425: Mountain Lake SPAC to Merge with Avalanche Treasury

Mountain Lake Acquisition Corp. announces a definitive business combination agreement to merge with Avalanche Treasury Corporation and Avalanche Treasury Company LLC, creating a publicly traded digital asset treasury company focused on AVAX tokens.

Summary

• Mountain Lake Acquisition Corp. (SPAC) has entered into a Business Combination Agreement with Avalanche Treasury Corporation (Pubco), Avalanche Treasury Company LLC (the Company), and Dragonfly Digital Management, LLC (the Seller).
• The transaction will result in Pubco becoming a publicly traded company, with SPAC and the Company becoming wholly-owned subsidiaries of Pubco.
• SPAC shareholders will receive one share of non-voting Pubco Class A common stock for each SPAC Class A ordinary share, and one Pubco Class A share for every ten SPAC Rights.
• Company members (excluding the Seller) will receive one Pubco Class A share for each Company unit held.
• The Seller will receive Pubco Class A and Class B common stock for its Company units, plus an additional 4,000,000 Pubco Class A and 4,000,000 Pubco Class B shares as additional merger consideration.
• 2,000,000 Pubco Class A and 2,000,000 Pubco Class B shares for the Seller (Seller Earnout Shares) are subject to a 5-year earnout, vesting in tranches if Pubco Class A stock reaches VWAP milestones of $13.00, $15.00, and $17.00 per share.
• 1,600,000 Pubco Class A shares for the Sponsor (Sponsor Earnout Shares) are also subject to the same earnout conditions and price milestones.
• The Sponsor will forfeit 495,000 Private Placement Units and 4,387,500 Founder Shares.
• SPAC will use reasonable best efforts to cause BTIG, LLC to forfeit deferred underwriting fees exceeding $1,000,000 and cancel 310,000 Private Placement Units.
• Company Unit Investors have agreed to purchase approximately $274 million worth of Company Class A units at $10.00 per unit in a private placement, payable in cash, USDC, or AVAX.
• The Foundation (Avalanche BVI and Avalanche Cayman) will sell a minimum of $200 million of AVAX tokens (pre-discount) to the Company for $50 million in cash/USDC and $30 million in 3,000,000 Pubco Class A Stock.
• The Seller will contribute 1,960,040 AVAX tokens to the Company in exchange for 5,805,638 Company units.
• The AVAX tokens acquired by the Company from the Foundation are subject to a 5-year lockup, with monthly releases for 'Permitted Activities' after the first anniversary.
• The transaction is intended to be treated as a tax-deferred reorganization under Section 368(a)(1)(F) of the Code for the Domestication and an integrated Section 351 transaction for the Business Combination.

Sentiment

Score: 7

Explanation: The filing outlines a definitive business combination with significant capital commitments and strategic vision for a digital asset treasury. The earnout structures and forfeitures by the Sponsor and underwriter are positive for shareholder alignment. However, the dual-class stock structure, the inherent volatility of crypto assets, and the 5-year lockup on a substantial portion of the underlying tokens introduce notable risks and limitations for public Class A shareholders.

Positives

• The business combination provides a pathway for Mountain Lake Acquisition Corp. to complete its initial business combination.
• The transaction creates a publicly traded entity (Pubco) offering equity investors exposure to the Avalanche ecosystem and AVAX tokens.
• The Company Unit Subscription raised approximately $274 million, indicating significant investor interest in the underlying asset strategy.
• The Sponsor and BTIG, LLC are forfeiting a substantial number of shares and deferred underwriting fees, aligning their interests with public shareholders and reducing potential dilution.
• Earnout structures for both the Seller and Sponsor incentivize long-term performance and stock price appreciation of Pubco Class A Stock.
• The Foundation's commitment to sell a minimum of $200 million of AVAX tokens to the Company and the Seller's contribution of 1,960,040 AVAX tokens establish a significant initial asset base for the new entity.
• The 18-month exclusivity and right of first refusal for the Vehicle on certain AVAX sales by the Foundation provide a competitive advantage in acquiring AVAX tokens.
• The commitment to conduct cryptoasset activities solely on the Avalanche blockchain reinforces focus and potential for ecosystem growth.

Negatives

• Pubco Class A Stock will have no voting rights, concentrating control with Pubco Class B holders (the Seller).
• The Pubco Class B Stock, held only by the Seller, will have voting rights but no economic rights, creating a dual-class structure that can be unfavorable to Class A shareholders.
• The 5-year lockup on AVAX tokens acquired from the Foundation and the earnout period for Seller and Sponsor shares mean a significant portion of the underlying assets and incentive shares are not immediately liquid.
• The highly volatile nature of AVAX price is a significant risk, and Pubco's stock price is expected to be highly correlated to it.
• The transaction involves complex legal and regulatory considerations related to crypto assets, which are subject to significant uncertainty and potential changes in U.S. and foreign tax laws.

