development efforts and level of operations.

 

Risk Relating to CVAC

 

CVAC will be forced to liquidate the trust account if it cannot consummate a business combination by February 25, 2013. In the event of a liquidation, CVAC’s public shareholders will receive less than $6.00 per subunit and the CVAC warrants will expire worthless.

 

If CVAC is unable to complete a business combination by February 25, 2013 and is forced to liquidate, the per-subunit liquidation distribution will be less than $6.00, because of the expenses of the IPO, CVAC’s general and administrative expenses and the costs of seeking potential business candidates. Furthermore, there will be no distribution with respect to the CVAC warrants, which will expire worthless as a result of CVAC’s failure to complete a business combination.

 

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You must tender your CVAC subunits in order to validly seek redemption at the special meeting of shareholders.

 

In connection with tendering your shares for redemption, you must elect either to physically tender your subunit certificates to CVAC’s transfer agent in each case by the business day prior to the consummation of the Business Combination, or to deliver your subunits to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, which election would likely be determined based on the manner in which you hold your subunits. The requirement for physical or electronic delivery by the business day prior to the consummation of the Business Combination ensures that a redeeming holder’s election to redeem is irrevocable once the Business Combination is consummated. Any failure to observe these procedures will result in your loss of redemption rights in connection with the vote on the Business Combination.

 

CVAC shareholders exercising their redemption rights with respect to the CVAC subunits held by them will forfeit the portion of warrants included in the CVAC subunits without the payment of any additional consideration.

 

Pursuant to CVAC’s Amended and Restated Memorandum and Articles of Association, CVAC’s public shareholders will be entitled to redeem CVAC subunits for a portion of the trust account if the business combination is consummated. Accordingly, the CVAC warrants included in the subunits are subject to forfeiture, without the payment of any additional consideration, if the holder elects to cause CVAC to redeem the CVAC subunit of which the CVAC warrant forms a part. Accordingly, holders of CVAC subunits may have a disincentive to exercise their redemption rights because they will automatically forfeit the one-half (½) warrant included in the CVAC subunit. This may also have the effect of making it easier for CVAC to consummate a business combination as shareholders may not wish to lose the value of the CVAC warrants included in the CVAC subunits.

 

Unlike other blank check companies, CVAC allows up to one subunit less than 58.37% (as adjusted for repurchases under its Repurchase Plan, which was terminated in accordance with its terms on August 27, 2012) of the subunits sold in the IPO to be redeemed. This higher threshold will make it easier for CVAC to consummate the proposed Business Combination with which you may not agree and could result in more money from the trust account being used to pay for redemptions than in other blank check companies, and very little money remaining in trust for the post-transaction company.

 

Each holder (other than the initial shareholders) of CVAC subunits will have the right to have his, her or its subunits redeemed by CVAC for cash if the proposed Business Combination is consummated. CVAC will consummate the proposed Business Combination only if public shareholders owning one subunit less than 58.37% (as adjusted for repurchases under its Repurchase Plan, which was terminated in accordance with its terms on August 27, 2012) of the subunits sold in the IPO have exercised redemption rights on a cumulative basis; provided that a public shareholder, together with any affiliate of his or any person with whom he is acting in concert or as a “group” (as such term is defined in Sections 13(d) and 14(d) of the Exchange Act), will be restricted from seeking redemption with respect to more than 10% of the subunits sold in the IPO on a cumulative basis. In the past, many blank check companies have had redemption thresholds of between 19.99% and 39.99%, which makes it more difficult for such companies to consummate their initial business combination. Therefore, because CVAC permits a larger number of shareholders to exercise their redemption rights, it will be easier for CVAC to consummate the proposed Business Combination with a target business in the face of strong shareholder dissent, and CVAC has reduced the likelihood that a small group of investors holding a large block of CVAC subunits will stop it from completing the proposed Business Combination. Depending on the number of subunits that are redeemed in connection with the proposed Business Combination, CVAC may have very little money in its trust account with which to consummate the proposed Business Combination, which may result in its having to obtain additional financing to consummate the proposed Business Combination, result in less money being available for use as working capital post business combination, or result in CVAC’s failure to consummate the proposed Business Combination.

 

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If third parties bring claims against CVAC, the proceeds held in trust could be reduced and the per-share liquidation price received by CVAC’s shareholders may be less than $5.96.

 

CVAC’s placing of funds in trust may not protect those funds from third party claims against CVAC. Although CVAC has received from many of the vendors, service providers (other than its independent accountants) and prospective target businesses with which it does business executed agreements waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of CVAC’s public shareholders, they may still seek recourse against the trust account. Additionally, a court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over those of CVAC’s public shareholders. If CVAC liquidates the trust account before the completion of a business combination and distributes the proceeds held therein to its public shareholders, CVAC’s Initial Shareholders have agreed that they will be personally liable to ensure that the proceeds in the trust account are not reduced below $5.96 per share by the claims of target businesses or claims of vendors or other entities that are owed money by CVAC for services rendered or contracted for or products sold to CVAC. However, CVAC cannot assure you that they will be able to meet such obligation. Therefore, the per-share distribution from the trust account may be less than $5.96 due to such claims.

 

Additionally, if CVAC is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in CVAC’s bankruptcy estate and subject to the claims of third parties with priority over the claims of its shareholders. To the extent any bankruptcy claims deplete the trust account, CVAC may not be able to return $5.96 to our public shareholders.

 

CVAC’s shareholders may be held liable for claims by third parties against CVAC to the extent of distributions received by them.

 

CVAC’s Amended and Restated Memorandum and Articles of Association provides that it will continue in existence only until February 25, 2013. If CVAC has not completed a business combination by such date, its corporate existence will cease except for the purposes of winding up its affairs and dissolving. As a result, this has the same effect as if CVAC had formally gone through a voluntary liquidation procedure under the Companies Law. In such a situation under the Companies Law, a liquidator would give at least 21 days’ notice to creditors of his intention to make a distribution by notifying known creditors (if any) who have not submitted claims and by placing a public advertisement in the Cayman Islands Official Gazette, although in practice this notice requirement need not necessarily delay the distribution of assets as the liquidator may be satisfied that no creditors would be adversely affected as a consequence of a distribution before this time period has expired. As soon as the affairs of the company are fully wound-up, the liquidator must lay his final report and accounts before a final general meeting which must be called by a public notice at least one month before it takes place. After the final meeting, the liquidator must make a return to the Registrar confirming the date on which the meeting was held and three months after the date of such filing the company is dissolved. In the case of a full voluntary liquidation procedure, any liability of shareholders with respect to a liquidating distribution would be barred if creditors miss the deadline for submitting claims. However, it is CVAC’s intention to liquidate the trust account to its public shareholders as soon as reasonably possible and its directors and officers have agreed to take any such action necessary to dissolve the company and liquidate the trust account as soon as reasonably practicable if CVAC does not complete a business combination within the required time period. Pursuant to CVAC’s Amended and Restated Memorandum and Articles of Association, failure to consummate a business combination by February 25, 2013, will trigger an automatic winding up of the company. As such, CVAC’s shareholders could potentially be liable for any claims to the extent of distributions received by them pursuant to such process and any liability of CVAC’s shareholders may extend beyond the date of such dissolution. Accordingly, CVAC cannot assure you that third parties will not seek to recover from CVAC’s shareholders amounts owed to them by CVAC.

 

If CVAC is unable to consummate a transaction within the required time periods, upon notice from CVAC, the trustee of the trust account will distribute the amount in its trust account to its public shareholders. Concurrently, CVAC shall pay, or reserve for payment, from funds not held in trust, its liabilities and obligations, although CVAC cannot assure you that there will be sufficient funds for such purpose. If there are insufficient funds held outside the trust account for such purpose, CVAC’s Initial Shareholders have agreed that they will be liable to ensure that the proceeds in the trust account are not reduced below $5.96 per subunit by the claims of target businesses or claims of vendors or other entities that are owed money by CVAC for services rendered or contracted for or products sold to CVAC.

 

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If CVAC is forced to enter into an insolvent liquidation, any distributions received by CVAC shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, CVAC was unable to pay its debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover all amounts received by CVAC’s shareholders. Furthermore, CVAC’s board may be viewed as having breached their fiduciary duties to its creditors and/or may have acted in bad faith, and thereby exposing itself and CVAC to claims of damages, by paying public shareholders from the trust account prior to addressing the claims of creditors. CVAC cannot assure you that claims will not be brought against it for these reasons. CVAC and its directors and officers who knowingly and willfully authorized or permitted any distribution to be paid while CVAC was unable to pay its debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable to a fine of KYD15,000 (approximately US$18,000) and to imprisonment for five years in the Cayman Islands.

 

An investor will only be able to exercise a CVAC warrant if the issuance of CVAC ordinary shares upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the warrants.

 

No CVAC warrants will be exercisable on a cash basis and CVAC will not be obligated to issue registered ordinary shares unless the ordinary shares issuable upon such exercise have been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the CVAC warrants. Because the exemptions from qualification in certain states for resales of warrants and for issuances of ordinary shares by the issuer upon exercise of a warrant may be different, a CVAC warrant may be held by a holder in a state where an exemption is not available for issuance of ordinary shares upon exercise of the warrant and the holder will be precluded from exercising the CVAC warrant. As a result, the CVAC warrants may be deprived of any value, the market for the CVAC warrants may be limited and the holders of CVAC warrants may not be able to exercise their CVAC warrants if the ordinary shares issuable upon such exercise is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside.

 

If CVAC’s due diligence investigation of Black Diamond was inadequate, then shareholders of CVAC following the Business Combination could lose some or all of their investment.

 

Even though CVAC conducted a due diligence investigation of Black Diamond, it cannot be sure that this diligence uncovered all material issues that may be present inside Black Diamond or its business, or that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Black Diamond and its business and outside of its control will not later arise.

 

All of CVAC’s officers and directors own CVAC ordinary shares and CVAC warrants which will not participate in liquidation distributions and, therefore, they may have a conflict of interest in determining whether the business combination is appropriate.

 

All of CVAC’s officers and directors own an aggregate of 790,625 CVAC ordinary shares and 1,500,000 CVAC warrants. Such individuals have waived their right to redeem these shares, or to receive distributions with respect to these shares upon the liquidation of the trust account if CVAC is unable to consummate a business combination. Accordingly, the CVAC ordinary shares, as well as the CVAC warrants purchased by our officers or directors, will be worthless if CVAC does not consummate a business combination. Based on a market price of $6.12 per CVAC Subunit on November 9, 2012 and $0.30 per warrant on November 9, 2012, the value of these shares was approximately $4.8 million and the value of these warrants was approximately $450,000. The CVAC ordinary shares acquired prior to the IPO, as well as the CVAC warrants will be worthless if CVAC does not consummate a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting Black Diamond as a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of the Business Combination are appropriate and in CVAC’s stockholders’ best interest.

 

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CVAC is offering each public shareholder the option to vote in favor of the Business Combination and still seek redemption of his CVAC Subunits.

 

Each public shareholder (but not CVAC’s initial shareholders) will have the right to vote in favor of the Business Combination and to still seek to have his, her or its subunits redeemed for cash for a full pro rata share of the trust account, while those voting against the Business Combination will only be entitled to receive a maximum of $5.96 per CVAC Subunit. CVAC shareholders who vote for the Business Combination will be entitled to redeem their subunits for a full pro rata share of the trust account ($5.99 per subunit) plus any interest then held in the trust account, if the business combination is consummated. Accordingly, redeeming CVAC shareholders voting against the proposed business combination will receive less consideration for their redeemed CVAC Subunits than redeeming shareholders who vote in favor of the Business Combination. CVAC may proceed with a business combination only if (i) holders of a majority of CVAC’s outstanding shares approve the business combination and (ii) CVAC public shareholders owning one subunit less than 58.37% of the total number of subunits sold in the IPO exercise their redemption rights, regardless of whether they vote for or against the Business Combination. Accordingly, public shareholders owning up to one subunit less than 58.37% of the CVAC Subunits sold in the IPO may exercise their redemption rights and we could still consummate the Business Combination. This is different than other similarly structured blank check companies where shareholders are offered the right to redeem their shares only when they vote against a proposed business combination. Furthermore, CVAC’s redemption threshold at 58.37% is significantly higher than the more typical threshold of between 19.99% and 39.99% and further allows holders of CVAC’s ordinary shares the right to vote in favor of the Business Combination and elect to redeem their CVAC Subunits. This higher threshold and the ability to seek redemption while voting in favor of the Business Combination (and to receive a greater redemption amount if voting in favor of a business combination) may make it more likely that CVAC will consummate the Business Combination.

 

CVAC’s public shareholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group” with, are restricted from seeking redemption rights with respect to more than 10% of the CVAC Subunits sold in the IPO.

 

CVAC is offering each of its public shareholders (but not its Initial Shareholders) the right to have his, her, or its subunits redeemed for cash. Notwithstanding the foregoing, a CVAC public shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” will be restricted from seeking redemption rights with respect to more than 10% of the CVAC Subunits sold in the IPO. Accordingly, if you beneficially own more than 10% of the CVAC Subunits sold in the IPO and the Business Combination is approved, you will not be able to seek redemption rights with respect to the full amount of your CVAC Subunits and may be forced to hold such additional CVAC Subunits or sell them in the open market. CVAC cannot assure you that the value of such additional CVAC Subunits will appreciate over time following the Business Combination or that the market price of CVAC’s Subunits will exceed the redemption price.

 

CVAC’s public shareholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group” with, will be restricted from exercising voting rights with respect to more than 10% of the shares sold in the IPO.

 

Pursuant to CVAC’s Amended and Restated Memorandum and Articles of Association, without CVAC’s prior written consent, none of CVAC’s public shareholders, whether acting singly or with any affiliate or other person acting in concert or as a “group,” shall be permitted to exercise voting rights on any proposal submitted for consideration at the special meeting with respect to more than 10% of the CVAC ordinary shares sold in the IPO. Accordingly, if you hold more than 10% of the CVAC ordinary shares sold in the IPO (such shares are referred to herein as “Excess Shares”), you will be restricted from exercising voting rights with respect to any Excess Shares and such Excess Shares will remain outstanding following consummation of the Business combination. We cannot assure you that the value of such Excess Shares will appreciate over time following the Business Combination or that the market price of CVAC’s ordinary shares will exceed the per-share redemption price.

 

CVAC is requiring shareholders who wish to redeem their subunits in connection with a proposed business combination to comply with specific requirements for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising their rights.

 

CVAC is requiring public shareholders who wish to redeem their subunits to either tender their certificates to our transfer agent at any time prior to the business day immediately preceding the consummation of the proposed Business Combination or to deliver their shares to the transfer agent electronically using the Depository Trust Company’s, or DTC, DWAC (Deposit/Withdrawal At Custodian) System. In order to obtain a physical certificate, a shareholder’s broker and/or clearing broker, DTC and CVAC’s transfer agent will need to act to facilitate this request. It is CVAC’s understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through the DWAC System, we cannot assure you of this fact. Accordingly, if it takes longer than CVAC anticipates for shareholders to deliver their subunits, shareholders who wish to redeem may be unable to meet the deadline for exercising their redemption rights and thus may be unable to redeem their subunits.

 

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CVAC will require its public shareholders who wish to redeem their subunits in connection with the Business Combination to comply with specific requirements for redemption described above, such redeeming shareholders may be unable to sell their securities when they wish to in the event that the Business Combination is not consummated.

 

If CVAC requires public shareholders who wish to redeem their subunits in connection with the proposed Business Combination to comply with specific requirements for redemption as described above and the Business Combination is not consummated, CVAC will promptly return such certificates to its public shareholders. Accordingly, investors who attempted to redeem their subunits in such a circumstance will be unable to sell their securities after the failed acquisition until CVAC has returned their securities to them. The market price for CVAC’s subunits may decline during this time and you may not be able to sell your securities when you wish to, even while other shareholders that did not seek redemption may be able to sell their securities.

 

CVAC may use funds in its trust account to purchase, directly or indirectly, CVAC Subunits from holders thereof who have indicated an intention to vote against the Business Combination and/or redeem their subunits.

 

If holders of CVAC Subunits sold in the IPO indicate an intention to vote against the Business Combination and/or seek redemption of their CVAC Subunits into cash, CVAC may privately negotiate arrangements to provide for the purchase of such subunits at the closing of the Business Combination using funds held in the trust account. The purpose of such arrangements would be to increase the likelihood of satisfaction of the requirements that the holders of a majority of its ordinary shares outstanding vote in favor of a proposed business combination and that holders of fewer than 58.37% (as adjusted for repurchases through under CVAC’s Repurchase Plan, which was terminated pursuant to its terms on August 27, 2012) of the total number of CVAC Subunits sold in the IPO demand redemption of their subunits into cash where it appears that such requirements would otherwise not be met. Although CVAC does not intend to pay a premium for CVAC Subunits purchased in connection with any arrangement described above, in the event that CVAC does determine to pay a premium for such subunits, it will only do so if its board of directors determines that it is in the best interests of its security-holders. The remaining security-holders may experience a reduction in book value per subunit compared to what the book value would have been if the subunits had been redeemed. In the event that CVAC was to purchase subunits pursuant to an arrangement described above, it will disclose the terms of such arrangements in a press release and/or on a Current Report on Form 8-K on the next business day after the date of the transaction, and, to the extent possible, at least two business days prior to the vote on the Business Combination. If, however, CVAC is coming to a deadline that cannot be moved (for example, the end of its existence or the drop-dead date in the Business Combination), it may not be able to release such information publicly two business days prior to the Business Combination and still complete the Business Combination, and such lesser notification period may not provide sufficient time for a security-holder to elect to redeem its securities or change its vote with respect to the Business Combination. This may result in the approval of a business combination that may not otherwise have been possible. Additionally, as a consequence of such purchases,

 

·the funds in CVAC’s trust account that are so used will not be available after the Business Combination; and

 

·the public “float” of the CVAC ordinary shares may be reduced and the number of beneficial holders of CVAC’s securities may be reduced, which may make it difficult to obtain the quotation, listing or trading of its securities on a national securities exchange.

 

CVAC’s Initial Shareholders, including its officers and directors, control a substantial interest in CVAC and thus may influence certain actions requiring a shareholder vote.

 

CVAC’s Initial Shareholders, including all of its officers and directors, collectively own approximately 22.3% of its issued and outstanding ordinary shares. However, if a significant number of shareholders vote, or indicate an intention to vote, against the Business Combination, CVAC’s officers, directors, Initial Shareholders or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. Additionally, if CVAC purchases subunits sold in the IPO as indicated elsewhere in this prospectus, such 22.3% block could represent as much as 46.3% depending on the number of subunits CVAC ultimately purchases. CVAC’s Initial Shareholders have agreed to vote any shares they own in favor of the Business Combination.

 

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CVAC’s Initial Shareholders, including its officers and directors, own a substantial portion of the CVAC warrants and thus may influence the vote to approve the Warrant Amendment.

 

CVAC’s Initial Shareholders, including all of its officers and directors, collectively own approximately 26.8% of the issued and outstanding CVAC warrants. However, if a significant number of CVAC Warrantholders vote, or indicate an intention to vote, against the Warrant Amendment, CVAC’s officers, directors, Initial Shareholders or their affiliates could make such purchases in the open market or in private transactions in order to influence the vote. Additionally, if CVAC purchases subunits sold in the IPO as indicated elsewhere in this prospectus, such 26.8% block could represent as much as 32.0% depending on the number of subunits CVAC ultimately purchases. CVAC’s Initial Shareholders have agreed to vote any shares they own in favor of the Warrant Amendment.

 

CVAC may redeem the CVAC warrants at a time that is not beneficial to CVAC warrantholders.

 

CVAC may call the CVAC warrants for redemption at any time after the redemption criteria described elsewhere in this prospectus /proxy statement have been satisfied. If CVAC calls the CVAC warrants for redemption, CVAC warrantholders may be forced to accept a nominal redemption price or sell or exercise the CVAC warrants when they may not wish to do so.

 

CVAC’s management’s ability to require holders of the CVAC warrants to exercise such warrants on a “cashless basis” will cause such holders to receive fewer CVAC ordinary shares upon their exercise of the CVAC warrants than they would have received had they been able to exercise their CVAC warrants for cash.

 

If CVAC calls the CVAC warrants for redemption after the redemption criteria described elsewhere in this proxy statement/prospectus have been satisfied, CVAC’s management will have the option to require holders to exercise their CVAC warrants on a “cashless basis.” If CVAC’s management chooses to require holders to exercise their CVAC warrants on a “cashless basis”, the number of CVAC ordinary shares received by a holder upon exercise will be fewer than it would have been had such holder exercised his CVAC warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in CVAC.

 

If CVAC’s security holders exercise their registration rights with respect to their securities, it may have an adverse effect on the market price of CVAC’s securities.

 

CVAC’s initial shareholders are entitled to make a demand that it register the resale of their initial shares at any time commencing three months prior to the date on which their shares may be released from escrow. Additionally, the purchasers of CVAC warrants sold in a warrant offering that was consummated simultaneously with the IPO or the CVAC warrant Offering, are entitled to demand that CVAC register the resale of their warrants and underlying ordinary shares at any time after CVAC consummates a business combination. If such persons exercise their registration rights with respect to all of their securities, then there will be an additional 790,625 CVAC ordinary shares and 2,642,856 CVAC warrants (as well as the CVAC ordinary shares underlying such warrants) eligible for trading in the public market. The presence of these additional ordinary shares trading in the public market may have an adverse effect on the market price of CVAC’s securities.

 

CVAC will not obtain an opinion from an unaffiliated third party as to the fairness of the Business Combination to its shareholders.

 

CVAC is not required to obtain an opinion from an unaffiliated third party that the price it is paying is fair to its public shareholders from a financial point of view. CVAC’s public shareholders therefore, must rely solely on the judgment of CVAC’s board of directors.

 

If the Business Combination’s benefits do not meet the expectations of financial or industry analysts, the market price of CVAC’s securities may decline.

 

The market price of CVAC’s securities may decline as a result of the Business Combination if:

 

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·CVAC does not achieve the perceived benefits of the acquisition as rapidly as, or to the extent anticipated by, financial or industry analysts; or

 

·The effect of the Business Combination on the financial statements is not consistent with the expectations of financial or industry analysts.

 

Accordingly, investors may experience a loss as a result of decreasing stock prices.

 

CVAC’s directors and officers may have certain conflicts in determining to recommend the acquisition of Black Diamond, since certain of their interests, and certain interests of their affiliates and associates, are different from, or in addition to, your interests as a shareholder.

 

CVAC’s management and directors have interests in and arising from the Business Combination that are different from, or in addition to, your interests as a shareholder, which could result in a real or perceived conflict of interest. These interests include the fact that certain of the CVAC ordinary shares owned by CVAC’s management and directors, or their affiliates and associates, would become worthless if the Redomestication and Business Combination Proposals are not approved and CVAC otherwise fails to consummate a business combination prior to its liquidation date.

 

Risk Factors Relating to the Redomestication and Business Combination

 

CVAC and Black Diamond have incurred and expect to incur significant costs associated with the Business Combination. Whether or not the Business Combination is completed, the incurrence of these costs will reduce the amount of cash available to be used for other corporate purposes by BDH Acquisition if the Business Combination is completed or by CVAC if the Business Combination is not completed.

 

CVAC and Black Diamond expect to incur significant costs associated with the Business Combination. Whether or not the Business Combination is completed, CVAC expects to incur approximately $415,000 in expenses. These expenses will reduce the amount of cash available to be used for other corporate purposes by CVAC if the Business Combination is completed or by CVAC if the Business Combination is not completed.

 

In the event that a significant number of CVAC’s Subunits are redeemed, its stock may become less liquid following the Business Combination.

 

If a significant number of CVAC’s Subunits are redeemed, CVAC may be left with a significantly smaller number of shareholders. As a result, trading in the shares of the surviving company following the Business Combination may be limited and your ability to sell your shares in the market could be adversely affected.

 

If any funds held in CVAC’s trust account are used to purchase subunits of CVAC from holders who would have otherwise voted against the Business Combination, the Business Combination may be consummated even if most of the pre-Business Combination public shareholders would have voted against the Business Combination.

 

In order to ensure that the Business Combination is approved, CVAC, Black Diamond and their respective affiliates may enter into transactions to purchase CVAC ordinary shares from shareholders who have indicated their intention to vote against the acquisition and/or seek redemption of their CVAC Subunits. Such transactions could include:

 

·Purchases by CVAC, Black Diamond or their respective affiliates of CVAC Subunits or CVAC warrants;

 

·Agreements with third parties to purchase CVAC Subunits or CVAC warrants that may then be resold to the combined company subsequent to the Business Combination using funds that were previously in the trust account;

 

·Agreements with third parties pursuant to which CVAC, Black Diamond or their respective affiliates would borrow funds to make purchases of CVAC Subunits or CVAC warrants. The combined company would repay such borrowings using funds that were previously in the trust account; and

 

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·The granting of securities to third party purchasers of CVAC Subunits or CVAC warrants as an inducement for such third parties to purchase such securities.

 

Such transactions could result in the Business Combination being approved even if a majority of the pre-Acquisition public shareholders would have voted against the Business Combination or if holders of more than 58.37% of the CVAC subunits issued in the IPO would have exercised their redemption rights.

 

CVAC may waive one or more of the conditions to the Business Combination without resoliciting shareholder approval for the Business Combination.

 

CVAC may agree to waive, in whole or in part, some of the conditions to its obligations to complete the Business Combination, to the extent permitted by applicable laws. The board of directors of CVAC will evaluate the materiality of any waiver to determine whether amendment of this proxy statement/prospectus and resolicitation of proxies is warranted. In some instances, if the board of directors of CVAC determines that a waiver is not sufficiently material to warrant resolicitation of shareholders, CVAC has the discretion to complete the Business Combination without seeking further shareholder approval. For example, it is a condition to CVAC’s obligations to close the Business Combination that there be no restraining order, injunction or other order restricting Black Diamond’s conduct of its business, however, if the board of directors of CVAC determines that any such order or injunction is not material to the business of Black Diamond, then the board may elect to waive that condition and close the Business Combination.

 

There will be a substantial number of BDH Acquisition’s common stock available for sale in the future that may adversely affect the market price of BDH Acquisition’s common stock.

 

CVAC currently has authorized share capital of 55,000,000 shares consisting of 50,000,000 ordinary shares with a par value of $0.001 per share and 5,000,000 shares of preferred stock with a par value of $0.001 per share. BDH Acquisition currently is authorized to issue 100,000,000 shares of common stock with a par value of $0.001 per share and 10,000,000 shares of preferred stock with a par value of $0.001 per share.

 

The shares to be issued in the business combination to the post-Business Combination shareholders, will be subject to certain restrictions on sale and cannot be sold for six (6) months (or in certain cases, twelve (12) months) from the date of the Business Combination. In addition, the holders of the shares to be issued in the Business Combination are parties to a Registration Rights Agreement that would allow the sale of the such shares to occur as early as 60 days from the date of the Business Combination. After the expiration of this restricted period, there will then be an additional 68,816,667 shares that are eligible for trading in the public market. The availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of BDH Acquisition’s shares.

 

Even if the Redomestication qualifies as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, or the “Code,” a U.S. Holder generally may still recognize gain with respect to its CVAC securities at the effective time of the Redomestication.

 

Even if the Redomestication qualifies as a reorganization under Section 368(a) of the Code, a U.S. Holder (as that term is defined in the section entitled “Material U.S. Federal Income Tax Consequences — General”) of CVAC securities may still recognize gain (but not loss) upon the exchange of its CVAC securities solely for the securities of BDH Acquisition pursuant to the Redomestication under the “passive foreign investment company,” or “PFIC,” rules of the Code or under Section 367(b) of the Code, equal to the excess, if any, of the fair market value of the BDH Acquisition securities received in the Redomestication and the U.S. Holder’s adjusted tax basis in the corresponding CVAC securities surrendered in the Redomestication. In such event, the U.S. Holder’s aggregate tax basis in the BDH Acquisition securities received in connection with the Redomestication should be the same as the aggregate tax basis of the CVAC securities surrendered in the transaction, increased by any amount included in the income of such U.S. Holder under the PFIC rules or Section 367(b) of the Code, and such U.S. Holder’s holding period for the BDH Acquisition securities received in the Redomestication generally should include the holding period of the CVAC securities surrendered in the Redomestication. See the discussion in the sections entitled “Material U.S. Federal Income Tax Consequences — U.S. Holders — Tax Consequences of the Redomestication,” “— “PFIC Considerations” and “— Effect of Section 367(b).”

 

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If the BDH Series A Preferred Stock is not viewed as having a real and meaningful probability of actually participating to a significant extent in the earnings and growth of BDH Acquisition following the Redomestication and Business Combination, this could result in adverse U.S. federal income tax consequences to the holders of the BDH Series A Preferred Stock.

 

Although CVAC and Black Diamond, based on their own projections and analysis, believe that the BDH Series A Preferred Stock will have a real and meaningful probability of actually participating to a significant extent in the earnings and growth of BDH Acquisition following the Redomestication and Business Combination, if the U.S. Internal Revenue Service, or “IRS,” were to take a different view, this could affect the tax characterization of the BDH Series A Preferred Stock and affect the timing and character of income or gain recognition to the holders of the BDH Series A Preferred Stock. Holders of CVAC securities are urged to consult their own tax advisors with respect to these tax risks, as well as the specific tax consequences to them of acquiring, owning and disposing of BDH Acquisition securities.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement/prospectus contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements in this proxy statement/prospectus include, but are not limited to, statements regarding our disclosure concerning Black Diamond’s operations, cash flows, financial position and dividend policy.

 

Forward-looking statements appear in a number of places in this proxy statement/prospectus including, without limitation, in the sections entitled “Dividend Policy,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operations of Black Diamond,” and “Black Diamond’s Business”. The risks and uncertainties include, but are not limited to:

 

·future operating or financial results;

 

·future payments of dividends and the availability of cash for payment of dividends;

 

·Black Diamond’s expectations relating to dividend payments and forecasts of its ability to make such payments;

 

·future acquisitions, business strategy and expected capital spending;

 

·assumptions regarding interest rates and inflation;

 

·the combined company’s financial condition and liquidity, including its ability to obtain additional financing in the future (from warrant exercises or outside financial institutions) to fund capital expenditures, acquisitions and other general corporate activities;

 

·estimated future capital expenditures needed to preserve BDH Acquisition’s capital base;

 

·ability of the combined company to effect future acquisitions and to meet target returns; and

 

·other factors discussed in “Risk Factors.”

 

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in “Risk Factors” in this proxy statement/prospectus. Accordingly, you should not rely on these forward-looking statements, which speak only as of the date of this proxy statement/prospectus. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission after the date of this proxy statement/prospectus.

 

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CAPITALIZATION

 

The following table sets forth the capitalization on an unaudited, historical basis of each of CVAC and Black Diamond as of June 30, 2012 and the capitalization on an unaudited, as adjusted basis as of June 30, 2012, after including $500,000 of additional capital received after June 30, 2012, upon Black Diamond issuing an additional 20 preferred units, and after giving effect to the Business Combination, assuming (i) that no holders of CVAC’s Ordinary Shares exercise their redemption rights and CVAC does not make any permitted repurchases and (ii) that holders of the CVAC’s Ordinary have properly exercised their redemption rights and/or CVAC has made permitted repurchases.

 

   Historical   As Adjusted 
               Assuming 
               Maximum 
           Assuming No   Redemptions 
       Black   Redemptions   and/or 
   CVAC   Diamond   or Repurchases   Repurchases 
   (in $ thousands) 
Cash and cash equivalents  $28   $194   $12,915   $1,857 
Restricted cash and cash equivalents held in trust account   16,543    531    531    531 
   $16,571   $725   $13,446   $2,388 
Long-term debt, including current portion                    
                     
Reclamation liability  $   $23,497   $23,497   $23,497 
Series A convertible Bonds payable at 12%, due November 30, 2013       17,674    17,674    17,674 
Loan payable by affiliate at 18%, due November 30, 2013       9,680    9,680    9,680 
Loan payable by affiliate at 12%, currently in default       6,108    6,108    6,108 
Series A convertible notes, payable at 18%, due November 30, 2012       5,792    5,792    5,792 
Convertible bridge loans, payable at 12%, due August 29, 2012       1,344    1,344    1,344 
Related party promissory note advances, payable at 12%, due December 2014       1,197    1,197    1,197 
Note payable at 8% due August 18, 2015       1,100    1,100    1,100 
Note payable at 18%, currently in default       1,095         
Convertible note payable at 10%, currently in default       1,080    1,080    1,080 
Other long-term debt       11,340    11,340    11,340 
                     
Total long-term debt       79,907    78,811    78,811 
                     
Ordinary shares, subject to possible redemption   11,057             
Total stockholders’ and members’ equity (deficit)   5,312    (74,203)   (59,463)   (70,521)
    16,369    (74,203)   (59,463)   (70,521)
Total Capitalization  $16,369   $5,704   $19,348   $8,290 

 

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DIVIDEND POLICY

 

BDH Acquisition does not anticipate paying dividends on its Common Stock and Series A Preferred Stock until it has generated Available Cash. For purposes hereof, “Available Cash” means (i) the “Cash and Cash Equivalents” included on BDH Acquisition’s unconsolidated balance sheet for the applicable fiscal quarter, minus (ii) any cash raised through a debt or equity financing, provided that any such funds will be used first to pay for expenses and capital expenditures. Pursuant to BDH Acquisition’s Amended and Restated Certificate of Incorporation, 90% of BDH Acquisition’s Available Cash shall be paid as a dividend, quarterly, within 30 days of each fiscal quarter according to the following schedule:

 

·First, 100% of dividends will be paid to the holders of BDH Series A Preferred Stock until the holders of the BDH Series A Preferred Stock have received an amount equal to $6 per share of Series A Preferred Stock;

 

·Second, after the holders of BDH Series A Preferred Stock have received dividends in aggregate of $6 per share of BDH Series A Preferred Stock, further dividends will be paid 50% to holders of BDH Common Stock and 50% to holders of BDH Series A Preferred Stock until the holders of BDH Series A Preferred Stock have received an aggregate of $12 per share of BDH Series A Preferred Stock; and

 

·Third, after the holders of BDH Series A Preferred Stock have received dividends in aggregate of $12 per share of BDH Series A Preferred Stock, the holders of BDH Series A Preferred Stock shall automatically convert into BDH common stock at the then applicable conversion ratio and 100% of further dividends will be paid to the holders of BDH common stock.

 

The BDH Acquisition Amended and Restated Certificate of Incorporation provides that BDH Acquisition shall be required to pay dividends until such time as (i) each share of BDH Series A Preferred Stock has received an aggregate of twelve dollars ($12.00) in cash and (ii) an aggregate of $25 million ($25,000,000.00) in cash has been paid as a dividend on all of the outstanding shares of BDH common stock.

 

The amount of any future distributions BDH Acquisition may make will depend on, among other factors, its strategy, future earnings, financial condition, cash flow, working capital requirements and debt service obligations, capital expenditures, as well as legal requirements, regulatory constraints, and applicable provisions of the Amended and Restated Certificate of Incorporation. Except as required by the Amended and Restated Certificate of Incorporation, there can be no assurance that BDH Acquisition will pay a dividend in the future or that it will continue to pay any dividend if it does not commence paying dividends. Moreover, BDH Acquisition is a holding company that does not conduct any business operations of its own. As a result, BDH Acquisition is dependent upon cash dividends, distributions and other transfers from BDH Acquisition’s subsidiaries to make distribution payments.

 

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SPECIAL MEETINGS OF CVAC WARRANTHOLDERS AND SHAREHOLDERS

 

General

 

We are furnishing this proxy statement/prospectus to the CVAC warrantholders and shareholders as part of the solicitation of proxies by our board of directors for use at the special meeting of CVAC warrantholders and shareholders to be held on         , 2012, and at any adjournment or postponement thereof. This proxy statement/prospectus is first being furnished to our warrantholders and shareholders on or about         , 2012 in connection with the vote on the Warrant Amendment, Warrant Amendment Adjournment Proposal, the Redomestication Proposal, the Business Combination Proposal and the Business Combination Adjournment Proposal. This document provides you with the information you need to know to be able to vote or instruct your vote to be cast at the special meetings.

 

Date, Time and Place

 

The special meeting of warrantholders and the special meeting of shareholders will be held on           , 201[2] at     a.m. and a.m., respectively, at          , or such other date, time and place to which such meeting may be adjourned or postponed.

 

Purpose of the Special Meeting of CVAC warrantholders

 

At the special meeting of warrantholders, we are asking holders of CVAC warrants to approve the following proposals:

 

1.          An amendment, or the Warrant Amendment, to the warrant agreement, or the Warrant Agreement, that governs all of the CVAC warrants in order to provide that upon the merger, consolidation or reorganization of CVAC, the CVAC warrants will be convertible into warrants to purchase common stock of the surviving entity of such merger, consolidation or reorganization. The Warrant Amendment is an isolated transaction and is not made pursuant to a plan to periodically increase the proportionate interest of a CVAC shareholder (or a CVAC subunit holder) in the assets or earnings and profits of CVAC (or its successors, BDH Acquisition). This proposal is referred to as the Warrant Amendment Proposal. The Warrant Amendment Proposal is cross-conditioned on the approval of the Redomestication Proposal and the Business Combination Proposal. For details, see “The Warrant Amendment Proposal” elsewhere in this proxy statement/prospectus.

 

2.          The adjournment of the special meeting of CVAC warrantholders for the purpose of soliciting additional proxies. This proposal is referred to as the Warrant Amendment Adjournment Proposal. For details, see “The Warrant Amendment Adjournment Proposal” elsewhere in this proxy statement/prospectus.

 

Purpose of the Special Meeting of CVAC Shareholders

 

At the special meeting of shareholders, we are asking holders of CVAC ordinary shares to approve the following proposals:

 

1.          The redomestication of CVAC to Delaware by means of a merger with and into BDH Acquisition, its wholly-owned Delaware subsidiary, with BDH Acquisition as the surviving entity, which we refer to as the Redomestication. This proposal is referred to as the “Redomestication Proposal. The Redomestication Proposal is cross-conditioned on the approval of the Warrant Amendment Proposal and the Business Combination Proposal. For details, see “The Redomestication Proposal” elsewhere in this proxy statement/prospectus.

 

2.          The proposed business combination resulting in Black Diamond becoming a subsidiary of BDH Acquisition, which we refer to as the Business Combination. This proposal is referred to as the Business Combination Proposal. The Business Combination Proposal is cross-conditioned on the approval of the Warrant Amendment Proposal and the Redomestication Proposal. For details, see “The Business Combination Proposal” elsewhere in this proxy statement/prospectus.

 

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3.          The adjournment of the special meeting of CVAC shareholders for the purpose of soliciting additional proxies. This proposal is referred to as the Business Combination Adjournment Proposal. For details, see “The Business Combination Adjournment Proposal.”

 

Each of the Warrant Amendment Proposal, the Redomestication Proposal and the Business Combination Proposal, as described below, are cross-conditioned upon the approval of each other. Therefore, all three proposals must be approved by warrantholders and shareholders, as applicable, in order for any of the proposals to take effect. If any of the three proposals is not approved, the Business Combination will not be consummated and CVAC will liquidate and dissolve.

 

Recommendation of CVAC’s Board of Directors

 

CVAC’s board of directors:

 

·has determined that each of the Warrant Amendment Proposal, the Redomestication Proposal, the Business Combination Proposal, and the other proposals is fair to, and in the best interests of, CVAC and its warrantholders and shareholders;

 

·has approved the Warrant Amendment Proposal, the Redomestication Proposal, the Business Combination Proposal and the other proposals; and

 

·recommends that (i) the CVAC warrantholders vote “FOR” each of the Warrant Amendment Proposal and the Warrant Amendment Adjournment Proposal and (ii) CVAC’s ordinary shareholders vote “FOR” each of the Redomestication Proposal, the Business Combination Proposal, and the Business Combination Adjournment Proposal.

 

CVAC’s board of directors have interests that may be different from or in addition to your interests as a shareholder. See “The Business Combination Proposal — Interests of Certain Persons in the Business Combination” in this proxy statement/prospectus for further information.

 

Record Date; Who is Entitled to Vote

 

We have fixed the close of business on [●], 201[2], as the “record date” for determining those CVAC warrantholders and shareholders entitled to notice of and to vote at the special meetings. As of the close of business on [●], 201[2], there were [●] CVAC warrants outstanding and entitled to vote and [●] CVAC ordinary shares outstanding and entitled to vote. Each holder of CVAC warrants is entitled to one vote per CVAC warrant on each of the Warrant Amendment Proposal and the Warrant Amendment Adjournment Proposal. Each holder of CVAC ordinary shares is entitled to one vote per share on each of the Redomestication Proposal, the Business Combination Proposal and the Business Combination Adjournment Proposal.

 

As of [●], 201[2], CVAC’s Initial Shareholders, either directly or beneficially, owned and were entitled to vote 1,500,000 warrants, or approximately 26.8% of CVAC’s outstanding warrants and 790,625 ordinary shares, or approximately 22.3% of CVAC’s outstanding ordinary shares. With respect to the Business Combination, CVAC’s initial shareholders have agreed to vote their respective CVAC ordinary shares acquired by them in favor of the Business Combination Proposal and related proposals. They have indicated that they intend to vote their warrants and shares, as applicable, “FOR” each of the other proposals although there is no agreement in place with respect to these proposals.

 

Required Vote for Warrantholder Proposals

 

Approval of the Warrant Amendment Proposal will require the affirmative vote of the holders of a majority of the outstanding CVAC warrants as of the record date.

 

Approval of the Warrant Amendment Adjournment Proposal will require the affirmative vote of the holders of a majority of the outstanding CVAC warrants present in person or by proxy at the special meeting of CVAC warrantholders and entitled to vote thereon as of the record date.

 

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Quorum and Required Vote for Shareholder Proposals

 

A quorum of CVAC shareholders is necessary to hold a valid meeting. A quorum will be present at the special meeting of CVAC shareholders if a majority of the CVAC ordinary shares outstanding and entitled to vote at the special meeting is represented in person or by proxy. Abstentions will count as present for the purposes of establishing a quorum but broker non-votes will not.

 

Approval of the Redomestication Proposal, the Business Combination Proposal and the Business Combination Adjournment Proposal requires the affirmative vote of the holders of a majority of the issued and outstanding CVAC ordinary shares entitled to vote thereon as of the record date present in person or represented by proxy at the special meeting. Abstentions are considered present for the purposes of establishing a quorum but will have the same effect as a vote “AGAINST” the Redomestication Proposal, the Business Combination Proposal and the Business Combination Adjournment Proposal. Broker non-votes will not be considered present for the purposes of establishing a quorum. A broker non-vote will have the effect of a vote “AGAINST” the Warrant Amendment Proposal and will have no effect on the Redomestication Proposal, the Business Combination Proposal or the Business Combination Adjournment Proposal.

 

The approval of the Warrant Amendment Proposal by the CVAC warrantholders and the approval of the Redomestication Proposal and the Business Combination Proposal by CVAC shareholders is a precondition to the consummation of the Business Combination. In the event that the Business Combination is not consummated, the Warrant Amendment Proposal and the Redomestication Proposal will not take effect.

 

Voting Your Shares

 

Each CVAC warrant that you own in your name entitles you to one vote for each proposal on which such warrants are entitled to vote at the special meeting. Your proxy card shows the number of CVAC warrants that you own.

 

Each CVAC ordinary share that you own in your name entitles you to one vote for each proposal on which such shares are entitled to vote at the special meeting. Your proxy card shows the number of shares of our common stock that you own.

 

There are two ways to ensure that your CVAC warrants and CVAC ordinary shares, as applicable, are voted at the special meeting:

 

·You can cause your shares to be voted by signing and returning the enclosed proxy cards. If you submit your proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your warrants and/or shares, your warrants and/or shares will be voted, as recommended by our board, “FOR” the adoption of the Warrant Amendment Proposal, the Warrant Amendment Adjournment Proposal, the Redomestication Proposal, the Business Combination Proposal and the Business Combination Adjournment Proposal. Votes received after a matter has been voted upon at either of the special meetings will not be counted.

 

·You can attend the special meetings and vote in person. We will give you a ballot when you arrive. However, if your warrants and/or shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your warrants and/or shares.

 

IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES AND/OR WARRANTS WILL BE VOTED IN FAVOR OF THE BUSINESS COMBINATION, PROPOSAL, REDOMESTICATION PROPOSAL AND WARRANT AMENDMENT PROPOSAL (AS WELL AS THE OTHER PROPOSALS). IN ORDER TO REDEEM YOUR SUBUNITS, YOU MUST CONTINUE TO HOLD YOUR SUBUNITS THROUGH THE CLOSING DATE OF THE BUSINESS COMBINATION AND TENDER YOUR PHYSICAL STOCK CERTIFICATE TO OUR STOCK TRANSFER AGENT AT LEAST ONE BUSINESS DAY PRIOR TO THE CONSUMMATION OF THE BUSINESS COMBINATION. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SUBUNITS WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SUBUNITS IN STREET NAME, YOU WILL NEED TO ELECTRONICALLY TRANSFER YOUR SUBUNITS TO THE DTC ACCOUNT OF CONTINENTAL STOCK TRANSFER & TRUST COMPANY, OUR TRANSFER AGENT, AT LEAST ONE BUSINESS DAY PRIOR TO THE CONSUMMATION OF THE BUSINESS COMBINATION.

 

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Revoking Your Proxy

 

If you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

 

·you may send another proxy card with a later date;

 

·you may notify our corporate secretary in writing before the special meeting that you have revoked your proxy; or

 

·you may attend the special meeting, revoke your proxy, and vote in person, as indicated above.

 

Who Can Answer Your Questions About Voting Your Shares

 

If you have any questions about how to vote or direct a vote in respect of your shares of our common stock, you may call [Advantage Proxy, our proxy solicitor, at (206)-870-8565] or CVAC at (305)-981-6888.

 

No Additional Matters May Be Presented at the Special Meeting

 

This special meeting has been called only to consider the approval of the Business Combination, the Redomestication and the Warrant Amendment. Under CVAC’s amended and restated memorandum and articles of association, other than procedural matters incident to the conduct of the special meeting, no other matters may be considered at the special meeting if they are not included in the notice of the special meeting.

 

Redemption Rights

 

Pursuant to CVAC’s amended and restated articles and memorandum, a holder of CVAC Subunits may demand that CVAC redeem such subunits for cash. Demand may be made by:

 

·Electing redemption by checking the appropriate box on the proxy card;

 

·Tendering the CVAC Subunits for which you are electing redemption by the business day prior to the consummation of the Business Combination by either:

 

·Delivering certificates representing CVAC’s Subunits to CVAC’s transfer agent, or

 

·Delivering the CVAC Subunits electronically through the DWAC system; and

 

·Not selling or otherwise transferring the CVAC Subunits until the closing of the Business Combination (tendering your subunits for redemption is not considered selling or transferring your shares).

 

CVAC shareholders voting against the Business Combination Proposal will be entitled to redeem their CVAC Subunits for a pro rata share of the trust account up to a maximum of $5.96 per subunit. CVAC shareholders voting for the Business Combination Proposal will be entitled to redeem their CVAC Subunits for a full pro rata share of the trust account (currently anticipated to be no less than approximately $5.99 per subunit,) net of (i) taxes payable, and (ii) interest income earned on the trust account previously released to CVAC to fund its working capital and general corporate requirements in connection with the Business Combination. Any CVAC shareholder redeeming its subunits will forfeit the one-half warrant included in such subunit, without the payment of any additional consideration. Accordingly, redeeming shareholders voting against the proposed business combination will receive less consideration for their redeemed subunits than redeeming shareholders who vote in favor of the business combination.

 

In connection with tendering your shares for redemption, you must elect either to physically tender your share certificates to CVAC’s transfer agent or deliver your shares to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, in each case, by the business day prior to the consummation of the Business Combination.

 

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Through the DWAC system, this electronic delivery process can be accomplished by contacting your broker and requesting delivery of your shares through the DWAC system. Delivering shares physically may take significantly longer. In order to obtain a physical stock certificate, a shareholder’s broker and/or clearing broker, DTC, and CVAC’s transfer agent will need to act together to facilitate this request. There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $45 and the broker would determine whether or not to pass this cost on to the redeeming holder. It is CVAC’s understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. CVAC does not have any control over this process or over the brokers or DTC, and it may take longer than two weeks to obtain a physical stock certificate. Shareholders who request physical stock certificates and wish to redeem may be unable to meet the deadline for tendering their subunits before exercising their redemption rights and thus will be unable to redeem their subunits.

 

In the event that a shareholder tenders its subunits and decides prior to the consummation of the Business Combination that it does not want to redeem its subunits, the shareholder may withdraw the tender. In the event that a shareholder tenders subunits and the business combination is not completed, these subunits will not be redeemed for cash and the physical certificates representing these subunits will be returned to the shareholder promptly following the determination that the Business Combination will not be consummated. CVAC anticipates that a shareholder who tenders subunits for redemption in connection with the vote to approve the Business Combination would receive payment of the redemption price for such subunits soon after the completion of the Business Combination.

 

If properly demanded by CVAC’s public shareholders, CVAC will redeem each subunit into a pro rata portion of the funds available in the Trust Account, calculated as of two business days prior to the anticipated consummation of the Business Combination. As of the record date, this would amount to approximately $[●] per subunit. If you exercise your redemption rights, you will be exchanging your CVAC subunits for cash and will no longer own the subunits. If CVAC is unable to complete the Business Combination by February 25, 2013 it will liquidate and dissolve and public shareholders who voted against the Business Combination or who did not vote will be entitled to receive only a pro rata share of the trust account up to a maximum of approximately $5.96 per submit and public shareholders who voted in favor of the Business Combination will be entitled to receive approximately $5.99 per subunit upon such liquidation.

 

The Business Combination will not be consummated if the holders of 58.37% or more of CVAC’s subunits issued in the IPO (1,845,795 subunits or more) exercise their redemption rights.

 

Limitation on Redemption Rights Upon Consummation of the Business Combination

 

Since CVAC is seeking shareholder approval of the Business Combination and is not conducting redemptions pursuant to the tender offer rules, the CVAC amended and restated memorandum and articles of association provide that no CVAC public shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) is permitted from seeking redemption rights, without CVAC’s prior written consent, with respect to 10% or more of the subunits sold in the IPO. By limiting a shareholder’s ability to redeem no more than 10% of the subunits sold in the IPO, CVAC believes it has limited the ability of a small group of shareholders to block a transaction which is favored by our other public shareholders. However, this limitation also makes it easier for CVAC to complete a business combination which is opposed by a significant number of public shareholders.

 

Permitted Purchases of CVAC’s Securities

 

Prior to the announcement of the Business Combination, there can be released to CVAC from the trust account amounts necessary to purchase up to 50% of the subunits sold in the IPO (1,581,250 subunits). As of the date of this proxy statement/prospectus, CVAC had purchased 400,134 subunits under this plan. Purchases were made only in open market transactions pursuant to a 10b5-1 plan that required CVAC to maintain a limit order for the public subunits to be purchased at $5.70 per subunit during the purchase period until the maximum number of subunits have been purchased. All subunits purchased by CVAC were cancelled. The 10b5-1 plan was terminated pursuant to its terms on August 27, 2012, when CVAC announced the Business Combination.

 

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In addition, CVAC may enter into privately negotiated transactions to purchase public subunits from shareholders after consummation of the Business Combination with proceeds from the trust account. CVAC’s Initial Shareholders, directors, officers, advisors or their affiliates may also purchase subunits in privately negotiated transactions. Neither CVAC nor its directors, officers, advisors or their affiliates will make any such purchases when in possession of any material non-public information not disclosed to the seller. In the event CVAC is the buyer in the privately negotiated purchases, it could elect to use trust account proceeds to pay the purchase price in such transaction after the closing of the Business Combination. It is possible that any such privately negotiated purchases of public subunits could involve the payment of a premium purchase price. Although CVAC does not currently anticipate paying any premium purchase price for such public subunits, in the event it does, the payment of a premium may not be in the best interest of those shareholders not receiving any such additional consideration. In addition, the payment of a premium may not be in the best interest of the remaining shareholders, who will experience a reduction in book value per share compared to the value received by shareholders that have their subunits purchased at a premium. Such a purchase would include a contractual acknowledgement that such shareholder, although still the record holder of CVAC subunits, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that CVAC, the Initial Shareholders or CVAC’s directors, officers, advisors or their affiliates purchase subunits in privately negotiated transactions from CVAC public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their subunits. See “The Transaction—Actions That May Be Taken to Secure Approval of CVAC Shareholders” for more information.

 

The purpose of such purchases would be to increase the likelihood of obtaining shareholder approval of the Business Combination. This may result in the consummation of the Business Combination, that may not otherwise have been possible.

 

As a consequence of such purchases:

 

·the funds in the trust account that are so used will not be available to CVAC after the Business Combination;

 

·the public “float” of CVAC Subunits may be reduced and the number of beneficial holders of its securities may be reduced, which may make it difficult to obtain the listing or trading of CVAC’s securities on a national securities exchange;

 

·because the stockholders who sell their subunits in a privately negotiated transaction or pursuant to market transactions as described above may receive a per-subunit purchase price payable from the trust account that is not reduced by a pro rata share of the deferred underwriting commissions or taxes payable, the remaining stockholders may bear the entire payment of such deferred commissions and taxes payable (as well as up to $[●] of net interest that may be released to CVAC from the trust account to fund its dissolution expenses in the event it does not complete the Business Combination by February 25, 2013). That is, since CVAC is seeking shareholder approval of the Business Combination, the redemption price per share payable to CVAC public shareholders who elect to have their subunits redeemed will be reduced by a larger percentage of the taxes payable than it would have been in the absence of such privately negotiated or open market transactions, and shareholders who do not elect to have their shares redeemed and remain CVAC shareholders after the Business Combination will bear, in addition to the taxes payable, the economic burden of the deferred commissions because such amounts will be payable by CVAC; and

 

·the payment of any premium would result in a reduction in book value per share for the remaining shareholders compared to the value received by stockholders that have their subunits purchased by CVAC at a premium.

 

The Initial Shareholders and CVAC’s officers, directors and/or their affiliates anticipate that they will identify the shareholders with whom the Initial Shareholders and such officers, directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting CVAC directly or by CVAC’s receipt of redemption requests submitted by shareholders following its mailing of this proxy statement/prospectus in connection with the Business Combination. To the extent that the Initial Shareholders or CVAC’s officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their subunits for a pro rata share of the trust account or vote against the Business Combination. Pursuant to the terms of such arrangements, any subunits so purchased by the Initial Shareholders and/or CVAC’s officers, advisors, directors and/or their affiliates would then revoke their election to redeem such subunits. The terms of such purchases would operate to facilitate CVAC’s ability to consummate the Business Combination by potentially reducing the number of subunits redeemed for cash or voted against the proposed business combination.

 

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Tendering Subunit Certificates in connection with Redemption Rights

 

CVAC is requiring the CVAC public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to CVAC’s transfer agent, or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option prior to the business day immediately preceding the consummation of the proposed Business Combination. There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker whether to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether CVAC requires holders seeking to exercise redemption rights to tender their subunits. The need to deliver subunits is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated.

 

Any request for redemption, once made, may be withdrawn at any time up to the business day immediately preceding the consummation of the proposed Business Combination. Furthermore, if a shareholder delivered his certificate for redemption and subsequently decided prior to the date immediately preceding the consummation of the proposed Business Combination not to elect redemption, he may simply request that the transfer agent return the certificate (physically or electronically).

 

A redemption payment will only be made in the event that the proposed Business Combination is consummated. If the proposed Business Combination is not completed for any reason, then public shareholders who exercised their redemption rights would not be entitled to receive the redemption payment. In such case, CVAC will promptly return the subunit certificates to the public shareholder.

 

Appraisal Rights

 

Appraisal rights are not available to holders of CVAC ordinary shares or CVAC warrants in connection with the proposed Business Combination.

 

Proxies and Proxy Solicitation Costs

 

We are soliciting proxies on behalf of our board of directors. This solicitation is being made by mail but also may be made by telephone or in person. CVAC and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. Any solicitation made and information provided in such a solicitation will be consistent with the written proxy statement and proxy card. [Advantage Proxy], a proxy solicitation firm that CVAC has engaged to assist it in soliciting proxies, will be paid its customary fee of approximately $[●] and out-of-pocket expenses.

 

CVAC will ask banks, brokers and other institutions, nominees and fiduciaries to forward its proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. CVAC will reimburse them for their reasonable expenses.

 

If you send in your completed proxy card, you may still vote your shares in person if you revoke your proxy before it is exercised at the special meeting.

 

CVAC Initial Shareholders

 

On September 3, 2010, CVAC’s Chief Executive Officer and director, Wei Li, CVAC’s Co-Chair of the Board, Yiting Liu and CVAC’s other Co-Chair of the Board, Ye (Sophie) Tao (Ms. Tao, together with Mr. Li and Ms. Liu, are collectively referred to as the “Initial Shareholders”), purchased 718,750 of CVAC’s ordinary shares for an aggregate purchase price of $25,000. As a result of an increase in the size of the IPO, effective February 18, 2012, CVAC effected a 1.10-for-1 stock split in the form of a stock dividend in order to maintain the Initial Shareholders’ ownership at a percentage of the number of shares to be outstanding after the IPO. As a result, the Initial Shareholders hold an aggregate of 790,625 CVAC ordinary shares.

 

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On February 25, 2011, the Initial Shareholders purchased, for an aggregate purchase price of $525,000 warrants to purchase 1,500,000 CVAC ordinary shares at a price of $0.35 per warrant. Each of the Initial Shareholders purchased 500,000 CVAC warrants.

 

Pursuant to a registration rights agreement between us and our initial shareholders, as well as the holders of an additional 1,142,856 CVAC warrants that were purchased pursuant to a warrant offering that was consummated simultaneously with the IPO, are entitled to certain registration rights with respect to the CVAC warrants held by them, as well as the underlying securities. The holders of these securities are entitled to make up to two demands that CVAC register such securities. The holders of the initial shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these ordinary shares are to be released from escrow. The holders of one-sixth of the warrant offering warrants (or underlying securities) can elect to exercise these registration rights at any time after we consummate a business combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a business combination. CVAC will bear the expenses incurred in connection with the filing of any such registration statements.

 

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THE WARRANT AMENDMENT PROPOSAL

 

Purpose of the Warrant Amendment Proposal

 

In connection with the proposed Business Combination, CVAC is proposing the Warrant Amendment in order to provide that upon the merger, consolidation or reorganization of CVAC, the CVAC warrants will be convertible into warrants to purchase common stock of the surviving entity of such merger, consolidation or reorganization. The Warrant Amendment is an isolated transaction and is not made pursuant to a plan to periodically increase the proportionate interest of a CVAC shareholder (or a CVAC subunit holder) in the assets or earnings and profits of CVAC (or its successor, BDH Acquisition).

 

Under the terms of the current Warrant Agreement, the CVAC warrantholders would be entitled to receive shares of BDH Series A Preferred Stock, which provide for, among other things, dividends and other liquidation preferences. However, the effect of the Warrant Amendment will be that holders of CVAC warrants will receive, upon exercise of their warrants, shares of common stock of BDH Acquisition and will not be entitled to any of the dividend, liquidation or other preferences to which holders of BDH Series A Preferred Stock will be entitled. Black Diamond required that this amendment to the CVAC warrants be a condition to the closing of the Business Combination.

 

Pursuant to Section 9.8 of the Warrant Agreement, the Warrant Agreement may be amended upon the consent of the holders of a majority of the outstanding CVAC warrants. Other than the Warrant Amendment described above, the terms of the CVAC warrants will remain essentially the same.

 

In the event that the Warrant Amendment Proposal is not approved at the special meeting of CVAC warrantholders, the Business Combination Proposal will not be presented to CVAC Shareholders for a vote. If CVAC is unable to consummate the Business Combination by February 25, 2013, it will be required to liquidate and all CVAC warrants will expire worthless.

 

Required Vote

 

Approval of the Warrant Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding CVAC warrants as of the record date.

 

Board Recommendation

 

The board of directors recommends a vote “FOR” adoption of the Warrant Amendment Proposal.

 

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THE WARRANT AMENDMENT ADJOURNMENT PROPOSAL

 

Purpose of the Warrant Amendment Adjournment Proposal

 

In the event there are not sufficient votes for, or otherwise in connection with, the adoption of the Warrant Amendment and the transactions contemplated thereby, the CVAC board of directors may adjourn the special meeting to a later date, or dates, if necessary, to permit further solicitation of proxies. In no event will CVAC seek adjournment which would result in soliciting of proxies, having a warrantholder or shareholder vote, or otherwise consummating a business combination after February 25, 2013.

 

Required Vote

 

Approval of the Warrant Amendment Adjournment Proposal requires the affirmative vote of the holders of a majority of the outstanding CVAC warrants as of the record date represented in person or by proxy at the special meeting of CVAC warrantholders and entitled to vote thereon. Adoption of the Warrant Amendment Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.

 

Board Recommendation

 

The board of directors recommends a vote “FOR” adoption of the Warrant Amendment Adjournment Proposal.

 

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THE BUSINESS COMBINATION PROPOSAL

 

The discussion in this proxy statement/prospectus of the Business Combination and the principal terms of the Acquisition Agreement, is subject to, and is qualified in its entirety by reference to, the Acquisition Agreement. The full text of the Acquisition Agreement is attached hereto as Annex A, which is incorporated by reference herein.

 

General Description of the Business Combination

 

Redomestication to Delaware

 

Immediately prior to the Business Combination, CVAC, the current Cayman Islands corporation, will effect a merger pursuant to Cayman Islands Companies Law in which it will merge with and into BDH Acquisition Corp., its wholly-owned Delaware subsidiary, with BDH Acquisition Corp. surviving the merger.

 

The Redomestication will result in all of CVAC’s issued and outstanding ordinary shares converting into BDH Series A Preferred Stock, and all units, subunits, warrants and other rights to purchase CVAC’s ordinary shares converting into substantially equivalent securities of BDH Acquisition Corp. CVAC will cease to exist and BDH Acquisition Corp. will be the surviving company. In connection therewith, BDH Acquisition Corp. will assume all the property, rights, privileges, agreements, powers and franchises, debts, liabilities, duties and obligations of CVAC, including any and all agreements, covenants, duties and obligations of CVAC set forth in the Acquisition Agreement.

 

Business Combination with Black Diamond; Business Combination Consideration

 

Immediately following the Redomestication, BDH Acquisition will acquire all of the issued and outstanding Class A membership units of Black Diamond and 45.6% of the Preferred membership units held by the selling shareholders in exchange for 67,383,334 shares of BDH Acquisition common stock and 1,433,333 shares of BDH Series A Preferred Stock. The issuance of shares of BDH Acquisition to the post-Business Combination shareholders is being consummated on a private placement basis pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

CVAC currently has authorized share capital of 55,000,000 shares consisting of 50,000,000 ordinary shares with a par value of $0.001 per share and 5,000,000 shares of preferred stock with a par value of $0.0001 per share. BDH Acquisition Corp. currently is authorized to issue 100,000,000 shares of common stock, with a par value $0.001 per share and 10,000,000 shares of preferred stock with a par value of $0.001 per share.

 

After the Business Combination assuming no redemptions of subunits into cash, (i) CVAC’s current public shareholders will own approximately 0% of BDH Acquisition’s common stock, 55.4% of BDH Series A Preferred Stock and 3.8% of BDH Acquisition’s outstanding Series A Preferred Stock and Common Stock, on an aggregate basis, (ii) CVAC’s current directors, officers and affiliates will own approximately 0% of BDH Acquisition’s common stock, 15.9% of BDH Series A Preferred Stock and 1.1% of BDH Acquisition’s outstanding securities, on a fully diluted basis and (iii) Black Diamond’s former shareholders will own 100% of BDH Acquisition’s common stock, 28.7% of BDH Series A Preferred Stock and 95.1% of BDH Acquisition’s outstanding securities, on a fully diluted basis.

 

Each of the Warrant Amendment Proposal, Redomestication Proposal and the Business Combination Proposal, as described below, are conditioned upon the approval of each other. Therefore, all three must be approved by warrants holders and shareholders in order for the Business Combination to be consummated. If any of the three proposals is not approved, the Business Combination will not be consummated and CVAC will liquidate and dissolve. Upon consummation of the Business Combination, BDH Acquisition will own 100% of the Series A membership units of Black Diamond and 45.6% of the Preferred Membership units of Black Diamond.

 

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Assuming each of the Warrant Amendment Proposal, the Redomestication Proposal and the Business Combination Proposal are approved, the parties to the transaction expect to close the Business Combination on [●], 201[3].

 

Background of the Business Combination

 

Background of the Acquisition

 

China VantagePoint Acquisition Corp. (“CVAC”) is a blank check company organized under the laws of Cayman Islands on September 3, 2010 as an exempted company with limited liability. CVAC was formed with the purpose of acquiring, through a merger, share exchange, asset acquisition, plan of arrangement, recapitalization, reorganization or similar business combination, one or more operating businesses, or control of such operating businesses through contractual arrangements. CVAC intended to focus on acquiring an operating business with its primary operations located in the People’s Republic of China (“China” or the “PRC”) but was not limited to a particular geographic region or industry. CVAC completed its initial public offering on February 17, 2011 of 2,750,000 units at $6.00 per unit. Each unit included one subunit (“Subunit”) and one-half of a warrant. Each Subunit consisted of one ordinary share and one-half of a warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase from us one ordinary share at an exercise price of $5.00. The underwriters for CVAC’s public offering subsequently exercised the over-allotment option with respect to the offering, for a total of additional 412,500 units. Concurrent with the initial public offering, 2,642,856 warrants were sold at $0.35 per warrant in a private placement. The offerings yielded total net proceeds to CVAC of approximately $18,944,851. Of the net proceeds, $18,835,874 was placed in a trust account. In accordance with CVAC’s Amended and Restated Memorandum and Articles of Association, the amounts held in the trust account may only be used by CVAC upon the consummation of a business combination, except that there can be released to CVAC, from time to time, (i) amounts necessary to purchase up to 50% of the subunits sold in its initial public offering, (ii) any interest earned on the funds in the trust account that it may need to pay its tax obligations and (iii) any remaining interest earned on the funds in the trust account that CVAC needs for its working capital requirements. On August 27, 2012, when CVAC announced the Business Combination, CVAC’s ability to purchase up to 50% of the CVAC subunits sold in the IPO terminated. The remaining interest earned on the funds in the trust account will not be released until the earlier of the completion of a business combination and CVAC’s liquidation. CVAC executed a definitive agreement on August 24, 2012 and it must liquidate unless a business combination is consummated by February 25, 2013. As of June 30, 2012, approximately $16,542,970 was held in deposit in CVAC’s trust account.

 

Promptly after China VantagePoint’s IPO, the officers and directors of CVAC commenced the process of locating potential targets. The Board of CVAC established a list of criteria for screening potential targets, including but not limited to:

 

·business sector with favorable profitability and strong growth outlook;

 

·the competitive position of the target within the sector to be among the leaders or with unique competitive advantages;

 

·proprietary technology or unique business processes or business models;

 

·business model with long-term sustainability; and

 

·strong management with strategic insight and execution capabilities and capable of leading a public company after the business combination.

 

The CVAC team reached out to a large number of business contacts that it believed might refer potential targets to CVAC, including investment banks, financial advisory firms that specialized in deal flow sourcing or advising companies in fund raising and other financial transactions, merchant banks, finders, venture capital funds, private equity funds, senior business executives and other entities and individuals known to the CVAC team as knowledgeable about deals in the marketplace such as lawyers, accounting firms and local governments.

 

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As intended, initially CVAC focused on searching for a target with its principal operations located in Mainland China. However, since CVAC’s initial public offering, the sentiment of US capital markets towards small- and mid-size Chinese companies has become increasingly unfavorable due to a number of cases of fraud and accounting issues with US-listed Chinese companies and ensuing skepticism of such companies. Valuations of Chinese companies have plummeted and many Chinese companies have been considering delisting from US exchanges. Considering those changes in the market, the CVAC’s board of directors decided to expand the scope of the search to outside Mainland China, including the US, Europe and South America.

 

China VantagePoint received leads and reviewed more than 100 potential business combination candidates in Mainland China and other regions such as US, Europe and South America. These candidates were engaged in a wide range of industry sectors, including healthcare, education, technology, media and telecommunications, consumer & retail, chemical, manufacturing and agriculture. Most of these reviews were done on a preliminary basis, and did not progress towards a substantive discussion of terms of a potential transaction with CVAC. A number of these reviews did progress to the stage of negotiating a term sheet of a potential transaction with CVAC. Two of those discussions resulted in a more in-depth due diligence of those targets. Depending on the candidate involved, these companies were deemed unsuitable as a business combination target with CVAC for various reasons, including but not limited to, the target not meeting CVAC’s criteria as described above or lack of interest on the part of the candidate to pursue further discussions with CVAC.

 

Current Target: Black Diamond Holdings LLC (Black Diamond)

 

During early January 2012, Ms. Liu contacted Roth Capital Partners, LLC (“Roth Capital”) via telephone, a California-based investment bank, to ask for referrals of potential targets in the US. Roth Capital then forwarded to CVAC a brief overview of Elkhorn Goldfields LLC. (“Elkhorn”), a subsidiary of Black Diamond that owns three gold mines in Montana and arranged a call between CVAC and Patrick Imeson, the Chairman of Elkhorn. After an initial discussion of the Elkhorn’s business and prospects, CVAC decided to learn more about the company. Elkhorn then granted CVAC access to a dataroom with detailed information on Elkhorn, including presentations, financial projections, technical, financial and legal due diligence materials and reserve reports. CVAC reviewed the material and was interested in discussing preliminary terms with the company. In early February 2012, Mr. Imeson and Roth Capital told CVAC that Elkhorn had been negotiating a transaction with Eastern Resources, Inc. an OTC Bulletin Board shell company and decided to go forward with that transaction (On April 6, 2012, Elkhorn’s two wholly owned subsidies, Elkhorn Goldfields Inc. (“EGI”) and Montana Tunnels Mining Inc. (“MTMI”), completed a reverse merger into an OTC Bulletin Board shell and became a publicly traded company under the ticker symbol ESRI. However, Mr. Imeson proposed that CVAC consider Black Diamond as a potential candidate. Thereafter, the parties had multiple conference calls to discuss Black Diamond as a potential candidate for CVAC. In mid-February 2012, CVAC sent a proposed Letter of Intent (“LOI”) to Black Diamond, outlining terms under which CVAC would be willing to proceed with further due diligence and discussions. During the next few weeks, the two parties negotiated the LOI while CVAC continued to review Black Diamond materials and to learn more about some of Black Diamond’s portfolio companies. During this time, CVAC also continued to review other potential targets. On March 13 2012, Mr. Li met with Mr. Imeson and Roth Capital in Orange County, California and discussed extensively the Black Diamond’s business including, among others: Elkhorn’s gold assets, operational plans for Elkhorn to commence production, other of Black Diamond’s subsidiaries and growth strategies. On March 14 2012, CVAC and CVAC’s auditor Marcum had a conference call with Black Diamond and Black Diamond’s auditor to discuss the timeline of a Black Diamond audit. On March 26 2012, CVAC and Black Diamond entered into a LOI, which gave CVAC an initial exclusive period to conduct further due diligence on Black Diamond and after both parties came to an agreement on the valuation the exclusive period will be extended to complete a definitive agreement.

 

During the next two months, CVAC continued to conduct due diligence on Black Diamond. Black Diamond gave CVAC access to a dataroom with detailed information on Black Diamond’s subsidiaries and other companies it owned less than a majority of, including corporate presentations, historical financials and financial forecasts. CVAC reviewed the materials and also consulted with precious metals and mining experts on the valuation of Elkhorn. On May 2, 2012, Ms. Liu had an in-person meeting with Mr. Imeson in New York City and discussed the status of due diligence, addressed some due diligence questions and discussed valuation and structure of the acquisition. Also in attendance were John Calamos and Kamal Abdulla Badawi who are members of the advisory board to the Manager, and Dan McNamara, who is an associate of Mr. Calamos. In the meantime, the initial exclusive period was extended until May 15, 2012 to give CVAC enough time to form a conclusion on valuation. By mid May 2012, the CVAC team concluded that Black Diamond presented an attractive investment opportunity and decided to pursue the acquisition. On May 19, 2012, CVAC sent a proposal to Black Diamond outlining valuation and structural terms for a transaction. During the next few days, CVAC and Black Diamond negotiated the valuation and structural terms of the transaction. On May 23, 2012, the Board of CVAC had a telephonic meeting and unanimously approved the revised valuation and structural terms resulting from the negotiations. On May 24, 2012, CVAC sent revised draft terms to Black Diamond. On June 4, 2012, Black Diamond agreed to the valuation and structural terms from CVAC’s May 24, 2012 letter. On June 5, 2012 both parties confirmed to proceed to the extended exclusive period to draft and complete the definitive agreement.

 

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Over the next two and half months, extensive legal and business due diligence was performed.

 

On June 14 2012, Ms. Liu and Michael Kachanovsky, an independent consultant engaged by CVAC to review and evaluate Elkhorn’s proposal to commence mining and production, visited Elkhorn mines in Montana. In attendance from Black Diamond and ESRI were (i) Patrick Imeson, Chairman and CEO of Black Diamond and ESRI, (ii) Robert Trenaman, President and Chief Operating Officer of ESRI, and (iii) Chris Frank, Chief Engineer of the Golden Dream Mine. Ms. Liu and Mr. Kachanovsky toured the Golden Dream Mine and the Montana Tunnels Mine, and interviewed the attending senior management personnel. During the interviews, attending parties discussed extensively Elkhorn’s business including, among others: history, reserves and resources, mining costs, operation plans and financial projections. On June 27 2012, Mr. Kachanovsky issued a report providing a favorable assessment of the Elkhorn projects. After receiving comments from CVAC and the management team of ESRI, Mr. Kachanovsky agreed to make several revisions to the report on September 20, 2012.  The report considered the validity of various assumptions and the logical outcome of the proposed development and mining plan. It outlined the various risks that must be accepted as part of this plan, and presented recommendations that will contribute to a lower risk profile. The overall conclusions of Mr. Kachanovsky are 1) the mine plan appears reasonable and viable to generate an operating profit; 2) the major components are in place to move forward with the plan, subject to securing the project financing; 3) development and production financing must be sufficient to cover unplanned contingencies; and 4) the terms of the existing gold debenture need to be restructured so that sufficient funding is in place to reinvest in mine development. The gold debenture was subsequently restructured taking into account Mr. Kachanovsky’s recommendations.  ESRI is seeking financing to continue the development of the Golden Dream Mine but does not yet have such financing and cannot predict when it will obtain such financing, if ever.  The report is filed as Annex E to this proxy statement/prospectus.

 

Multiple conference calls were held between CVAC and the management of other portfolio companies of Black Diamond, including Transnetyx, Sagaciore and Global VR during the weeks of June 11 and June 18. Discussions related to the applicable company’s business, including, among others: industry, products & services, business model and strategies, competitive advantages, historical financials, growth strategies and financial forecasts.

 

On June 20, 2012, Ms. Liu and Ms. Tao met with Jeff Winzeler, the CFO of Rackwise, one of Black Diamond’s portfolio companies, in New York City. On June 26, 2012, Ms. Tao visited Black Diamond’s headquarter in Denver, Colorado. On the same day, Ms. Tao met with Lee Meyer, the founder and manager of Carbon Fuels, together with Mr. Imeson, and toured Carbon Fuel’s CharFuel® development facility in Golden, Colorado. Ms. Liu also attended the meeting with Lee Meyer by telephone. On June 27, 2012, Ms. Tao visited Transnetyx’s operations together with Mr. Imeson and met with Transnetyx’s senior management team including its Chairman and CEO, Robert Bean in Memphis, Tennessee. On the same day, Ms. Tao and Mr. Imeson met with Robert Imeson, the CEO of Barclay’s Wine in Denver, Colorado. During the meetings, attending parties discussed Black Diamond and the applicable company’s business in detail including, among others: industry, products & services, business strategies, competitive advantages, historical financials, growth strategies and financial forecasts.

 

Over the next two and half months, more due diligence documents and materials were requested and received from Black Diamond and reviewed by CVAC.

 

In early July, CVAC and Black Diamond started drafting and negotiating a definitive Acquisition Agreement. Both parties continued to work to finalize the Acquisition Agreement through July and August while CVAC continued to perform due diligence on Black Diamond and its subsidiaries and continued to review potential alternative targets.

 

On August 24, 2012 CVAC held a telephonic Board meeting attended by all members of the Board and at which the proposed transaction was reviewed; topics included Black Diamond’s core portfolio holdings, business strategies, past and projected financial performance, transaction details, investment merits and potential risks. The Board unanimously approved the Business Combination with Black Diamond and authorized signing the Acquisition Agreement.

 

On August 24, 2012, the Acquisition Agreement was signed by the parties. CVAC filed a Current Report on Form 8-K on August 27, 2012, which described the proposed transaction.

 

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CVAC Board’s Reasons for the Approval of the Acquisition

 

The CVAC Board concluded that the Business Combination with Black Diamond and the related transactions are in the best interests of CVAC’s shareholders and that the consideration to be paid in the Business Combination with Black Diamond and the related transactions is fair to CVAC.

 

CVAC’s Board considered a wide variety of factors in connection with its evaluation of the transaction. In light of the complexity of those factors, CVAC’s Board did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its decision. In addition, individual members of CVAC’s Board may have given different weight to different factors. CVAC’s Board considered various industry and financial data, Black Diamond’s operation information and financial data supplied by Black Diamond’s management, certain forward looking assumptions and projections of the industry, market and Black Diamond’s business, and certain valuation metrics were compiled in order to determine that the consideration to be paid in the Business Combination with Black Diamond and the related transactions is fair, from a financial perspective, to CVAC and in the best interests of CVAC and its stockholders.

 

Favorable Factors

 

In considering the transaction, the CVAC Board gave considerable weight to the following favorable factors:

 

Black Diamond owns interests in its subsidiaries and holds additional minority interests in other companies, all of which have the potential for cash flow generation and capital appreciation.

 

Black Diamond’s holdings (including controlling interests in its subsidiaries and minority interests in other companies) span across a diverse range of industries, including precious metals and mining, technology, energy and life sciences. Through its ownership in Elkhorn and its direct investment in the future gold production of the Golden Dream Mine, Black Diamond expects to realize cash flow and capital appreciation from its investment in gold mines. Black Diamond’s other holdings are development-stage or emerging businesses that have the potential for growth and capital appreciation utilizing their proprietary technologies and/or unique approach to solving business needs.

 

Black Diamond has opportunities to invest additional funds in some of its subsidiaries and other companies in which it is a minority shareholder.

 

After a number of years of cultivating and managing its holdings, Black Diamond is intimately familiar with the companies in which it has ownership interests and has a strong understanding of their growth potential and business risks. This puts Black Diamond in an advantageous position to invest additional funds in known opportunities, management teams and risk profiles.

 

Black Diamond has built a pipeline of potential new investments focusing on its core competency.

 

Black Diamond has identified and conducted preliminary diligence on additional investment opportunities in developing and emerging businesses, although it has not entered into any letters of intent or definitive agreement with such companies and does not currently have the resources to make investments in such companies. Black Diamond intends to focus future investment opportunities on a few central themes that Black Diamond has accumulated experience in over the past years through managing its existing portfolio, consisting of companies engaged in each of the following industries: energy, natural resources, life sciences and technology.

 

The terms of the Acquisition Agreement and other transaction agreements.

 

The terms of the Acquisition Agreement, including the closing conditions, covenants and termination provisions are customary and reasonable from CVAC’s perspective. The CVAC Board placed importance on the Acquisition Agreement including customary and reasonable terms and conditions as it believed that such terms and conditions would protect CVAC’s interests in the transaction and enhance the likelihood of closing.

 

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Under the proposed transaction terms, 90% of BDH Acquisition’s available cash must be paid as a quarterly dividend until holders of BDH Acquisition Preferred Stock have received an aggregate of $12 in cash dividends per share and an aggregate of $25 million has been paid as dividends to holders of BDH Acquisition Common Stock. After receiving an aggregate of $12 in cash dividends, each share of BDH Acquisition Preferred Stock will automatically convert into one share of BDH Acquisition Common Stock. In the event that the holders of BDH Acquisition Preferred Stock have not received an aggregate of $12 in cash dividends per share on or prior to the three-year anniversary of the consummation of the Business Combination, then, upon conversion, holders of BDH Acquisition Preferred Stock will receive two shares of BDH Acquisition Common Stock for every share of BDH Acquisition Preferred Stock that is converted. Unless the holders of BDH Acquisition Preferred Stock choose to convert, the BDH Acquisition Preferred Stock will remain outstanding until each share receives $12 in cash dividends. CVAC’s Board believes that this conversion adjustment feature provides protection to holders of the BDH Acquisition Preferred Stock in the event that Black Diamond fails to distribute dividends in an aggregate amount of $12 per share to the holders of BDH Acquisition Preferred Stock within three years from the closing of the Business Combination.

 

Potential Negative Factors

 

In addition to the positive factors, the CVAC Board also considered the following potential negative factors:

 

·The possibility that difficult conditions in the global capital markets and the economy generally may materially adversely affect Black Diamond’s business and results of operations;

 

·The possibility that the Golden Dream Mine may not be able to start production within the expected budget and time frame. Black Diamond estimates that it will take six months from the time when Elkhorn obtains the necessary funds in order to start the production of gold at the Golden Dream Mine. As of the date of this filing, the funding necessary to initiate development of the Golden Dream Mine has not been received.

 

·The cost to produce the gold from the Golden Dream Mine may be higher than expected and/or the price of gold may be lower than expected;

 

·The possibility that Black Diamond may not be able to raise the necessary funding to achieve the expected growth rates for its subsidiaries and other companies in which it is a minority shareholder; and

 

·The Risk Factors beginning on page 27 of this proxy statement/prospectus, which are additional descriptions of events, risks and uncertainties that were critical to CVAC’s analysis of Black Diamond’s business, markets and future potential.

 

Other Considerations

 

CVAC’s Board unanimously concluded that the Acquisition Agreement is in the best interests of CVAC’s shareholders. The CVAC Board did not obtain a fairness opinion on which to base its assessment. Because of the financial skills and background of its members, CVAC’s board believes its Board was qualified to perform the valuation analysis discussed in this section.

 

CVAC’s Board focused its analysis on whether the proposed Business Combination is likely to generate a return for its shareholders that is greater than if the trust were to be liquidated.

 

If CVAC is unable to complete the Business Combination by February 25, 2013 it will liquidate and dissolve and public shareholders who voted against the Business Combination or who did not vote will be entitled to receive only a pro rata share of the trust account up to a maximum of approximately $5.96 per submit and public shareholders who voted in favor of the Business Combination will be entitled to receive approximately $5.99 per subunit upon such liquidation. If the Business Combination is consummated, each holder of a CVAC subunit that chose not to redeem his or her subunits in connection with the Business Combination would be exchanged for one share of BDH Acquisition Preferred Stock and one-half of a BDH Acquisition warrant. Therefore, CVAC’s Board concluded that if the sum of the value of the BDH Acquisition Preferred Stock and the value of one-half of a BDH Acquisition warrant is greater than $5.99, the CVAC subunit holder who chose not to redeem his shares would be better off if the Business Combination is consummated.

 

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CVAC’s Board valued the dividends payable to the holders of BDH Acquisition Preferred Stock and derived a present value for the BDH Acquisition Preferred Stock that is $6.81 per share if no holders of CVAC subunits issued in the IPO exercise their redemption rights, and $8.64 per share if the maximum number of holders of CVAC subunits issued in the IPO exercise their redemption rights, based on a discounted cash flow analysis, as described below.

 

Once each share of BDH Acquisition Preferred Stock receives $12 in dividends, it will automatically be converted into one share of BDH Acquisition Common Stock, which has a value that is equal to or greater than $0. Therefore, the value of the BDH Acquisition Preferred Stock should be equal to or greater than the value of the expected dividends payable to the BDH Acquisition Preferred Stock.

 

Furthermore, according to the Black-Scholes model for option pricing, since the BDH Acquisition warrants do not expire until three years after the consummation of the Business Combination, the optionality it affords the warrant holder has a value that is equal to or greater than $0.

 

Therefore, the value of the subunit is equal to or greater than the value of the BDH Acquisition Preferred Stock.

 

If the Business Combination is not consummated, each CVAC warrant would have a value of $0. If the Business Combination is consummated, each CVAC warrant would be exchanged for one BDH Acquisition warrant, which will have a value equal to or greater than $0 (as discussed above).

 

In summary:

 

1 CVAC Subunit = 1 BDH Acquisition Preferred Stock + ½ BDH Acquisition Warrant

= (Present Value of the Dividends Payable to 1 BDH Acquisition Preferred Stock + 1 BDH Acquisition Common Stock) + ½ BDH Acquisition Warrant

 

1 CVAC Warrant = 1 BDH Acquisition Warrant

 

Present Value of the Dividends Payable to 1 BDH Acquisition Preferred Stock > $5.99

1 BDH Acquisition Common Stock) 0,

½ BDH Acquisition Warrant 0,

1 BDH Acquisition Warrant 0,

 

Thus:

1 CVAC Subunit Present Value of the Dividends Payable to 1 BDH Acquisition Preferred Stock > $5.99

1 CVAC Warrant = 1 BDH Acquisition Warrant $0

 

Therefore, CVAC’s Board believes that CVAC’s subunit holders and CVAC’s warrant holders could achieve greater returns if the Business Combination is consummated.

 

Discounted Cash Flow Analysis

 

The Discounted Cash Flow Analysis is a traditional valuation methodology based on the concept that the worth of an asset is best represented by the future cash flow it can generate, discounted to reflect the time value of money and the associated business and economic risk. Cash flow is estimated for a finite period of time based on the remaining economic life of the subject assets, and a discount rate is developed to incorporate the degree of risk inherent in the cash flow stream. The cash flow is then discounted to present value and summed to arrive at an overall indication of value for the subject asset.

 

CVAC’s Board performed a discounted cash flow analysis by summing the present value of projected dividends payable on the BDH Acquisition Preferred Stock for the fiscal years 2013 through 2017 to the present value as of January 2013, when the Business Combination is expected to take place. The projected dividends CVAC’s Board used in its analysis were based on financial projections and estimates prepared by the management of Black Diamond, who assumed that ESRI is able to successfully procure the financing to complete the development of the Golden Dream Mine through reasonable financing terms and on a reasonable timeline.

 

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The financial projections provided by Black Diamond were prepared by, and are the responsibility of Black Diamond’s management. Assuming the successful financing of the Golden Dream Mine development, Black Diamond’s management believes that the financial projections were prepared on a reasonable basis, reflecting reasonable estimates and judgments. CVAC has been and hereafter will be, using and relying and assuming the accuracy of, data, material and other information (including, without limitation, the financial forecasts and projections), with respect to Black Diamond, furnished to CVAC by or on behalf of Black Diamond and its agents, counsel, employees and representatives. CVAC does not assume responsibility for the accuracy and completeness of the information, including, but not limited to, any disclosure materials related to the projected financials or the achievement of those projected numbers.

 

Projections of this type are based on estimates and assumptions that are inherently subject to significant economic, industry, and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of Black Diamond, including its ability to finance the Golden Dream Mine development on reasonable financing terms and on a reasonable timeline. Further, since the projections cover more than three years, uncertainties and contingencies are more likely to significantly affect actual results because such information by its nature becomes less reliable with each successive year. Accordingly, there can be no assurance that the projected results would be realized or that actual results would not be significantly lower than projected.

 

The projections set forth below are included in this proxy statement/prospectus only because they were derived from financial projections furnished by Black Diamond to the Board of CVAC in connection with the analysis required herewith. The Board of CVAC used the following projections to determine the cash flow available for dividends to the BDH Acquisition Preferred Stock for the fiscal years 2013 to 2017 in its discounted cash flow analysis.

 

Assuming no shareholders seeks redemption:

                    
                     
($ million)  2013   2014   2015   2016   2017 
Cash Available for Distribution from Black Diamond to all its Members                         
Sourced from Black Diamond's investment in MPRPA ($10.3 million)  $7.7   $13.3   $13.6   $7.5   $- 
Sourced from dividends from Elkhorn  $-   $-   $-   $2.6   $37.4 
   $7.7   $13.3   $13.6   $10.1   $37.4 
                          
Cash Distributed from Black Diamond to BDH Acquisition  $3.2   $5.5   $8.9   $6.6   $29.2 
Income from BDH Acquisition's investments in MPRPA ($5.1 million)  $3.6   $6.2   $6.3   $3.5   $- 
BDH Acquisition Operating expenses  $(2.0)  $(2.0)  $(2.0)  $(2.0)  $(2.0)
BDH Acquisition Tax  $(1.3)  $(2.8)  $(3.9)  $(2.5)  $- 
Cash available for distribution at BDH Acquisition  $3.5   $6.9   $9.3   $5.6   $27.2 
                          
90% distributed to BDH Acquisition Preferred Stock  $3.1   $6.2   $8.4   $5.0   $24.5 

 

Assuming the maximum number of shareholders seek redemption: 

                    
                     
($ million)  2013   2014   2015   2016   2017 
Cash Available for Distribution from Black Diamond to all its Members                         
Sourced from Black Diamond's investment in MPRPA ($10.3 million)  $7.7   $13.3   $13.6   $7.5   $- 
Sourced from dividends from Elkhorn  $-   $-   $-   $2.6   $37.4 
   $7.7   $13.3   $13.6   $10.1   $37.4 
                          
Cash Distributed from Black Diamond to BDH Acquisition  $3.2   $5.5   $8.9   $6.6   $29.2 
Income from BDH Acquisition's investments in MPRPA ($3.3 million)  $2.3   $4.0   $4.1   $2.2   $- 
BDH Acquisition Operating expenses  $(2.0)  $(2.0)  $(2.0)  $(2.0)  $(2.0)
BDH Acquisition Tax  $(0.9)  $(2.1)  $(3.2)  $(2.1)  $- 
Cash available for distribution at BDH Acquisition  $2.6   $5.4   $7.8   $4.7   $27.2 
                          
90% distributed to BDH Acquisition Preferred Stock  $2.3   $4.8   $7.0   $4.3   $19.3 

 

The projections incorporated a number of assumptions, including but not limited to:

 

·BDH Acquisition expects to make dividend distributions to holders of BDH Acquisition Preferred Stock from three sources:
1.The proceeds of Black Diamond’s $10 million investment in MPRPA,
2.The proceeds of BDH Acquisition’s intended investment in MPRPA, and
3.Dividends received from Elkhorn for its investment in ESRI.

 

·On April 15, 2011, EGI, Elkhorn and BDH entered into a Minerals Product Receivables Purchase Agreement (the “MPRPA”) pursuant to which EGI agreed to sell a certain percentage of the gold output from the Golden Dream Mine to BDH for the life of the Golden Dream Mine. Black Diamond expects EGI to expand the MPRPA to $25.4 million so that (i) EGI is required to pay all proceeds from the sale of 50% of the first 160,000 ounces of gold produced from the Golden Dream Mine in excess of $500 per ounce to MPRPA investors, and (ii) once the Golden Dream Mine has produced an initial 250,000 ounces, EGI is required to pay all proceeds from the sale of 15% of the gold the Golden Dream Mine produces in excess of $600 per ounce to MPRPA investors.

 

-For the $10 million Black Diamond already invested, EGI is required to pay all proceeds from the sale of 20.9% of the first 160,000 ounces of gold produced from the Golden Dream Mine in excess of $500 per ounce to Black Diamond.

 

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-Black Diamond expects third party investors to invest an additional $10.3 million in the MPRPA by the end of 2012. Approximately $7.5 million of the proceeds will be used to bring the Golden Dream Mine into production, and the remaining proceeds will be used for the care and maintenance at the Montana Tunnels Mine, preparing the Montana Tunnels Mine for future activities, and general corporate needs, including to pay the outstanding liabilities owed to Zac Brandenberg Living Trust. For this additional $10.3 million, EGI will be required to pay all proceeds from the sale of 19.5% of the first 160,000 ounces of gold produced from the Golden Dream Mine in excess of $500 per ounce to such third party investors.

 

-If the net proceeds of the Business Combination are equal to or greater than $5.1 million, BDH Acquisition expects to invest $5.1 million in the MPRPA. If the net proceeds of the Business Combination are less than $5.1 million, BDH Acquisition expects to invest all the net proceeds of the Business Combination in the MPRPA. If BDH Acquisition invests $5.1 million in the MPRPA, EGI will be required to pay all proceeds from the sale of 9.7% of the first 160,000 ounces of gold produced from the Golden Dream Mine in excess of $500 per ounce to BDH Acquisition. If the maximum number of CVAC’s shareholders redeem their subunits, the estimated net proceeds is $3.3 million. If BDH Acquisition invests $3.3 million in the MPRPA, EGI will be required to pay all proceeds from the sale of 6.2% of the first 160,000 ounces of gold produced from the Golden Dream Mine in excess of $500 per ounce to BDH Acquisition.

 

·Black Diamond, through its subsidiary, Elkhorn, owns 10 million shares of ESRI’s preferred stock, and 180 million shares of ESRI’s common stock. ESRI is expected to use its available cash to pay a 12% dividend to its preferred stockholders. To the extent that there is additional cash left at ESRI after paying the preferred dividend, Black Diamond expects ESRI to redeem the preferred stock at $6 per share. ESRI is restricted from paying any dividends to its common stockholders until its preferred stock obligations have been completely extinguished. Once all ESRI preferred stock dividend rights are extinguished, ESRI has the ability to declare dividends from time to time to its common stockholders. Black Diamond expects to receive approximately 91% of the dividends ESRI will pay to its common stockholders. Black Diamond intends to use the proceeds Elkhorn receives from ESRI to first pay down Elkhorn’s outstanding liabilities, and then distribute the remaining proceeds, if any, to Elkhorn’s members. Assuming none of Elkhorn’s current debt holders convert such debt into equity, Black Diamond expects to receive 99.5% of all distributions made by Elkhorn.

 

·Assuming ESRI is able to raise the financing required to complete the development of the Golden Dream Mine on reasonable terms and on a reasonable timeline, and assuming the Golden Dream Mine is the only mine in production from 2013 to 2017, Black Diamond projects the following production schedule and associated operating expenses.

  

                     
   2013   2014   2015   2016   2017 
Gold (000 ounces)   29.9    50.9    51.3    63.5    54.9 
Copper (000 pounds)   1,198.2    2,492.0    2,354.6    1,902.5    474.7 
Operating expenses ($mm)  $(20.7)  $(32.9)  $(32.4)  $(32.1)  $(30.3)

 

·Black Diamond has assumed that the average price ESRI receives for gold produced by the Golden Dream Mine is the average futures prices for gold quoted on November 9, 2012 on the COMEX for a given year, and the average price ESRI receives for copper produced by the Golden Dream Mine is the average futures prices for copper quoted on November 9, 2012 on the COMEX for a given year.

 

                     
   2013   2014   2015   2016   2017 
Gold ($/ounce)  $1,737   $1,753   $1,771   $1,790   $1,819 
Copper ($/lb)  $3.46   $3.47   $3.41   $3.36   $3.30 

 

·Based on current capitalized costs and estimates of additional capitalized costs to develop the Golden Dream Mine, Black Diamond estimates approximately $13 million of capitalized mining cost to be amortized over the life of the mine, which is currently estimated to have approximately 250,000 ounces.

 

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·Based on EGI’s 2011 loss carry forward and the estimate of future losses prior to production, Black Diamond estimates approximately $2.6 million of loss carry forward would be available to ESRI.

 

·Based on Federal and State tax rates for 2012, Black Diamond believes it is a reasonable assumption that ESRI will have an approximate tax rate of 41.75% relating to profits generated from the Golden Dream Mine operations.

 

·Based on existing liabilities, Black Diamond anticipates that ESRI will use approximately $4.5 million of the cash flow from the Golden Dream Mine to pay off its liabilities in 2013 and 2014.

 

·Black Diamond assumes that, based on the projected cash flows, Elkhorn will receive dividends from ESRI and receive redemption of its ESRI preferred stock as follows:

 

                     
($ million)  2013   2014   2015   2016   2017 
Preferred Dividend paid to Elkhorn  $8.9   $10.6   $6.4   $4.8   $4.8 
Redemption of ESRI Preferred  $-   $6.7   $13.4   $35.2   $4.7 
Common Dividend paid to Elkhorn  $-   $-   $-   $-   $28.1 

 

·Consistent with Black Diamond’s current operating agreement, Black Diamond expects to distribute 90% of the proceeds it receives to its members, and the remaining 10% may be used to pay for any outstanding liabilities and operating expenses, including the $125,000 monthly payment to the Manager.

 

·Based on Federal and State Tax Rates for 2012, Black Diamond estimates that Black Diamond and BDH Acquisition will have a 41.75% tax rate relating to MPRPA.

 

·Black Diamond assumes that BDH Acquisition’s taxable income from the dividends Elkhorn receives from ESRI and proceeds Elkhorn receives from the redemption of ESRI’s preferred stock is completely offset by Elkhorn’s interest payments to service debt.

 

Based on current tax law, Black Diamond assumes that the taxable income passed to members that are C-Corporations, such as BDH Acquisition, may benefit from the dividend received deduction that would allow the tax payer to deduct between 70% and 100% of the taxable income relating to the dividends. Based on current ownership, Black Diamond believes that BDH Acquisition will obtain an 80% deduction on its taxable income generated from dividends paid by ESRI.

 

·Based on estimates of the costs of operating and compliance of a public reporting company, Black Diamond believes that BDH Acquisition will incur approximately $2 million of operating costs per annum.

 

CVAC’s Board discounted the projected dividends payable on the BDH Acquisition Preferred Stock by 9.0% and arrived at a present value of $6.81, assuming that none of CVAC’s subunit holders redeem any of their subunits in connection with the Business Combination and $8.64, assuming that the maximum amount of CVAC subunits are redeemed in connection with the Business Combination. Based on Gordon’s Dividend Discount Model, the discount rate was determined based on an estimated cost of equity of 9.0%. The cost of equity was derived utilizing the Capital Asset Pricing Model using an equity risk premium of 6.7% (published by Ibbotson Associates), a risk free rate of return of 1.627% (based on the yield of 10 year US Treasuries on November 9, 2012), and a beta of 1.46 (derived by averaging the 5 year beta of publicly traded junior gold mining companies with a market capitalization between $250 million and $750 million, list published by Scarsdale Equities LLC; beta according to CapitalIQ as of November 9, 2012).

 

In the case where none of CVAC’s subunit holders redeem their subunits in connection with the Business Combination, after the consummation of the Business Combination, BDH Acquisition is expected to have net proceeds of approximately $14.4 million. After investing $5.1 million in the MPRPA, BDH Acquisition should still have net cash of approximately $9.3 million. Since the BDH Acquisition Preferred Stock has a liquidation preference of $12 per share, it is reasonable to attribute the $9.3 million of net cash to the value of the BDH Acquisition Preferred Stock, which yields an additional $1.86 per share, which brings the value of the BDH Acquisition Preferred Stock to $8.67 per share. In the case where the maximum amount of CVAC subunits are redeemed in connection with the Business Combination, BDH Acquisition is expected to invest all available proceeds (approximately $3.3 million) in MPRPA, leaving no additional net cash value to the BDH Acquisition Preferred Stock.

 

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CVAC’s Board then looked at how the estimated value of a share of BDH Acquisition Preferred Stock will be impacted by (i) gold price that is 5% higher or lower, and 10% higher or lower; and (ii) discount rate that is 10% higher or lower, and 20% higher or lower.

 

Assuming that none of CVAC’s subunit holders redeem their subunits in connection with the Business Combination, the estimated value of a share of BDH Acquisition Preferred Stock is

 

      -10%   -5%   Base case    +5%    +10% 
 +20%   $6.15   $7.21   $8.27   $9.32   $10.38 
 +10%   $6.27   $7.37   $8.46   $9.55   $10.64 
 Base case   $6.41   $7.54   $8.67   $9.79   $10.92 
 -10%  $6.55   $7.71   $8.88   $10.05   $11.21 
 -20%  $6.69   $7.90   $9.10   $10.31   $11.51 

 

Assuming that the maximum amount of CVAC subunits are redeemed in connection with the Business Combination, the estimated value of a share of BDH Acquisition Preferred Stock is

 

      -10%   -5%   Base case    +5%    +10% 
 +20%   $6.20   $7.17   $8.13   $9.10   $10.06 
 +10%   $6.39   $7.39   $8.38   $9.37   $10.36 
 Base case   $6.60   $7.62   $8.64   $9.66   $10.68 
 -10%  $6.82   $7.87   $8.92   $9.96   $11.01 
 -20%  $7.04   $8.12   $9.20   $10.28   $11.35 

  

CVAC’s Board also considered a number of factors that could contribute positively to the dividends payable to the BDH Acquisition Preferred Stock but did not assign values to them because of the substantial uncertainty associated with such factors:

 

·The Golden Dream Mine may have reserves beyond the current five-year mine plan of approximately 250,000 ounces of gold. With sufficient funds, ESRI may be able to produce additional gold from the Golden Dream Mine. The MPRPA allows its investors to purchase 15% of any gold produced by the Golden Dream Mine beyond the first 250,000 ounces at $600 per ounce. Black Diamond’s existing $10 million investment, and BDH Acquisition’s intended investment, could generate additional cash available for distribution to the BDH Acquisition Preferred Stock.

 

·Elkhorn is considering the restart of the Montana Tunnels Mine and the Diamond Hill Mine when cash flows from the Golden Dream Mine, or outside financing, becomes sufficient to support expansion activities. Cash generated through these operations could be distributed to Elkhorn and made available to BDH Acquisition for distribution to the holders of BDH Acquisition Preferred Stock.

 

·Other companies in which Black Diamond holds an interest could generate cash flow to BDH Acquisition, allowing it to pay dividends to BDH Acquisition, thereby providing additional funds for distribution to holders of BDH Acquisition Preferred Stock.

 

·Black Diamond could sell the security interests in the companies in which it invested and make the proceeds available to BDH Acquisition for distribution to holders of BDH Acquisition Preferred Stock.

 

Public Company Analysis

 

CVAC’s Board did not perform a comparable public company analysis, as there did not appear to be enough reliable data on a universe of comparable public traded companies with which to draw meaningful conclusions.

 

Third Party Report

 

CVAC engaged an independent consultant Michael Kachanovsky to review and evaluate ESRI’s proposal to commence mining and production. Mr. Kachanovsky issued a report providing a favorable assessment of the ESRI projects. The report considered the validity of various assumptions and the logical outcome of the proposed development and mining plan. It outlined the various risks that must be accepted as part of this plan, and presented recommendations that will contribute to a lower risk profile. The overall conclusions of Mr. Kachanovsky are:

 

·the mine plan appears reasonable and viable to generate an operating profit;

 

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·the major components are in place to move forward with this plan; subject to securing the project financing;
·development and production financing must be sufficient to cover unplanned contingencies; and
·the terms of the existing gold debenture need to be restructured so that sufficient funding is in place to reinvest in mine development.

 

The gold debenture Mr. Kachanovsky referred to is the MPRPA, which was subsequently restructured taking into account Mr. Kachanovsky’s recommendations. Mr. Kachanovsky’s report is filed as Annex E to this proxy statement/prospectus.

 

Recommendation of CVAC’s Board

 

After careful consideration, CVAC’s Board determined that the Business Combination with Black Diamond is in the best interests of CVAC and its shareholders. On the basis of the foregoing, CVAC’s Board has approved and declared advisable the Business Combination with Black Diamond and recommends that you vote or give instructions to vote “FOR” each of the Business Combination Proposal, the Redomestication Proposal, and the other proposals.

 

The board of directors recommends a vote “FOR” each of the Business Combination Proposal, the Redomestication Proposal, and the other proposals. CVAC’s Board has interests that may be different from, or in addition to your interests as a stockholder. See “The Business Combination Proposal — Interests of Certain Persons in the Acquisition” in this proxy statement/prospectus for further information.

 

Actions that May be Taken to Secure Approval of CVAC’s Shareholders

 

In order to ensure that the Business Combination is approved, CVAC, Black Diamond and their respective affiliates may enter into transactions to purchase Ordinary Shares of CVAC from shareholders who have indicated their intention to vote against the Business Combination and/or seek redemption of their subunits. In addition, CVAC, Black Diamond and their respective affiliates may also purchase warrants from warrantholders. Such purchases could result in all or substantially all of CVAC’s trust fund being expended to pay for such purchases post-transaction, which would result in Black Diamond not receiving any working capital from the trust account. No transactions have been entered into, but may include:

 

·Purchases by CVAC, Black Diamond or their respective affiliates of subunits or warrants of CVAC;

 

·Agreements with third parties to purchase subunits or warrants that may then be resold to the combined company subsequent to the Business Combination using funds that were previously in the trust account;

 

·Agreements with third parties pursuant to which CVAC, Black Diamond or their respective affiliates would borrow funds to make purchases of ordinary shares or warrants of CVAC. The combined company would repay such borrowings using funds that were previously in the trust account; and

 

·The granting of securities to third party purchasers of subunits or warrants of CVAC as an inducement for such third parties to purchase such securities.

 

Any CVAC subunits purchased by CVAC or its affiliates would increase the likelihood that the transaction would be approved.

 

In the event that it appeared that the Business Combination would not be consummated at the special meeting of CVAC’s shareholders, such meeting could be postponed (assuming that the postponement proposal was approved by the shareholders and such postponement was not CVAC’s termination date) to enter into arrangements similar to the foregoing.

 

In the event that any purchases of CVAC’s subunits or warrants are made by CVAC, Black Diamond or affiliates of either of them after the mailing of this proxy statement to shareholders, CVAC will disclose the terms of such arrangements in a press release and/or on a Current Report on Form 8-K on the next business day after the date of the transaction, and, to the extent possible, at least two business days prior to the vote on the Business Combination.

 

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CVAC will file a Current Report on Form 8-K and file and mail a proxy supplement to its shareholders with respect to any arrangements entered into by CVAC, Black Diamond or their respective affiliates which is intended to increase the likelihood that the arrangement and related proposals are approved by CVAC’s shareholders. Any CVAC subunits purchased by CVAC will not be considered outstanding for purposes of the special meeting and will therefore not be permitted to vote at the meeting. In the event that public subunits are purchased by CVAC, such subunits would no longer be deemed to be outstanding for purposes of determining the vote required for the approval of any of the proposals presented at the special meeting. Therefore, this would reduce (i) the number of public shares outstanding and entitled to vote on each matter, (ii) the number of shares required to be voted in favor of each proposal. Conversely, if CVAC’s directors and officers purchased such subunits, those subunits would still be considered to be outstanding and could be voted in favor of such proposals, reducing the number of shares required to be voted in favor of such proposals by a number of shares equal to those purchased. Neither CVAC nor its officers or directors purchasing subunits would affect the number of subunits that could be redeemed by CVAC with the Business Combination still being permitted to be consummated.

 

CVAC’s initial shareholders have agreed to vote the ordinary shares of CVAC owned by them prior to CVAC’s initial public offering in favor of the proposed Business Combination. The initial shareholders have also agreed to vote any shares acquired by them in CVAC’s IPO or in the aftermarket in favor of the proposed business combination. This would have the effect of reducing the number of other public shareholders of CVAC that would have to vote in favor of the proposed Business Combination. The initial shareholders have agreed not to demand redemption rights with respect to any of their initial shares or any subunits acquired by the in CVAC’s IPO or in the aftermarket.

 

Interests of Certain Persons in the Business Combination

 

When you consider the recommendation of CVAC’s board of directors in favor of adoption of the Business Combination Proposal and other proposals, you should keep in mind that CVAC’s directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as a shareholder, including:

 

·If the proposed Business Combination is not completed by February 25, 2013, CVAC will be required to liquidate. In such event, the 790,625 CVAC ordinary shares held by CVAC officers, directors and affiliates, which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless, as will the 1,500,000 warrants that were acquired prior to the IPO for an aggregate purchase price of $525,000. Such ordinary shares and warrants had an aggregate market value of approximately $5.3 million based on the closing price of CVAC’s subunits of $6.12 and CVAC’s warrants $0.30, on the OTC Bulletin Board as of November 9, 2012;

 

·Unless CVAC consummates the Business Combination, its officers, directors and Initial Shareholders will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceeded the amount of its working capital. As of November 9, 2012, CVAC’s officers, directors and Initial Shareholders were entitled to approximately $161,000 (including $158,525 payable to Ray Shi Capital Group, LLC, an affiliate of Yiting Liu, one of CVAC’s directors, Ye (Sophie) Tao, one of CVAC’s directors and Wei Li, CVAC’s Chief Executive Officer and a director, for office space, administrative services and secretarial support) in reimbursable expenses. As a result, the financial interest of CVAC’s officers, directors and Initial Shareholders or their affiliates could influence its officers’ and directors’ motivation in selecting Black Diamond as a target and therefore there may be a conflict of interest when it determined that the Business Combination is in the shareholders’ best interest.

 

·CVAC’s Initial Shareholders have contractually agreed that, if it liquidates prior to the consummation of a business combination, they will be personally liable to ensure that the proceeds in the trust account are not reduced below $5.96 per share by the claims of target businesses or claims of vendors or other entities that are owed money by CVAC for services rendered or contracted for or products sold to it. Therefore, CVAC’s initial shareholders have a financial interest in consummating a business combination, thereby resulting in a conflict of interest. CVAC’s Initial Shareholders or their affiliates could influence our officers’ and directors’ motivation in selecting a target business and therefore there may be a conflict of interest when determining whether the Business Combination is in the shareholders’ best interest.

 

·If the Business Combination with Black Diamond is completed, Ye (Sophie) Tao and Yiting Liu will serve as directors of BDH Acquisition and Black Diamond will designate three members to the Board of Directors of BDH Acquisition; and

 

·In addition, the exercise of CVAC’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the transaction may result in a conflict of interest when determining whether such changes or waivers are appropriate and in our shareholders’ best interest.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

 

General

 

The following is a summary of the material U.S. federal income tax consequences of (i) the Redomestication to the U.S. Holders (as defined below) of CVAC units, subunits, ordinary shares and warrants, which are sometimes referred to collectively, or individually, as CVAC securities, (ii) the redemption of CVAC subunits if a U.S. Holder elects to redeem its CVAC subunits pursuant to the exercise of its redemption right in connection with the shareholder vote regarding the Business Combination Proposal, or to sell its CVAC subunits to CVAC if CVAC uses a portion of CVAC’s Trust Account to purchase CVAC subunits in open market transactions or in privately negotiated transactions, and (iii) the automatic separation of BDH subunits and the ownership and disposition of BDH Units, BDH Series A Preferred Stock, BDH Warrants and BDH Common Stock issuable upon the conversion of BDH Series A Preferred Stock or the exercise of BDH warrants, which are sometimes referred to collectively, or individually, as BDH Acquisition securities, following the Redomestication and Business Combination. This summary is based upon laws and relevant interpretations thereof in effect as of the date of this proxy statement/prospectus, all of which are subject to change.

 

Because the components of a CVAC unit are separable at the option of the holder, the holder of a CVAC unit generally should be treated, for U.S. federal income tax purposes, as the owner of the underlying CVAC subunit and one-half of a CVAC warrant components of the CVAC unit. As a result, the discussion below of the U.S. federal income tax consequences with respect to actual holders of CVAC subunits and warrants should also apply to the holders of CVAC units (as the deemed owners of the CVAC subunits and warrants underlying the CVAC units). A similar concept should apply in the case of a BDH Unit. This concept should not apply, however, in the case of a CVAC (or BDH) Subunit. See “—Characterization of a CVAC Unit and its Components” below.

 

The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of CVAC or BDH Acquisition securities that is for U.S. federal income tax purposes:

 

·an individual citizen or resident of the United States;

 

·a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia;

 

·an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or

 

·a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

If a beneficial owner of CVAC or BDH Acquisition securities is not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder.” The material U.S. federal income tax consequences applicable specifically to Non-U.S. Holders of the automatic separation of BDH Subunits and the ownership and disposition of BDH Acquisition securities following the Redomestication and Business Combination are described below under the heading “Non-U.S. Holders.”

 

This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, Treasury regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations, possibly on a retroactive basis.

 

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular holder based on such holder’s individual circumstances. In particular, this discussion considers only holders that own and hold CVAC securities, and that will own and hold BDH Acquisition securities as a result of owning the corresponding CVAC securities, as capital assets within the meaning of Section 1221 of the Code. This discussion does not address the alternative minimum tax or the U.S. federal income tax consequences to holders that are subject to special rules, including:

 

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·financial institutions or financial services entities;

 

·broker-dealers;

 

·persons that are subject to the mark-to-market accounting rules under Section 475 of the Code;

 

·tax-exempt entities;

 

·governments or agencies or instrumentalities thereof;

 

·insurance companies;

 

·regulated investment companies;

 

·real estate investment trusts;

 

·certain expatriates or former long-term residents of the United States;

 

·Non-U.S. Holders (except as specifically provided below);

 

·persons that actually or constructively own five percent (5%) or more of CVAC’s voting securities or BDH voting securities (except as specifically provided below);

 

·persons that acquired CVAC securities or BDH Acquisition securities pursuant to an exercise of employee options, in connection with employee incentive plans or otherwise as compensation;

 

·persons that hold CVAC securities or BDH Acquisition securities as part of a straddle, constructive sale, hedging, redemption or other integrated transaction;

 

·persons whose functional currency is not the U.S. dollar;

 

·controlled foreign corporations; or

 

·passive foreign investment companies.

 

This discussion does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, state, local or non-U.S. tax laws or, except as discussed herein, any tax reporting obligations of a holder of CVAC securities or BDH Acquisition securities. Additionally, this discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold CVAC securities, or will hold BDH Acquisition securities, through such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of CVAC securities (or BDH Acquisition securities), the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. This discussion also assumes that any distribution made (or deemed made) on CVAC securities (or BDH Acquisition securities) and any consideration received (or deemed received) by a holder in consideration for the sale or other disposition of CVAC securities (or BDH Acquisition securities) will be in U.S. dollars. In addition, this discussion assumes that a holder owns or will own a number of CVAC Units or Subunits, and a number of BDH Subunits, that are divisible by two and, thus, will not forfeit a fractional CVAC warrant (or BDH Warrant) in connection with the separation of a CVAC Unit or Subunit, as the case may be.

 

Neither CVAC nor BDH Acquisition have sought, and neither will seek, a ruling from the U.S. Internal Revenue Service, or the IRS, or an opinion of counsel as to any U.S. federal income tax consequence described herein. The IRS may disagree with the description herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.

 

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BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER OF CVAC SECURITIES OR BDH ACQUISITION SECURITIES IN CONNECTION WITH OR FOLLOWING THE REDOMESTICATION AND BUSINESS COMBINATION MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH HOLDER OF CVAC SECURITIES AND BDH ACQUISITION SECURITIES IS URGED TO CONSULT WITH ITS OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE REDOMESTICATION AND BUSINESS COMBINATION, AND THE OWNERSHIP AND DISPOSITION OF CVAC SECURITIES OR BDH ACQUISITION SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATIES.

 

Characterization of a CVAC Unit and its Components

 

While not free from doubt, each CVAC unit should be treated for U.S. federal income tax purposes as an investment unit consisting of one CVAC subunit and one-half of a CVAC warrant. A CVAC subunit is comprised of one CVAC ordinary share and one-half of a CVAC warrant, which cannot be separately traded (until the CVAC subunit automatically separates and disappears). A CVAC subunit has all of the economic rights of each of its components, including the right to vote and receive distributions with respect to the underlying CVAC ordinary share, and in the case of a sale, to the value of both the CVAC ordinary share and one-half of a CVAC warrant components. However, because the components of a CVAC subunit are “stapled” together and generally did not separate within a short period of time from the date of the related CVAC unit’s issuance, a CVAC subunit should be treated as a single instrument for U.S. federal income tax purposes. As a result, for U.S. federal income tax purposes, distributions on the CVAC ordinary share component of a CVAC subunit are considered received with respect to the CVAC subunit. In addition, although there is no guidance on point on how to apply the passive foreign investment company (“PFIC”) rules to a stapled interest such as a CVAC subunit, it appears that a U.S. Holder of a CVAC subunit should be able to make a qualified electing fund (“QEF”) election or a purging election with respect to the CVAC subunit, as discussed below in “U.S. Holders—PFIC Considerations.”

 

Each holder is advised to consult its own tax advisor with respect to a CVAC Unit (including alternative characterizations of a CVAC Unit or the components thereof). The balance of this discussion assumes that the characterization of the CVAC Units (and the components thereof) as described above is respected for U.S. federal income tax purposes.

 

U.S. Holders

 

Tax Consequences of the Redomestication

 

The Redomestication should qualify as a reorganization for U.S. federal income tax purposes under Section 368(a) of the Code. However, due to the absence of guidance directly on point on how the provisions of Section 368(a) apply in the case of a merger of a corporation with no active business and only investment-type assets, this result is not entirely free from doubt. Accordingly, due to the absence of such guidance, it is not possible to predict whether the IRS or a court considering the issue would take a contrary position.

 

If the Redomestication qualifies as a reorganization under Section 368(a), except as otherwise provided below in the sections entitled “—PFIC Considerations” and “—Effect of Section 367,” a U.S. Holder of CVAC securities should not recognize gain or loss upon the exchange of its CVAC securities solely for BDH Aquisition securities pursuant to the Redomestication. A U.S. Holder’s aggregate tax basis in the BDH Aquisition securities received in connection with the Redomestication should be the same as the aggregate tax basis of the CVAC securities surrendered in the transaction, increased by any amount included in the income of such U.S. Holder under the PFIC rules or Section 367(b) of the Code. See the discussion under “—PFIC Considerations” and “—Effect of Section 367,” below. In addition, the holding period of the BDH Aquisition securities received in the Redomestication generally should include the holding period of the CVAC securities surrendered in the Redomestication.

 

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If the Redomestication should fail to qualify as a reorganization under Section 368(a), a U.S. Holder of CVAC securities generally would recognize gain or loss with respect to its CVAC securities in an amount equal to the difference, if any, between the U.S. Holder’s adjusted tax basis in its CVAC securities and the fair market value of the corresponding BDH Aquisition securities received in the Redomestication. In such event, the U.S. Holder’s basis in the BDH Aquisition securities would be equal to their fair market value, and such U.S. Holder’s holding period for the BDH Aquisition securities would begin on the day following the date of the Redomestication.

 

PFIC Considerations

 

Even if the Redomestication qualifies as a reorganization under Section 368(a) of the Code, the Redomestication may be a taxable event to U.S. Holders of CVAC securities under the PFIC provisions of the Code, to the extent that Section 1291(f) of the Code applies.

 

A. Definition and General Taxation of a PFIC

 

A foreign (i.e., non-U.S.) corporation will be a PFIC if either (a) at least seventy-five percent (75%) of its gross income in a taxable year of the foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least twenty-five percent (25%) of the shares by value, is passive income or (b) at least fifty percent (50%) of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least twenty-five percent (25%) of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

 

Pursuant to a start-up exception, a corporation will not be a PFIC for the first taxable year the corporation has gross income, if (1) no predecessor of the corporation was a PFIC; (2) the corporation satisfies the IRS that it will not be a PFIC for either of the first two taxable years following the start-up year; and (3) the corporation is not in fact a PFIC for either of those years.

 

If CVAC is determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of CVAC subunits, ordinary shares or warrants and, in the case of CVAC subunits and ordinary shares, the U.S. Holder did not make either (a) a timely QEF election for CVAC’s first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) CVAC subunits or ordinary shares or (b) a QEF election along with a “purging election,” both of which are discussed further below, such holder generally will be subject to special rules with respect to:

 

·any gain recognized by the U.S. Holder on the sale or other disposition of its CVAC subunits, ordinary shares or warrants; and

 

·any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the CVAC subunits or ordinary shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the CVAC subunits or ordinary shares).

 

Under these rules,

 

·the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the CVAC Subunits, Ordinary Shares or Warrants;

 

·the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of CVAC’s first taxable year in which it qualified as a PFIC, will be taxed as ordinary income;

 

·the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and

 

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·the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year of the U.S. Holder.

 

In general, if CVAC is determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above with respect to its CVAC Subunits or Ordinary Shares by making a timely QEF election (or a QEF election along with a purging election), as described below. Pursuant to the QEF election, a U.S. Holder will be required to include in income its pro rata share of CVAC’s net capital gain (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, whether or not distributed, in the taxable year of the U.S. Holder in which or with which CVAC’s taxable year ends. CVAC, however, does not believe that it had any earnings and profits in any prior taxable year or will have any earnings and profits for its current taxable year.

 

B. Status of CVAC as a PFIC

 

Based on the composition of its income and assets, CVAC believes that it was a PFIC for its taxable years ended March 31, 2011 (CVAC’s initial taxable year) and March 31, 2012, and that it will qualify as a PFIC for its current taxable year. The determination of whether CVAC is or has been a PFIC is primarily factual, and there is little administrative or judicial authority on which to rely to make a determination of PFIC status. Accordingly, the IRS or a court considering the matter may not agree with CVAC’s analysis of whether or not it is or was a PFIC during any particular year.

 

C. Impact of PFIC Rules on Certain U.S. Holders

 

The impact of the PFIC rules on a U.S. Holder of CVAC securities will depend on whether the U.S. Holder has made a timely and effective election to treat CVAC as a QEF, under Section 1295 of the Code for CVAC’s first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) CVAC Subunits or ordinary shares, or if the U.S. Holder made a QEF election along with a “purging election,” as discussed below. A U.S. Holder’s ability to make a QEF election with respect to CVAC is contingent upon, among other things, the provision by CVAC of certain information that would enable the U.S. Holder to make and maintain a QEF election. CVAC has previously indicated that it would endeavor to provide such information, including a PFIC annual information statement, upon request of a U.S. Holder. A U.S. Holder of a PFIC that made a timely and effective QEF election for CVAC’s first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) CVAC Subunits or ordinary shares, or that made a QEF election along with a purging election, as discussed below, is hereinafter referred to as an “Electing Shareholder.” A U.S. Holder of a PFIC that did not make a timely and effective QEF election for CVAC’s first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) CVAC Subunits or ordinary shares, or that did not make a QEF election along with a purging election, is hereinafter referred to as a “Non-Electing Shareholder.”

 

As indicated above, if a U.S. Holder of CVAC Subunits or ordinary shares has not made a timely and effective QEF election with respect to CVAC’s first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) CVAC Subunits or ordinary shares, such U.S. Holder generally may nonetheless qualify as an Electing Shareholder by filing on a timely filed U.S. income tax return (including extensions) a QEF election and a purging election to recognize under the rules of Section 1291 of the Code any gain that it would otherwise recognize if the U.S. Holder sold its CVAC Subunits or ordinary shares for their fair market value on the “qualification date.” The qualification date is the first day of CVAC’s tax year in which CVAC qualifies as a QEF with respect to such U.S. Holder. The purging election can only be made if such U.S. Holder held CVAC Subunits or ordinary shares on the qualification date. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, the U.S. Holder will increase the adjusted tax basis in its CVAC Subunits or ordinary shares by the amount of the gain recognized and will also have a new holding period in the CVAC Subunits or ordinary shares for purposes of the PFIC rules.

 

A U.S. Holder may not make a QEF election with respect to its CVAC warrants. As a result, if a U.S. Holder of CVAC warrants sells or otherwise disposes of such warrants (including for this purpose exchanging the CVAC warrants for BDH Warrants in the Redomestication), any gain recognized will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above, if CVAC were a PFIC at any time during the period the U.S. Holder held the CVAC warrants.

 

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U.S. Holders that hold (or are deemed to hold) stock of a foreign corporation that qualifies as a PFIC may annually elect to mark such stock to its market value if such stock is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or certain foreign exchanges or markets of which the IRS has approved (a “mark-to-market election”). The OTC Bulletin Board currently is not considered to be an exchange that would allow a U.S. Holder to make a mark-to-market election. Because CVAC Subunits and ordinary shares are quoted only on the OTC Bulletin Board, such CVAC securities should not qualify as marketable stock for purposes of the election.

 

D. Effect of PFIC Rules on the Redomestication

 

Even if the Redomestication should qualify as a reorganization for U.S. federal income tax purposes under Section 368(a) of the Code, Section 1291(f) of the Code requires that, to the extent provided in regulations, a U.S. person that disposes of stock of a PFIC (including warrants to acquire stock of a PFIC) must recognize gain notwithstanding any other provision of the Code. No final Treasury regulations are in effect under Section 1291(f). Proposed Treasury regulations under Section 1291(f) were promulgated in 1992, with a retroactive effective date once they become finalized. If finalized in their present form, those regulations would require taxable gain recognition by a Non-Electing Shareholder with respect to its exchange of CVAC securities for BDH Acquisition securities in the Redomestication if CVAC were classified as a PFIC at any time during such U.S. Holder’s holding period in the CVAC securities. Any such gain would be treated as an “excess distribution” made in the year of the Redomestication and subject to the special tax and interest charge rules discussed above under “—Definition and General Taxation of a PFIC.” In addition, the regulations would provide coordinating rules with Section 367(b) of the Code, whereby, if the gain recognition rule of the proposed Treasury regulations under Section 1291(f) applies to a disposition of PFIC stock that results from a transfer with respect to which Section 367(b) requires the shareholder to recognize gain or include an amount in income as a distribution under Section 301 of the Code, the gain realized on the transfer is taxable as an excess distribution under Section 1291 of the Code, and the excess, if any, of the amount to be included in income under Section 367(b) over the gain realized under Section 1291 is taxable as provided under Section 367(b). See the discussion below under the section entitled “—Effect of Section 367.” The proposed Treasury regulations under Section 1291(f) should not apply to an Electing Shareholder with respect to its CVAC Subunits or Ordinary Shares for which a timely QEF election (or a QEF election along with a purging election) is made. An Electing Shareholder may, however, be subject to the rules discussed below under the section entitled “—Effect of Section 367.” In addition, as discussed above, since a QEF election cannot be made with respect to CVAC warrants, the proposed Treasury regulations under Section 1291(f) should apply to cause gain recognition under the PFIC rules on the exchange of CVAC warrants for BDH Warrants pursuant to the Redomestication.

 

The rules dealing with PFICs and with the QEF election and purging election are very complex and are affected by various factors in addition to those described above. Accordingly, a U.S. Holder of CVAC securities should consult its own tax advisor concerning the application of the PFIC rules to such securities under such holder’s particular circumstances.

 

Effect of Section 367

 

Section 367 of the Code applies to certain non-recognition transactions involving foreign corporations, including a domestication of a foreign corporation in a transaction that qualifies as a Section 368(a) reorganization. When it applies, Section 367 imposes income tax on certain U.S. persons in connection with transactions that would otherwise be tax-free. Section 367(b) generally will apply to U.S. Holders that exchange CVAC Subunits or ordinary shares (but not warrants) for BDH Subunits or BDH Series A Preferred Stock as part of the Redomestication.

 

A. U.S. Shareholders of CVAC

 

A U.S. Holder that on the day of the Redomestication beneficially owns (directly, indirectly or constructively) ten percent (10%) or more of the total combined voting power of all classes of CVAC securities entitled to vote (a “U.S. Shareholder”) must include in income as a dividend the “all earnings and profits amount” attributable to the CVAC Subunits or Ordinary Shares it directly owns, within the meaning of Treasury Regulation Section 1.367(b)-2(d). Complex attribution rules apply in determining whether a U.S. Holder owns 10% or more of the total combined voting power of all classes of CVAC securities entitled to vote for U.S. federal income tax purposes.

 

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A U.S. Shareholder’s all earnings and profits amount with respect to its CVAC Subunits or ordinary shares is the net positive earnings and profits of the corporation (as determined under Treasury Regulation Section 1.367(b)-2(d)(2)) attributable to the CVAC Subunits or ordinary shares (as determined under Treasury Regulation Section 1.367(b)-2(d)(3)) but without regard to any gain that would be realized on a sale or exchange of such CVAC Subunits or ordinary shares.

 

Accordingly, under Treasury Regulation Section 1.367(b)-3(b)(3), a U.S. Shareholder will be required to include in income as a deemed dividend the all earnings and profits amount (as defined in Treasury Regulation Section 1.367(b)-2(d)) with respect to its CVAC Subunits or ordinary shares. However, CVAC does not expect that its cumulative earnings and profits will be greater than zero through the date of the Redomestication. If CVAC’s cumulative earnings and profits through the date of Redomestication are not greater than zero, then a U.S. Shareholder generally would (depending on what period the CVAC Subunits or ordinary shares were held) not be required to include in gross income an all earnings and profits amount with respect to its CVAC Subunits or ordinary shares.

 

However, it is possible that the amount of CVAC’s earnings and profits could be greater than expected through the date of the Redomestication or could be adjusted as a result of an IRS examination. The determination of CVAC’s earnings and profits is a complex determination and may be impacted by numerous factors. Therefore, it is possible that one or more factors may cause CVAC to have positive earnings and profits through the date of the Redomestication. As a result, depending upon the period in which such a U.S. Shareholder held its CVAC Subunits or ordinary shares, such U.S. Shareholder could be required to include its all earnings and profits amount in income as a deemed dividend under Treasury Regulation Section 1.367(b)-3(b)(3) as a result of the Redomestication. See above under “—PFIC Considerations—Effect of PFIC Rules on the Redomestication” for a discussion of whether the amount of inclusion under Section 367(b) of the Code should be reduced by amounts required to be taken into account by a Non-Electing Shareholder under the proposed Treasury regulations under Section 1291(f) of the Code.

 

B. U.S. Holders That Own Less Than 10 Percent of CVAC

 

A U.S. Holder that on the day of the Redomestication beneficially owns (directly, indirectly or constructively) CVAC Subunits or ordinary shares with a fair market value of $50,000 or more but less than ten percent (10%) of the total combined voting power of all classes of CVAC securities entitled to vote must either recognize gain with respect to the Redomestication or, in the alternative, elect to recognize the “all earnings and profits” amount as described below.

 

Unless a U.S. Holder makes the “all earnings and profits election” as described below, such holder generally must recognize gain (but not loss) with respect to BDH Acquisition securities received in exchange for its CVAC Subunits or ordinary shares pursuant to the Redomestication. Any such gain would be equal to the excess of the fair market value of such BDH Acquisition securities received over the U.S. Holder’s adjusted tax basis in the CVAC Subunits or ordinary shares deemed to be surrendered in exchange therefor. Subject to the PFIC rules discussed above, such gain would be capital gain, and should be long-term capital gain if the U.S. Holder held the CVAC Subunits or ordinary shares for longer than one year.

 

In lieu of recognizing any gain as described in the preceding paragraph, a U.S. Holder may elect to include in income the all earnings and profits amount attributable to its CVAC Subunits or ordinary shares under Section 367(b). There are, however, strict conditions for making this election. This election must comply with applicable Treasury regulations and generally must include, among other things: (i) a statement that the Redomestication is a Section 367(b) exchange; (ii) a complete description of the Redomestication, (iii) a description of any stock, securities or other consideration transferred or received in the Redomestication, (iv) a statement describing the amounts required to be taken into account for U.S. federal income tax purposes, (v) a statement that the U.S. Holder is making the election that includes (A) a copy of the information that the U.S. Holder received from CVAC establishing and substantiating the U.S. Holder’s all earnings and profits amount with respect to the U.S. Holder’s CVAC Subunits or ordinary shares, and (B) a representation that the U.S. Holder has notified CVAC (or BDH Acquisition) that the U.S. Holder is making the election, and (vi) certain other information required to be furnished with the U.S. Holder’s tax return or otherwise furnished pursuant to the Code or the Treasury regulations thereunder. In addition, the election must be attached by the U.S. Holder to its timely filed U.S. federal income tax return for the year of the Redomestication, and the U.S. Holder must send notice to CVAC (or BDH Acquisition) of the election no later than the date such tax return is filed. In connection with this election, CVAC intends to provide each U.S. Holder eligible to make such an election with information regarding CVAC’s earnings and profits upon request.

 

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CVAC does not expect that its cumulative earnings and profits will be greater than zero through the date of the Redomestication and if that proves to be the case, U.S. Holders who make this election generally would (depending on what period the CVAC Subunits or ordinary shares were held) not have an income inclusion under Section 367(b) provided that the U.S. Holder properly executes the election and complies with the applicable notice requirements. Thus, it is expected that the making of any election to include the all earnings and profits amount in income as a dividend generally would be advantageous to a U.S. Holder that would otherwise recognize gain under Section 367(b) with respect to its CVAC Subunits or ordinary shares in the Redomestication. However, as noted above, if it were determined that CVAC had positive earnings and profits through the date of the Redomestication, a U.S. Holder that makes the election described herein could have an all earnings and profits amount with respect to its CVAC Subunits or ordinary shares, and thus could be required to include that amount in income as a deemed dividend as a result of the Redomestication. See above under “—PFIC Considerations—Effect of PFIC Rules on the Redomestication” for a discussion of whether the amount of inclusion under Section 367(b) of the Code should be reduced by amounts required to be taken into account by a Non-Electing Shareholder under the proposed Treasury regulations under Section 1291(f) of the Code.

 

U.S. Holders are strongly urged to consult with their own tax advisors regarding whether to make this election and if the election is determined to be advisable, the appropriate filing requirements with respect to this election.

 

C. U.S. Holders that Own CVAC Securities with a Fair Market Value Less Than $50,000

 

A U.S. Holder that on the date of the Redomestication owns (or is considered to own) CVAC Subunits or ordinary shares with a fair market value less than $50,000 would not be required to recognize any gain or loss under Section 367(b) of the Code in connection with the Redomestication, and would not be required to include any part of the all earnings and profits amount in income (the “de minimis exception”).

 

D. Shareholder Basis in and Holding Period for BDH Acquisition Securities

 

For a discussion of a U.S. Holder’s tax basis and holding period in BDH Acquisition securities received in the Redomestication, see above under “—Tax Consequences of the Redomestication.”

 

Taxation on the Redemption of CVAC Subunits

 

In the event that a U.S. Holder of CVAC Subunits (i) elects to redeem its CVAC Subunits and receive cash pursuant to the exercise of its redemption right in connection with the shareholder vote regarding the Business Combination Proposal, or (ii) elects to sell its CVAC Subunits to CVAC if CVAC uses a portion of CVAC’s Trust Account to purchase CVAC Subunits in open market transactions or in privately negotiated transactions, the amount received on any such redemption of CVAC Subunits generally will be treated for U.S. federal income tax purposes as a payment in consideration for the sale of the CVAC Subunits (subject to the discussion in “—Possible Ordinary Income Treatment in Respect of Additional Amounts Following a Vote in Favor of the Business Combination,” below), rather than as a distribution. Such amounts, however, will be treated as a distribution for U.S. federal income tax purposes if (i) the redemption is “substantially equivalent to a dividend” (meaning that the U.S. Holder’s percentage ownership in CVAC (including CVAC Subunits or Ordinary Shares the U.S. Holder is deemed to own under certain constructive ownership rules) after the redemption is not meaningfully reduced from what its percentage ownership in CVAC (including constructive ownership) was prior to the redemption), (ii) the redemption is not “substantially disproportionate” as to that U.S. Holder (“substantially disproportionate” meaning, among other requirements, that the percentage of CVAC outstanding voting shares owned (including constructive ownership) immediately following the redemption is less than 80% of that percentage owned (including constructive ownership) by such holder immediately before the redemption) and (iii) the redemption does not result in a “complete termination” of the U.S. Holder’s interest in CVAC (taking into account certain constructive ownership rules). If the U.S. Holder had a relatively minimal interest in CVAC Subunits or ordinary shares and, taking into account the effect of redemptions by other holders, its percentage ownership (including constructive ownership) in CVAC is reduced as a result of the redemption, such holder generally should be regarded as having a meaningful reduction in interest. For example, the IRS has indicated in a published ruling that even a small reduction in the proportionate interest of a small minority stockholder in a publicly held corporation who exercises no control over corporate affairs may constitute such a “meaningful reduction.” A U.S. Holder should consult with its own tax advisors as to the tax consequences to it of any redemption of its CVAC Subunits.

 

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Possible Ordinary Income Treatment in Respect of Additional Amounts Following a Vote in Favor of the Business Combination

 

A U.S. Holder of CVAC securities that votes in favor of the Business Combination and either (i) exercises its redemption right or (ii) continues to hold its CVAC Subunits and receives a distribution in connection with CVAC’s liquidation if it fails to consummate the Business Combination generally will receive more per CVAC Subunit than a similar U.S. Holder that does not vote in favor of the Business Combination. While not free from doubt, such additional amount may be treated for U.S. federal income tax purposes as ordinary income, and not as a payment in consideration for the redemption of CVAC Subunits or a distribution in connection with CVAC’s liquidation. A U.S. Holder should consult with its own tax advisors regarding the U.S. federal income tax treatment of any such amount.

 

Taxation of Cash Distributions Paid on BDH Acquisition Securities

 

A U.S. Holder of BDH Acquisition securities generally will be required to include in gross income as ordinary income the amount of any cash dividend paid on the BDH Acquisition securities. A cash distribution on such securities generally will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of BDH Acquisition’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The portion of such distribution, if any, in excess of such earnings and profits generally will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in its BDH Acquisition securities. Any remaining excess generally will be treated as gain from the sale or other disposition of the BDH Acquisition securities and will be treated as described under “—Taxation on the Disposition of BDH Acquisition Securities” below. For taxable years beginning on or after January 1, 2013, the dividends received by a non-corporate U.S. Holder are currently scheduled to be subject to tax at the regular U.S. federal income tax rate generally applicable to ordinary income.

 

Any cash dividends BDH Acquisition pays to a U.S. Holder that is treated as a taxable corporation for U.S. federal income tax purposes generally will qualify for the dividends-received deduction if the applicable holding period and other requirements are satisfied. However, if any such dividends are “extraordinary dividends” subject to Section 1059 of the Code, a corporate U.S. Holder may be required to reduce the adjusted tax basis in its BDH Acquisition securities by the nontaxed portion of such dividends (and if the nontaxed portion of such dividends exceeds such basis, such excess may be treated as gain from the sale or exchange of such BDH Acquisition securities for taxable year in which the extraordinary dividend is received).

 

Possible Constructive Distributions with Respect to BDH Warrants

 

The terms of each BDH Warrant provide for an adjustment to the number of shares of BDH Common Stock for which the BDH Warrant may be exercised or to the exercise price of the BDH Warrant in certain events, as discussed in the section of this proxy statement/prospectus captioned “Description of the Combined Company’s Securities Following the Business Combination.” An adjustment that has the effect of preventing dilution generally is not taxable. However, the U.S. Holders of the BDH Warrants would be treated as receiving a constructive distribution from BDH Acquisition if, for example, the adjustment increases the warrant holders’ proportionate interest in BDH Acquisition’s assets or earnings and profits (e.g., through an increase in the number of shares of BDH Common Stock that would be obtained upon exercise) as a result of a distribution of cash to the holders of BDH Common Stock, which is taxable to the U.S. Holders of such stock as described under “— Taxation of Cash Distributions Paid on BDH Acquisition Securities,” above. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. Holders of the BDH Warrants received a cash distribution from BDH Acquisition equal to the fair market value of such increased interest.

 

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Possible Constructive Distributions with Respect to BDH Series A Preferred Stock

 

The terms of the BDH Series A Preferred Stock provide for an adjustment to number of shares of BDH Common Stock that may be obtained on a conversion of the BDH Series A Preferred Stock in certain events, as discussed in the section of this proxy statement/prospectus captioned “Description of the Combined Company’s Securities Following the Business Combination.” An adjustment that has the effect of preventing dilution generally is not taxable. However, the U.S. Holders of BDH Series A Preferred Stock should be treated as receiving a constructive distribution from BDH Acquisition if, for example, the adjustment increases the number of shares of BDH Common Stock that would be obtained on conversion of the BDH Series A Preferred Stock (e.g., because sufficient dividends were not paid on the BDH Series A Preferred Stock and therefore the BDH Series A Preferred Stock has not automatically converted into BDH Common Stock by the third anniversary of the closing of the Business Combination), and as a result of such adjustment, the U.S. Holders of the BDH Series A Preferred Stock receive an increased proportionate interest in BDH Acquisition’s assets or earnings and profits and the U.S. Holders of BDH Common Stock receive a distribution of cash which is taxable to such holders as described under “—Taxation of Cash Distributions Paid on BDH Acquisition Securities,” above. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. Holders of the BDH Series A Preferred Stock received a cash distribution from BDH Acquisition equal to the fair market value of such increased interest.

 

Taxation on the Disposition of BDH Acquisition Securities

 

Upon a sale or other taxable disposition of BDH Acquisition securities (which, in general, would include a distribution in connection with BDH Acquisition’s liquidation or a redemption of the BDH Warrants, but should not include a conversion of BDH Series A Preferred Stock into BDH Common Stock), a U.S. Holder of such securities generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in such securities. See “— Exercise or Lapse of a BDH Warrant,” below for a discussion regarding a U.S. Holder’s basis in the BDH Common Stock acquired pursuant to the exercise of a BDH Warrant.

 

The regular U.S. federal income tax rate on capital gains recognized by U.S. Holders generally is the same as the regular U.S. federal income tax rate on ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders currently are scheduled to be subject to U.S. federal income tax at a maximum regular rate of 20% for taxable years beginning on or after January 1, 2013. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the securities exceeds one year. The deductibility of capital losses is subject to various limitations.

 

Additional Taxes After 2012

 

For taxable years beginning on or after January 1, 2013, U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8% Medicare contribution tax on unearned income, including, among other things, dividends on, and capital gains from the sale or other taxable disposition of, CVAC or BDH Acquisition securities, subject to certain limitations and exceptions. U.S. Holders should consult their own tax advisors regarding the effect, if any, of such tax on their ownership and disposition of CVAC or BDH Acquisition securities.

 

Exercise or Lapse of a BDH Warrant

 

A U.S. Holder generally will not recognize gain or loss by reason of its exercise of a BDH Warrant for cash. BDH Common Stock acquired pursuant to the exercise of a BDH Warrant for cash generally will have a tax basis equal to the U.S. Holder’s tax basis in the BDH Warrant, increased by the amount paid to exercise the BDH Warrant. The U.S. Holder’s holding period of such BDH Common Stock generally will begin on the day following the date of exercise of the BDH Warrant and will not include the period(s) during which the U.S. Holder held the BDH Warrant. If a BDH Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s adjusted tax basis in the BDH Warrant.

 

The tax consequences of a cashless exercise of BDH Warrants are not clear under current tax law. A cashless exercise may be tax-free, either because it is not a realization event (i.e., not a transaction in which gain or loss is realized) or because the transaction is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, a U.S. Holder’s tax basis in the BDH Common Stock received would equal the U.S. Holder’s adjusted tax basis in the BDH Warrants. If the cashless exercise were treated as not being a realization event, the U.S. Holder’s holding period in the BDH Common Stock could be treated as commencing on the date following the date of exercise of the BDH Warrants. If the cashless exercise were treated as a recapitalization, the holding period of the BDH Common Stock received would include the holding period of the BDH Warrants.

 

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It is also possible that a cashless exercise could be treated as a taxable exchange in which gain or loss is recognized. In such event, a U.S. Holder could be deemed to have surrendered a number of BDH Warrants with a fair market value equal to the exercise price for the number of BDH Warrants deemed exercised. For this purpose, the number of BDH Warrants deemed exercised would be equal to the number of shares of BDH Common Stock issued pursuant to the cashless exercise of the BDH Warrants. In this situation, the U.S. Holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the BDH Warrants deemed surrendered to pay the exercise price and the U.S. Holder’s tax basis in such BDH Warrants deemed surrendered. Such gain or loss would be long-term or short-term depending on the U.S. Holder’s holding period in the BDH Warrants. In this case, a U.S. Holder’s tax basis in the BDH Common Stock received would equal the sum of the fair market value of the BDH Warrants deemed surrendered to pay the exercise price and the U.S. Holder’s tax basis in the BDH Warrants deemed exercised, and a U.S. Holder’s holding period for the BDH Common Stock should commence on the date following the date of exercise of the BDH Warrants. There also may be alternative characterizations of any such taxable exchange that would result in similar tax consequences, except that a U.S. Holder’s gain or loss would be short-term.

 

Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise of BDH Warrants it is unclear which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise of BDH Warrants.

 

Tax Consequences Upon Automatic Separation of BDH Subunits

 

As described in the section of this proxy statement/prospectus captioned “Description of Combined Company Securities Following the Business Combination,” upon the consummation of the Business Combination, each BDH Subunit will automatically separate into one share of BDH Series A Preferred Stock and one-half of a BDH Warrant, and the BDH Subunits will no longer be outstanding. The automatic separation should be treated as a recapitalization for U.S. federal income tax purposes involving a deemed exchange of each BDH Subunit for one share of BDH Series A Preferred Stock and one-half of a BDH Warrant. In such event, a U.S. Holder generally should not recognize gain or loss on the automatic separation. A U.S. Holder’s adjusted tax basis in the BDH Series A Preferred Stock and one-half of a BDH Warrant should be equal to such holder’s adjusted tax basis in the BDH Subunit, which should be allocated between the BDH Series A Preferred Stock and one-half of a BDH Warrant based on the relative fair market value of each at the time of the automatic separation. A U.S. Holder’s holding period in the BDH Series A Preferred Stock and one-half of a BDH Warrant should include such holder’s holding period in the BDH Subunit.

 

Non-U.S. Holders

 

Taxation of Distributions on BDH Acquisition Securities

 

Any cash distribution (including a constructive distribution) BDH Acquisition makes to a Non-U.S. Holder of BDH Acquisition securities, to the extent paid out of BDH Acquisition’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles), generally will constitute a dividend for U.S. federal income tax purposes. Any such dividend paid to a Non-U.S. Holder with respect to BDH securities that is not effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States, as described below, generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividend, unless such Non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN). In satisfying the foregoing withholding obligation with respect to a distribution, BDH Acquisition may withhold up to 30% of either (i) the gross amount of the entire distribution, even if the amount of the distribution is greater than the amount constituting a dividend, as described above, or (ii) the amount of the distribution BDH Acquisition projects will be a dividend, based upon a reasonable estimate of both its current and accumulated earnings and profits for the taxable year in which the distribution is made. If U.S. federal income tax is withheld on the amount of a distribution in excess of the amount constituting a dividend, the Non-U.S. Holder may obtain a refund of all or a portion of the excess amount withheld by timely filing a claim for refund with the IRS. Any such distribution not constituting a dividend generally will be treated, for U.S. federal income tax purposes, first as reducing the Non-U.S. Holder’s adjusted tax basis in such securities (but not below zero) and, to the extent such distribution exceeds the Non-U.S. Holder’s adjusted tax basis, as gain from the sale or other taxable disposition of such securities, which will be treated as described under “— Taxation on the Disposition of BDH Acquisition Securities” below.

 

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Cash dividends (including constructive dividends) BDH Acquisition pays to a Non-U.S. Holder that are effectively connected with such Non-U.S. Holder’s conduct of a trade or business within the United States (and, if certain income tax treaties apply, are attributable to a U.S. permanent establishment or fixed base maintained by the Non-U.S. Holder) generally will not be subject to U.S. withholding tax, provided such Non-U.S. Holder complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S. federal income tax (but not the Medicare contribution tax), net of certain deductions, at the same regular U.S. federal income tax rates applicable to a comparable U.S. Holder. If the Non-U.S. Holder is a corporation, such dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty).

 

Taxation on the Disposition of BDH Acquisition Securities

 

A Non-U.S. Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a sale, exchange or other disposition of BDH Acquisition securities unless:

 

·the gain is effectively connected with the conduct of a trade or business by the Non-U.S. Holder within the United States (and, under certain income tax treaties, is attributable to a U.S. permanent establishment or fixed base maintained by the Non-U.S. Holder);

 

·the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or

 

·BDH Acquisition is a ‘‘United States real property holding corporation’’ (‘‘USRPHC’’) for U.S. federal income tax purposes at any time during the shorter of the five year period ending on the date of disposition or the Non-U.S. Holder’s holding period for such securities disposed of, and, generally, in the case where BDH Acquisition securities are regularly traded on an established securities market, the Non-U.S. Holder has owned, directly or indirectly, more than 5% of such securities, as applicable, at any time during the shorter of the five year period ending on the date of disposition or the Non- U.S. Holder’s holding period for the security disposed of. There can be no assurance that BDH Acquisition securities will be treated as regularly traded on an established securities market for this purpose.

 

Unless an applicable tax treaty provides otherwise, gain described in the first and third bullet points above generally will be subject to U.S. federal income tax (but not the Medicare contribution tax), net of certain deductions, at the same regular U.S. federal income tax rates applicable to a comparable U.S. Holder. Any gain described in the first bullet point above of a Non-U.S. Holder that is a foreign corporation also may be subject to an additional “branch profits tax” at a 30% rate (or a lower applicable tax treaty rate). Any U.S. source capital gain of a Non-U.S. Holder described in the second bullet point above (which may be offset by U.S. source capital losses during the taxable year of the disposition) generally will be subject to a flat 30% U.S. federal income tax rate (or a lower applicable tax treaty rate).

 

In connection with the third bullet point above, BDH Acquisition generally will be classified as a USRPHC if (looking through certain subsidiaries) the fair market value of its “United States real property interests” equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes. Based on the expected composition and projected values of its assets (looking through applicable subsidiaries) after the Redomestication and the Business Combination, BDH Acquisition believes that it may be a USRPHC after the Business Combination. Even if it were not a USRPHC immediately after the Business Combination, no assurance can be given that BDH Acquisition will not become a USRPHC in the future. Non-U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of owning and disposing of BDH Acquisition securities.

 

Other Taxation Consequences of Holding BDH Acquisition Securities

 

The U.S. federal income tax treatment of a Non-U.S. Holder’s exercise of a BDH Warrant, or the lapse of such warrant held by a Non-U.S. Holder, generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a BDH Warrant by a U.S. Holder, as described under “U.S. Holders — Exercise or Lapse of a BDH Warrant,” above.

 

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The U.S. federal income tax treatment of an automatic separation of a BDH Subunit after the Business Combination to a Non-U.S. Holder also should correspond to the U.S. federal income tax treatment of such automatic separation to a U.S. Holder, as described under “U.S. Holders — Tax Consequences Upon Automatic Separation of BDH Subunits.”

 

Payments After 2012

 

Effective generally for payments made on or after January 1, 2013, certain Non-U.S. Holders may be subject to a U.S. federal withholding tax at a 30% rate with respect to dividends on, and the gross proceeds from the sale or other disposition of, BDH Acquisition securities if certain disclosure requirements related to the U.S. accounts maintained by, or the U.S. ownership of, such Non-U.S. Holders are not satisfied. The IRS has indicated, however, that withholding with respect to such dividends will be required only for payments made on or after January 1, 2013, and withholding with respect to such proceeds will be required only for payments made on or after January 1, 2016. Non-U.S. Holders should consult their own tax advisors regarding the effect, if any, of such withholding taxes on their ownership and disposition of BDH Acquisition securities.

 

Information Reporting and Backup Withholding

 

BDH Acquisition generally must report annually to the IRS and to each holder the amount of cash dividends and certain other distributions it pays to such holder on such holder’s securities and the amount of tax, if any, withheld with respect to those distributions. In the case of a Non-U.S. Holder, copies of the information returns reporting those distributions and withholding also may be made available to the tax authorities in the country in which the Non-U.S. Holder is a resident under the provisions of an applicable income tax treaty or agreement. Information reporting is also generally required with respect to proceeds from the sales and other dispositions of BDH Acquisition securities to or through the U.S. office (and in certain cases, the foreign office) of a broker. In addition, pursuant to recently enacted legislation, certain information concerning a U.S. Holder’s adjusted tax basis in its securities and adjustments to that tax basis and whether any gain or loss with respect to such securities is long-term or short-term also may be required to be reported to the IRS.

 

Moreover, backup withholding of U.S. federal income tax, at a rate currently scheduled to be 31% for taxable years beginning on or after January 1, 2013, generally will apply to cash distributions made on BDH Acquisition securities to, and the proceeds from sales and other dispositions of such securities by, a U.S. Holder (other than an exempt recipient) who:

 

·fails to provide an accurate taxpayer identification number;

 

·is notified by the IRS that backup withholding is required; or

 

·in certain circumstances, fails to comply with applicable certification requirements.

 

A Non-U.S. Holder generally may eliminate the requirement for information reporting (other than with respect to distributions, as described above) and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.

 

Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedures for obtaining an exemption from backup withholding in their particular circumstances.

 

Anticipated Accounting Treatment

 

The Merger will be accounted for as a “reverse merger” and recapitalization since the sellers of Black Diamond will control the combined company immediately following the completion of the transaction. Black Diamond will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of Black Diamond. Accordingly, the assets and liabilities and the historical operations that are reflected in the financial statements will be those of Black Diamond and will be recorded at the historical cost basis of Black Diamond. CVAC’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of Black Diamond after consummation of the acquisition.

 

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Regulatory Approvals

 

The Business Combination and the other transactions contemplated by the Acquisition Agreement are not subject to any additional federal or state regulatory requirements or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for filings with the State of Delaware and the Cayman Islands necessary to effectuate the transactions contemplated by the Acquisition Agreement.

 

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THE ACQUISITION AGREEMENT

 

The following is a summary of the material provisions of the Acquisition Agreement, a copy of which is attached as Appendix A to this proxy statement/prospectus. You are encouraged to read the Acquisition Agreement in its entirety for a more complete description of the terms and conditions of the Acquisition.

 

Redomestication to Delaware

 

Immediately prior to the Acquisition, CVAC will be merged with and into BDH Acquisition, the separate corporate existence of CVAC will cease and BDH Acquisition will continue as the surviving corporation (the “Redomestication Merger”). In connection with the Redomestication Merger, CVAC’s issued and outstanding capital stock will be converted as follows:

 

  · Each CVAC ordinary share will be converted automatically into one share of Series A Convertible Participating Preferred Stock of BDH Acquisition, or the BDH Series A Preferred Stock, which will entitle the holder thereof to, among other things, a dividend and liquidation preference.

 

  · Each CVAC warrant will be converted into one substantially equivalent warrant, or a BDH Warrant, to purchase one share of common stock of BDH Acquisition, or the BDH Common Stock,

 

  · Each CVAC subunit will be converted automatically into one subunit consisting of one share of BDH Series A Preferred Stock and one-half of a warrant to purchase BDH Common Stock, or a BDH Subunit,

 

  · Each CVAC unit will be converted automatically into one BDH Acquisition unit, consisting of one BDH Subunit and one-half of a warrant to purchase BDH Common Stock, or a BDH Unit,

 

  · Each unit purchase option of CVAC will be converted into one substantially equivalent unit purchase option to purchase one BDH Unit.

 

Business Combination with Black Diamond; Acquisition Consideration

 

Upon the closing of the transactions contemplated in the Agreement, BDH Acquisition will acquire 100% of the issued and outstanding Class A Units of Black Diamond and 45.6% of the Preferred Units of Black Diamond, in exchange for an aggregate of 67,383,334 shares of the common stock of BDH Acquisition (“BDH Acquisition Common Stock”) and 1,433,33 shares of BDH Acquisition Preferred Stock (as defined below). We refer to this share exchange as the “Business Combination.”

 

Representations and Warranties

 

In the Acquisition Agreement, Black Diamond, the Class A Members and the Manager (collectively, the “Representing Parties”) make certain representations and warranties (with certain exceptions set forth in the disclosure schedule to the Agreement) relating to, among other things: (a) proper corporate organization of Black Diamond and its subsidiaries and other companies in which it is a minority shareholder and similar corporate matters; (b) authorization, execution, delivery and enforceability of the Agreement and other transaction documents; (c) absence of conflicts; (d) capital structure and title to units; (e) accuracy of charter documents and corporate records; (f) related-party transactions; (g) required consents and approvals; (h) financial information; (i) absence of certain changes or events; (j) title to assets and properties; (k) material contracts; (l) insurance; (m) licenses and permits; (n) compliance with laws, including those relating to foreign corrupt practices and money laundering; (o) ownership of intellectual property; (p) absence of warranty claims; (q) employment and labor matters; (r) taxes and audits; (s) environmental matters; (t) brokers and finders; (u) investment representations and transfer restrictions; (v) that Black Diamond is not an investment company; and (w) other customary representations and warranties.

 

In the Acquisition Agreement, CVAC makes certain representations and warranties relating to, among other things: (a) title to shares; (b) proper corporate organization and similar corporate matters; (c) authorization, execution, delivery and enforceability of the Agreement and other transaction documents; (d) brokers and finders; (e) capital structure; (f) validity of share issuance; (g) minimum trust fund amount; and (g) validity of OTC Bulletin Board listing; and (h) SEC filing requirements.

 

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Conduct Prior to Closing; Covenants

 

The Representing Parties have agreed to cause Black Diamond, and to use their best efforts to cause Black Diamond’s subsidiaries and other companies in which it is a minority shareholder, to operate the business in the ordinary course, consistent with past practices, prior to the closing of the Acquisition (with certain exceptions) and not to take certain specified actions without the prior written consent of CVAC.

 

The Agreement also contains covenants of the Representing Parties providing for:

 

·Black Diamond and its subsidiaries and companies in which it is a minority shareholder to provide access to their books and records and providing information relating to Black Diamond’s business to CVAC, its counsel and other representatives;

 

·except as otherwise provided for in the Agreement, each of the Representing Parties not to, directly or indirectly, solicit, initiate or participate in discussions or negotiations with, or provide any information to or cooperate in any manner with any person, other than BDH Acquisition, concerning the sale of all or any part of Black Diamond’s business, any of Black Diamond’s assets, Black Diamond’s units or any capital stock, membership interests or other securities of Black Diamond or its subsidiaries or consummate any such transaction or accept any offer or agree to engage in any such transaction;

 

·Black Diamond to deliver monthly, quarterly and annual summaries of its earnings and an unaudited balance sheet for the period from March 31, 2012 through the end of such month, quarter or year and the applicable comparative period in the preceding year;

 

·the Manager to ensure that, on or prior to closing, certain key personnel enter into confidentiality and non-solicitation agreements, and that Black Diamond and the Manager will use their best efforts to enter into labor agreements with each of its employees to the extent required by applicable law; and

 

·except as otherwise provided for in the Agreement, the Members and Black Diamond to terminate all loans and guarantees by Black Diamond for the benefit of each of the Members, Black Diamond’s and its subsidiaries’ officers, and directors, and any of their respective affiliates, prior to the closing date of the Acquisition.

 

Conditions to Closing

 

General Conditions

 

Consummation of the Acquisition Agreement and the acquisition is conditioned on (a) the absence of any order, stay, judgment or decree by any government agency or any pending or threatened litigation seeking to enjoin, modify, amend or prohibit the Acquisition; (b) the holders of a majority of CVAC’s ordinary shares approving the acquisition in accordance with its Amended and Restated Memorandum and Articles of Association, (c) the consummation of the Redomestication Merger, (d) the SEC declaring the Registration Statement effective and (e) delivery of all transaction documents by each of the parties.

 

Representing Parties’ Conditions to Closing

 

The obligations of the Representing Parties to consummate the transactions contemplated by the Acquisition Agreement, in addition to the conditions described above, are conditioned upon (i) CVAC and BDH Acquisition complying with all of their respective obligations required to be performed by them pursuant to the required covenants in the Acquisition Agreement, (ii) the representations and warranties of CVAC being true on and as of the closing date of the Acquisition and (iii) execution of a registration rights agreement by BDH Acquisition to register all unregistered securities issued in connection with the Acquisition.

 

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CVAC’s and BDH Acquisition’s Conditions to Closing

 

The obligations of CVAC and BDH Acquisition to consummate the transactions contemplated by the Acquisition Agreement, in addition to the conditions described above in the first paragraph of this section, are conditioned upon each of the following, among other things:

 

·the representations and warranties of the Representing Parties being true on and as of the closing date of the acquisition and each of the Representing Parties complying with all required covenants in the Agreement;

 

·there having been no material adverse effect to Black Diamond’s business, regardless of whether it involved a known risk;

 

·BDH Acquisition being satisfied with the results of its review of Black Diamond’s business, units and that of its subsidiaries and portfolio companies.

 

·receipt by BDH Acquisition of certain third party consents, and outstanding permits;

 

·receipt by BDH Acquisition of a general release of all claims by the Class A Members against Black Diamond and its subsidiaries and companies in which it is a minority shareholder and their officers, directors, employees and affiliates;

 

·BDH Acquisition receiving a legal opinion from Black Diamond’s counsel;

 

·CVAC and BDH Acquisition having received final disclosure schedules to the Agreement; and

 

·a majority of the holders of warrants to purchase ordinary shares of CVAC shall have approved an amendment to their warrants as discussed in more detail under the section entitled “Shareholder and Warrantholder Approval.”

 

Termination

 

The Acquisition Agreement may be terminated and/or abandoned at any time prior to the closing, whether before or after approval of the proposals being presented to CVAC’s shareholders, by:

 

·Either CVAC or BDH Acquisition if the closing has not occurred by February 25, 2013;

 

·BDH Acquisition, if Black Diamond or any Member has materially breached any representation, warranty, agreement or covenant contained in the Acquisition Agreement and such breach has not been cured within fifteen days following the receipt by Black Diamond or any Member, as applicable, of BDH Acquisition’s written notice to terminate the Agreement; or

 

·Black Diamond, if BDH Acquisition has materially breached any representation, warranty, agreement or covenant contained in the Agreement and such breach has not been cured within fifteen days following the receipt by the BDH Acquisition of Black Diamond’s written notice to terminate the Acquisition Agreement.

 

Effect of Termination

 

In the event of termination and abandonment by either CVAC or Black Diamond, all further obligations of the parties shall terminate, no party shall have any right against the other party; provided, however, that Black Diamond is obligated to pay (i) up to $250,000 of the costs and expenses incurred by CVAC prior to the date on which the Acquisition Agreement was executed and (ii) as long as CVAC has not materially breached any of the representations and warranties made by it in the Acquisition Agreement, all of the costs and expenses of CVAC incurred from and after the date on which the Acquisition Agreement was executed.

 

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Indemnification

 

Until the third anniversary of the date of the Agreement, the Representing Parties have agreed, jointly and severally, to indemnify the BDH Acquisition and its affiliates from any damages arising from (a) any breach of any representation, warranty or covenant made by the Representing Parties, (b) any actions by any third parties with respect to Black Diamond’s business for any period on or prior to the closing date, (c) the violation of any laws in connection with or with respect to the operation of the business on or prior to the closing date, (d) any claims by any employee of Black Diamond or any of its subsidiaries or portfolio companies, (e) any taxes attributable to the period prior to closing or (f) any sales, use, transfer or similar tax imposed on BDH Acquisition or its affiliates as a result of the transactions contemplated by the Agreement. Subject to an increase based on the total exercise price of BDH Acquisition Warrants (as defined below), the indemnification obligations of the Representing Parties are capped at $16,500,000.

 

Until the third anniversary of the date of the Agreement, CVAC and BDH Acquisition have agreed to indemnify the Representing Parties and their affiliates from any damages arising from any damages arising from any breach of any representation, warranty or covenant made by CVAC or BDH Acquisition. Subject to an increase based on the total exercise price of BDH Acquisition Warrants exercised after the closing, the indemnification obligations of CVAC and BDH Acquisition are capped at $16,500,000.

 

The foregoing summary of the Acquisition Agreement does not purport to be complete and is qualified in its entirety by reference to the actual agreement, which is filed as Appendix A hereto.

 

Voting Agreement

 

As a condition to the closing of the Redomestication and Business Combination, BDH Acquisition, the selling shareholders and certain shareholders of CVAC will enter into a Voting Agreement to set forth their agreements and understandings with respect to how shares of BDH Acquisition common stock held by them will be voted on in connection with, and following, the transactions contemplated by the Acquisition Agreement. The parties will agree to vote their shares of BDH Acquisition common stock as necessary to ensure that the size of the Board of Directors of BDH Acquisition after the consummation of the Redomestication and Business Combination will be five members until [●]. The parties will also agree to vote their shares of BDH Acquisition common stock to ensure the election of two members of the Board of Directors of BDH Acquisition designated by the CVAC shareholders party to the agreement, who shall initially be Yiting Liu and Ye (Sophie) Tao, and three members designated by the selling shareholders, of which one designee shall qualify as an independent director pursuant to the rules of any stock exchange on which BDH Acquisition may be listed. A copy of the Voting Agreement is attached to this proxy statement/prospectus as Annex C.

 

Registration Rights Agreement

 

As a condition to the closing of the Redomestication and Business Combination, BDH Acquisition and the selling shareholders will enter into a Registration Rights Agreement to provide for the registration of the common stock and BDH Series A Preferred being issued to the selling shareholders in connection with the Business combination. The selling shareholders are entitled to make up to two demands that we register such securities. The holders of a majority of the common stock and BDH Series A Preferred Stock issued in the Business Combination to the selling shareholders can elect to exercise these registration rights at any time commencing six months after the consummation of the Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed at least six months following the consummation of the Business Combination. BDH Acquisition will bear the expenses incurred in connection with the filing of any such registration statements. A copy of the Registration Rights Agreement is attached to this proxy statement/prospectus as Annex D.

 

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THE REDOMESTICATION PROPOSAL

 

General

 

CVAC is redomesticating in Delaware and in that process changing its name and corporate documents and establishing a new board of directors. The Redomestication is a condition to consummation of the Business Combination. Black Diamond required that CVAC redomicile in the state of Delaware in order to enter into the Acquisition Agreement. Being redomiciled in Delaware will create operation efficiencies for the combined company due to the fact that Black Diamond and its subsidiaries are all located in the United States and a Delaware company will provide its stockholders with certain rights not afforded to them by a Cayman Islands company. The Redomestication will be completed immediately prior to the Business Combination. As part of the Redomestication, CVAC’s corporate name will be that of the surviving company, “BDH Acquisition Corp.”

 

The full texts of the forms of Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of BDH Acquisition are set forth as Annexes F and G, respectively, to this proxy statement/prospectus. A discussion of these documents and the comparison of rights is set forth below.

 

Adoption of the Redomestication Merger

 

The board of directors has approved the Redomestication Proposal and recommends that the shareholders of CVAC approve it. CVAC’s board of directors have interests that may be different from, or in addition to your interests as a shareholder. See “The Business Combination Proposal — Interests of Certain Persons in the Business Combination” in this proxy statement/prospectus for further information.

 

The affirmative vote of the holders of a majority of the shares outstanding of CVAC is required for approval of the Redomestication Proposal. Abstentions will have the effect of a vote against the proposal and broker non-votes will have no effect on the vote.

 

Each of the Warrant Amendment Proposal, the Redomestication Proposal and the Business Combination Proposal, as described below, are conditioned upon the approval of each other. Therefore, all three must be approved by the CVAC warrantholders and shareholders, as applicable, in order for the Business Combination to be consummated. If any of the three proposals is not approved, the Business Combination will not be consummated and CVAC will liquidate and dissolve.

 

The board of directors unanimously recommends a vote “FOR” the approval of the Redomestication Proposal.

 

Plan of Reincorporation and Redomestication Merger

 

The Redomestication will be achieved by the merger of CVAC, a Cayman Islands corporation, with and into BDH Acquisition Corp., a Delaware company, which is wholly owned by CVAC at this time, with BDH Acquisition being the surviving entity. The Certificate of Incorporation and Bylaws, the equivalent of a memorandum of association and the articles of association, of the surviving company will be those of BDH Acquisition, written in compliance with Delaware law. The effectiveness of the redomestication and the merger is conditioned upon the filing by both CVAC and BDH Acquisition of a certificate of merger with the State of Delaware and articles of merger with the Cayman Islands. Upon the filing of these documents, CVAC will cease its corporate existence in the Cayman Islands.

 

At the time of the Redomestication:

 

  · Each CVAC ordinary share will be converted automatically into one share of Series A Convertible Participating Preferred Stock of BDH Acquisition, or the BDH Series A Preferred Stock, which will entitle the holder thereof to, among other things, a dividend and liquidation preference.

 

  · Each CVAC warrant will be converted into one substantially equivalent warrant, or a BDH Warrant, to purchase one share of common stock of BDH Acquisition, or the BDH Common Stock,

 

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  · Each CVAC subunit will be converted automatically into one subunit consisting of one share of BDH Series A Preferred Stock and one-half of a warrant to purchase BDH Common Stock, or a BDH Subunit,

 

  · Each CVAC unit will be converted automatically into one BDH Acquisition unit, consisting of one BDH Subunit and one-half of a warrant to purchase BDH Common Stock, or a BDH Unit,

 

  · Each unit purchase option of CVAC will be converted into one substantially equivalent unit purchase option to purchase one BDH Unit.

 

The CVAC units, subunits and warrants no longer will be eligible to trade on the OTC Bulletin Board after the closing of the Redomestication. The units, subunits and warrants of BDH Acquisition will be eligible to trade in their place beginning on or about the effective date of the Redomestication under a new CUSIP number and trading symbol. The symbol will be determined by the OTC Bulletin Board.

 

Your percentage ownership of CVAC will not be affected by the Redomestication. As part of the stock purchase transaction, however, there will be the issuance of additional shares of preferred and common stock as partial consideration for the Business Combination with Black Diamond. In addition, BDH Acquisition will assume all other outstanding obligations of CVAC and succeed to those benefits enjoyed by CVAC. The business of CVAC after the Redomestication and the Business Combination will become that of Black Diamond.

 

You do not need to replace the current certificate representing your CVAC securities after the Redomestication. Do not destroy your current certificates issued by CVAC. The issued and outstanding security certificates of CVAC will represent the rights that CVAC’s securityholders will have in BDH Acquisition. Securityholders, however, may submit their certificates to our transfer agent, Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004 (212-509-4000) for new certificates, subject to normal requirements as to proper endorsement, signature guarantee, if required, and payment of applicable taxes.

 

If you have lost your certificate, you can contact our transfer agent to have a new certificate issue. You may be requested to post a bond or other security to reimburse us for any damages or costs if the lost certificate is later delivered for sale or transfer.

 

Management of BDH Acquisition

 

The directors of BDH Acquisition will be five persons. These will be Patrick Imeson, Michael Feinberg, General Michael Hagee (USMC Ret.), Yiting Liu and Ye (Sophie) Tao and they will be appointed at the consummation of the Business Combination. Patrick Imeson will be the Chairman and Chief Executive Officer and Eric Altman will be the Chief Financial Officer. See “Directors and Executive Officers after the Business Combination.”

 

Appraisal Rights

 

Holders of CVAC ordinary shares are not entitled to appraisal rights under the Companies Law.

 

Differences in Shareholder Rights

 

At the effective time of the Redomestication, the Certificate of Incorporation and Bylaws of BDH Acquisition will become the governing documents of the surviving corporation. Your rights as a shareholder of CVAC are governed by the law of the Cayman Islands and CVAC’s amended and restated articles and memorandum of association until the completion of the redomestication. After the redomestication, you will become a shareholder of BDH Acquisition and your rights will be governed by Delaware law and BDH Acquisition’s Certificate of Incorporation and Bylaws.

 

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The principal attributes of BDH Acquisition’s common stock and CVAC’s ordinary shares will be similar. However, there are differences between your rights under Delaware law and Cayman Islands law, which is modeled on the laws of England and Wales. In addition, there are differences between BDH Acquisition’s Certificate of Incorporation and bylaws and CVAC’s Amended and Restated Memorandum and Articles of Association. The following discussion is a summary of material changes in your rights resulting from the Redomestication, but does not cover all of the differences between Cayman Islands law and Delaware law affecting corporations and their shareholders or all the differences between BDH Acquisition’s Certificate of Incorporation and bylaws and CVAC’s Amended and Restated Memorandum and Articles of Association. You are encouraged to read the complete text of the relevant provisions of the Companies Law, the DGCL, BDH Acquisition’s Certificate of Incorporation and bylaws and CVAC’s Amended and Restated Memorandum and Articles of Association. Forms of BDH Acquisitions’ Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws are attached to this proxy statement/prospectus as Annexes F and G, respectively.

 

Shareholder Approval of Future Business Combinations

 

BDH Acquisition

 

Under the DGCL, a merger or consolidation involving the corporation, a sale, lease, exchange or other disposition of all or substantially all of the property of the corporation, or a dissolution of the corporation, is generally required to be approved by the holders of a majority of the shares entitled to vote on the matter, unless the charter provides otherwise. In addition, mergers in which an acquiring corporation owns 90% or more of each class of stock of a corporation may be completed without the vote of the acquired corporation’s board of directors or shareholders.

 

Unless the Certificate of Incorporation of the surviving corporation provides otherwise, Delaware law does not require a shareholder vote of the surviving corporation in a merger if: (i) the merger agreement does not amend the existing Certificate of Incorporation, (ii) each share of stock of the surviving corporation outstanding immediately before the transaction is an identical outstanding share after the merger; and (iii) either (x) no shares of common stock of the surviving corporation (and no shares, securities or obligations convertible into such stock) are to be issued in the merger; or (y) the shares of common stock of the surviving corporation to be issued in the merger (including shares issuable upon conversion of any other shares, securities or obligations to be issued in the merger) do not exceed 20% of the shares of common stock of the surviving corporation outstanding immediately prior to the transaction.

 

CVAC

 

A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by (a) a shareholder resolution passed by a majority in number representing seventy-five percent (75%) in value of the shareholders voting together as one class and (b) if the shares to be issued to each shareholder in the surviving company are to have the same rights and economic value as the shares held in the constituent company, a special resolution of the shareholders voting together as one class.

 

A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.

 

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

 

Save in certain circumstances, a dissident shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

 

In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

 

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·the statutory provisions as to the required majority vote have been met;

 

·the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;

 

·the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

 

·the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

 

When a takeover offer is made and accepted by holders of 90% of the shares within four months, the offer or may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

 

If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

 

Special Vote Required for Combinations with Interested Shareholders

 

BDH Acquisition

 

Section 203 of the DGCL provides a corporation subject to that statute may not engage in a business combination with an interested shareholder for a period of three years after the time of the transaction in which the person became an interested shareholder.

 

The prohibition on business combinations with interested shareholders does not apply in some cases, including if:

 

·the board of directors of the corporation, prior to the time of the transaction in which the person became an interested shareholder, approves either the business combination or the transaction in which the shareholder becomes an interested shareholder;

 

·the transaction which made the person an interested shareholder resulted in the interested shareholder owning at least 85% of the voting stock of the corporation; or

 

·the board of directors and the holders of at least 66 2/3% of the outstanding voting stock not owned by the interested shareholder approve at an annual or special meeting of stockholders, and not by written consent, the business combination on or after the time of the transaction in which the person became an interested shareholder.

 

The DGCL generally defines an interested shareholder to include any person who (a) owns 15% or more of the outstanding voting stock of the corporation or (b) is an affiliate or associate of the corporation and owned 15% or more of the outstanding voting stock of the corporation at any time within the previous three years, and the affiliates and associates of such person.

 

The restrictions on business combinations contained in Section 203 will not apply if, among other reasons, the corporation elects in its original Certificate of Incorporation not to be governed by that section or if the corporation, by action of its stockholders, adopts an amendment to its Certificate of Incorporation or bylaws expressly electing not to be governed by Section 203 (and any such amendment so adopted shall be effective immediately in the case of a corporation that both has never had a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders).

 

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CVAC

 

There is no provision in the Companies Law equivalent to Section 203 of the DGCL.

 

Appraisal Rights and Compulsory Acquisition

 

BDH Acquisition

 

Under the DGCL, a shareholder of a corporation does not have appraisal rights in connection with a merger or consolidation, if, among other things:

 

·the corporation’s shares are listed on a national securities exchange or held of record by more than 2,000 shareholders; or

 

·the corporation will be the surviving corporation of the merger, and no vote of its shareholders is required to approve the merger.

 

Notwithstanding the above, a shareholder is entitled to appraisal rights in the case of a merger or consolidation effected under certain provisions of the DGCL if the shareholder is required to accept in exchange for the shares anything other than:

 

·shares of stock of the corporation surviving or resulting from the merger or consolidation; or

 

·shares of stock of any other corporation that on the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 shareholders.

 

CVAC

 

The Companies Law does not specifically provide for appraisal rights. However, in connection with the compulsory transfer of shares to a 90% shareholder of a Cayman corporation, a minority shareholder may apply to the court within one month of receiving notice of the compulsory transfer objecting to that transfer. In these circumstances, the burden is on the minority shareholder to show that the court should exercise its discretion to prevent the compulsory transfer. The court is unlikely to grant any relief in the absence of bad faith, fraud, unequal treatment of shareholders or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

 

Shareholder Consent to Action Without a Meeting

 

BDH Acquisition

 

Under the DGCL, unless otherwise provided in the Certificate of Incorporation, any action that is required or permitted to be taken at a meeting of the shareholders may be taken without a meeting without prior notice and without a vote if written consent to the action is signed by the holders of outstanding stock having the minimum number of votes necessary to authorize or take the action at a meeting of the shareholders at which all shares entitled to vote thereon were present and voted, and is duly delivered to the corporation. BDH Acquisition’s Certificate of Incorporation does not restrict its shareholders from taking action by written consent.

 

CVAC

 

Article 85 of CVAC’s Articles of Association provide that the shareholders of the company (or of a particular class) may pass resolutions without holding a meeting if such resolutions of the shareholders (or class thereof) are passed by a unanimous written resolution signed by all of the shareholders (or class thereof) entitled to vote.

 

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Special Meetings of Shareholders

 

BDH Acquisition

 

Under the DGCL, a special meeting of shareholders may be called by the board of directors or by persons authorized in the Certificate of Incorporation or the bylaws. BDH Acquisition’s Certificate of Incorporation provides that a special meeting of shareholders may be called only by a majority of the board of directors of BDH Acquisition.

 

CVAC

 

Under CVAC’s memorandum and articles, an extraordinary general meeting of CVAC may be called only by the chairman or two directors or a director and the secretary or the board of directors.

 

Distributions and Dividends; Repurchases and Redemptions

 

BDH Acquisition

 

Under the DGCL, a corporation may pay dividends out of surplus and, if there is no surplus, out of net profits for the current and/or the preceding fiscal year, unless the net assets of the corporation are less than the capital represented by issued and outstanding shares having a preference on asset distributions. Surplus is defined in the DGCL as the excess of the “net assets” over the amount determined by the board of directors to be capital. “Net assets” means the amount by which the total assets of the corporation exceed the total liabilities. A Delaware corporation may purchase or redeem shares of any class except when its capital is impaired or would be impaired by the purchase or redemption. A corporation may, however, purchase or redeem out of capital its own shares that are entitled upon any distribution of its assets to a preference over another class or series of its shares, or, if no shares entitled to such a preference are outstanding, any of its own shares, if such shares will be retired upon their acquisition and the capital of the corporation reduced.

 

CVAC

 

Under the Companies Law, the board of directors of CVAC may pay dividends to the ordinary shareholders out of CVAC’s:

 

·profits; or

 

·“share premium account,” which represents the excess of the price paid to CVAC on issue of its shares over the par or “nominal” value of those shares, which is similar to the U.S. concept of additional paid in capital.

 

However, no dividends may be paid if, after payment, CVAC would not be able to pay its debts as they come due in the ordinary course of business.

 

Under the Companies Law, shares of a Cayman Islands company may be redeemed or repurchased out of profits of the company, out of the proceeds of a fresh issue of shares made for that purpose or out of capital, provided the company’s articles authorize this and it has the ability to pay its debts as they come due in the ordinary course of business.

 

Vacancies on Board of Directors

 

BDH Acquisition

 

Under the DGCL, a vacancy or a newly created directorship may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director unless otherwise provided in the Certificate of Incorporation or bylaws. BDH Acquisition’s certificate provides that a vacancy or a newly created directorship may be filled only by the board of directors, provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director.

 

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CVAC

 

CVAC’s articles provide that a vacancy or a newly created directorship may be filled by a majority vote of the remaining directors.

 

Removal of Directors; Staggered Term of Directors

 

BDH Acquisition

 

Under the DGCL, except in the case of a corporation with a classified board or with cumulative voting, any director or the entire board may be removed, with or without cause, by the holders of a majority of the shares entitled to vote at an election of directors.

 

BDH Acquisition’s Certificate of Incorporation and Bylaws currently provide that the board of directors consists of three classes of directors, with each class of directors elected for three-year terms and one class coming up for election by the shareholders each year. Under the DGCL, because BDH Acquisition has a classified board and its Certificate of Incorporation does not provide otherwise, directors of BDH Acquisition may be removed by the holders of a majority of the shares entitled to vote on the election of directors and only for cause.

 

CVAC

 

CVAC’s articles provide that the board of directors consists of three classes of directors, with each class of directors elected for three-year terms and one class coming up for election by the shareholders each year. The term of office of the first class of directors, consisting of Wei Li will expire at CVAC’s first annual meeting of shareholders. The term of office of the second class of directors, consisting of Yiting Liu will expire at the second annual meeting. The term of office of the third class of directors, consisting of Ye (Sophie) Tao will expire at the third annual meeting. CVAC may from time to time by ordinary resolution remove any director from office, whether or not appointing a replacement for the director who has been removed.

 

Inspection of Books and Records

 

BDH Acquisition

 

Under the DGCL, any shareholder may inspect the corporation’s books and records for a proper purpose.

 

CVAC

 

Shareholders of a Cayman Islands company have no general rights to inspect or obtain copies of the list of shareholders or corporate records of a company (other than the register of mortgages and charges).

 

Amendment of Governing Documents

 

BDH Acquisition

 

Under the DGCL, a Certificate of Incorporation may be amended if:

 

·the board of directors adopts a resolution setting forth the proposed amendment, declares the advisability of the amendment and directs that it be submitted to a vote at a meeting of shareholders; and

 

·the holders of at least a majority of shares of stock entitled to vote on the matter, and a majority of the outstanding stock of each class entitled to vote thereon as a class, approve the amendment, unless the Certificate of Incorporation requires the vote of a greater number of shares.

 

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In addition, under the DGCL, the holders of the outstanding shares of a class are entitled to vote as a class on an amendment, whether or not entitled to vote thereon by the Certificate of Incorporation, if the amendment would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of the class so as to affect them adversely. Class voting rights do not exist as to other extraordinary matters, unless the Certificate of Incorporation provides otherwise. Except with respect to the approval of a “business combination,” BDH Acquisition’s Certificate of Incorporation does not provide otherwise. Under the DGCL, the board of directors may amend bylaws if so authorized by the Certificate of Incorporation. The shareholders of a Delaware corporation also have the power to amend bylaws. BDH Acquisition’s Certificate of Incorporation authorizes the board of directors (by the vote of a majority of the total number of authorized directors) to alter, amend or repeal its bylaws and also provides that the shareholders of BDH Acquisition may alter, amend or repeal its bylaws by the affirmative vote of a majority of the outstanding voting stock of BDH Acquisition entitled to vote generally in the election of directors, voting together as a single class.

 

CVAC

 

Article 154 of CVAC’s articles of association state that, CVAC’s memorandum and articles may only be amended by resolution of a majority of the outstanding shareholders. CVAC’s board of directors may not effect amendments to CVAC’s articles on its own.

 

Indemnification of Directors and Officers

 

BDH Acquisition

 

Delaware law generally permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, other than an action brought by or on behalf of the corporation, and against expenses actually and reasonably incurred in the defense or settlement of a derivative action, provided that there is a determination that the individual acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation. That determination must be made, in the case of an individual who is a director or officer at the time of the determination:

 

·by a majority of the disinterested directors, even though less than a quorum;

 

·by a committee of disinterested directors, designated by a majority vote of disinterested directors, even though less than a quorum;

 

·by independent legal counsel, if there are no disinterested directors or if the disinterested directors so direct; or

 

·by a majority vote of the shareholders, at a meeting at which a quorum is present.

 

Without court approval, however, no indemnification may be made in respect of any derivative action in which an individual is adjudged liable to the corporation.

 

Delaware law requires indemnification of directors and officers for expenses relating to a successful defense on the merits or otherwise of a derivative or third-party action. Delaware law permits a corporation to advance expenses relating to the defense of any proceeding to directors and officers. With respect to officers and directors, the advancement of expenses is contingent upon those individuals undertaking to repay any advances if it is ultimately determined that such person is not entitled to be indemnified by the corporation.

 

BDH Acquisition’s certificate makes indemnification of directors and officers and advancement of expenses to defend claims against directors and officers mandatory on the part of BDH Acquisition to the fullest extent permitted by law.

 

CVAC

 

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for the indemnification of its directors, officers, employees and agents except to the extent that such provision may be held by the Cayman Islands courts to be contrary to public policy. For instance, the provision purporting to provide indemnification against the consequences of committing a crime may be deemed contrary to public policy. In addition, an officer or director may not be indemnified for his or her own fraud, willful neglect or willful default.

 

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Article 153 of CVAC’s articles of association make indemnification of directors and officers and advancement of expenses to defend claims against directors and officers mandatory on the part of CVAC to the fullest extent allowed by law.

 

Limited Liability of Directors

 

BDH Acquisition

 

Delaware law permits corporations to adopt a provision limiting or eliminating the monetary liability of a director to a corporation or its shareholders by reason of a director’s breach of the fiduciary duty of care. Delaware law does not permit any limitation of the liability of a director for:

 

·breaching the duty of loyalty to the corporation or its shareholders;

 

·failing to act in good faith;

 

·engaging in intentional misconduct or a known violation of law;

 

·obtaining an improper personal benefit from the corporation; or

 

·paying a dividend or effecting a stock repurchase or redemption that was illegal under applicable law.

 

BDH Acquisition’s certificate eliminates the monetary liability of a director to the fullest extent permitted by Delaware law.

 

CVAC

 

The Companies Law has no equivalent provision to Delaware law regarding the limitation of director’s liability; however, Cayman law will not allow the limitation of a director’s liability for his or her own fraud, willful neglect or willful default. CVAC’s articles closely follow current provisions of Delaware law and provide that the directors shall have no personal liability to CVAC or its shareholders for monetary damages for any fraud or dishonesty that may attach to a director.

 

Shareholders’ Suits

 

BDH Acquisition

 

Delaware law requires that the shareholder bringing a derivative suit must have been a shareholder at the time of the wrong complained of or that the stock was transferred to him by operation of law from a person who was such a shareholder. In addition, the shareholder must remain a shareholder throughout the litigation.

 

CVAC

 

CVAC’s Cayman Islands counsel is not aware of any reported class action or derivative action having been successfully brought in a Cayman Islands court. In principle, we will normally be the proper plaintiff and a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive (but not binding) authority and be applied by a court in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:

 

·a company is acting or proposing to act illegally or beyond the scope of its authority;

 

·the act complained of, although not beyond the scope of the authority, could be effected if duly authorized by more than the number of votes which have actually been obtained;

 

·the individual rights of the plaintiff shareholder have been infringed or are about to be infringed; or

 

·those who control the company are perpetrating a “fraud on the minority.”

 

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Advance Notification Requirements for Proposals of Shareholders

 

BDH Acquisition

 

BDH Acquisition’s bylaws require shareholders wishing to nominate directors or propose business for a shareholders’ meeting to give advance notice to the company. To be timely, a stockholders notice must be received not less than 120 calendar days in advance of the date in the current fiscal year that corresponds to the date in the preceding fiscal year on which BDH Acquisition’s notice of meeting and proxy statement were released to