Risks

• The proposed transactions may not be completed in a timely manner or at all, which could adversely affect the price of SPAC's securities.
• The business combination may not be completed by SPAC's business combination deadline.
• Failure by the parties to satisfy the conditions to the consummation of the business combination, including SPAC shareholder approval or any private placement.
• Failure to realize the anticipated benefits of the proposed transactions.
• A high level of redemptions by SPAC's public shareholders could reduce the public float, liquidity, and/or listing of Pubco Class A Stock.
• The lack of a third-party fairness opinion in determining whether to pursue the business combination.
• Failure of Pubco to obtain or maintain the listing of its securities on Nasdaq or any other stock exchange.
• Costs related to the proposed transactions and becoming a public company.
• Risks related to Pubco's anticipated operations and business, including the highly volatile nature of the price of AVAX.
• Pubco's Class A Stock price will likely be highly correlated to the price of AVAX, and the price of AVAX may decrease at any time after the closing.
• Increased competition in the industries in which Pubco will operate.
• Significant legal, commercial, regulatory, and technical uncertainty regarding AVAX.
• Risks relating to the treatment of crypto assets for U.S. and foreign tax purposes.
• Difficulties managing growth and expanding operations after consummation of the business combination.
• Challenges in implementing Pubco's business plan, including AVAX-related advisory services, due to operational challenges, significant competition, and regulation.
• Being considered a shell company by any stock exchange or the SEC, which may impact listing ability and restrict reliance on certain rules or forms.
• The outcome of any potential legal proceedings that may be instituted against the Company, SPAC, Pubco, or others following the announcement of the business combination.

Future Outlook

Pubco anticipates becoming a publicly traded company, aiming to offer equity investors public market exposure to the long-term value of the Avalanche ecosystem. The strategic plan includes growing shareholder ownership of AVAX over time, generating AVAX yield, partnering with AVAX technology companies, and providing AVAX-related advisory and other services. Management believes AVAX has growing prominence as a digital asset and as a foundation for a new monetary system, potentially hedging inflation and economic uncertainty. The company intends to catalyze the fusion of AVAX into finance and capital markets and access legacy AVAX investors.

Management Comments

• Bart Smith will serve as the CEO of Avalanche Treasury Company LLC (the Company).

Industry Context

This business combination represents a significant move to bring a digital asset treasury vehicle, focused on the Avalanche ecosystem and its native AVAX token, to the public markets via a SPAC. This aligns with a broader industry trend of creating regulated investment vehicles for digital assets, aiming to provide traditional investors with exposure to the crypto space. The emphasis on AVAX's potential as a 'new monetary system' and 'inflation hedge' positions the company within the evolving narrative of digital assets as a store of value and a foundational technology for decentralized finance.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• The forward-looking statements section mentions a risk related to 'the outcome of any potential legal proceedings that may be instituted against the Company, SPAC, Pubco or others following announcement of the Business Combination.'

Related Party Transactions

• Sponsor Support Agreement: Between SPAC, Sponsor, and Pubco, detailing Sponsor's voting commitments, transfer restrictions, waiver of anti-dilution rights, and forfeiture of shares/units.
• Lock-Up Agreements: Between Pubco, Sponsor, SPAC insiders, and the Seller, imposing transfer restrictions on Pubco Stock.
• Amended and Restated Registration Rights Agreement: Between Pubco, SPAC, Sponsor, Seller, and the Foundation, covering resale registration rights for Pubco Stock.
• Contribution Agreement: Between the Seller, the Company, Pubco, Avalanche BVI, and Avalanche Cayman, detailing the Foundation Token Sale and Seller's AVAX contribution.
• Token Sale Agreement: Between the Company, Pubco, Avalanche BVI, and Avalanche Cayman, outlining the sale of AVAX tokens to the Company and the consideration provided by Pubco.

Stakeholder Impact

• Shareholders of SPAC: Will receive non-voting Pubco Class A Stock, potentially gaining exposure to the Avalanche ecosystem but losing direct voting power in the combined entity.
• Company Members (excluding Seller): Will receive non-voting Pubco Class A Stock, gaining liquidity through a public listing.
• Seller (Dragonfly Digital Management, LLC): Will hold Pubco Class A and Class B Stock, retaining significant voting control through Class B shares and having earnout incentives tied to stock performance.
• Sponsor (Mountain Lake Acquisition Sponsor LLC): Will receive Pubco Class A Stock, with a portion subject to earnout, and will forfeit certain founder shares and private placement units, aligning interests with public shareholders.
• BTIG, LLC (Underwriter): Expected to forfeit deferred underwriting fees above $1,000,000 and cancel private placement units, impacting their compensation from the original IPO.
• Company Unit Investors: Will convert their Company units into Pubco Class A Stock, providing them with public market liquidity for their investment in AVAX.
• Foundation (Avalanche BVI and Avalanche Cayman): Will receive cash and Pubco Class A Stock for AVAX tokens, and retain a board designation right, maintaining influence over the ecosystem's development.
• Employees and Management: The CEO of the Company (Bart Smith) is designated, and Pubco's board will be appointed by the Seller, indicating new leadership and governance structure for the combined entity.

Next Steps

• SPAC will effect a domestication to become a Delaware corporation.
• SPAC Merger Sub will merge into SPAC, and Company Merger Sub will merge into the Company, with both becoming wholly-owned subsidiaries of Pubco.
• Pubco and the Company will prepare and file a Form S-4 registration statement with the SEC.
• SPAC will solicit shareholder approval for the business combination at an Extraordinary General Meeting.
• Pubco Class A Stock must be approved for listing on Nasdaq or another national exchange.
• The Dragonfly Contribution and Foundation Transaction must be completed.
• Pubco will amend and restate its organizational documents to reflect the new capital structure and governance.
• SPAC, Pubco, and the Seller will amend and restate the Founder Registration Rights Agreement.
• Pubco may implement a new equity incentive plan.

Key Dates

Keywords

SPAC, Business Combination, Avalanche Treasury Corporation, AVAX, Digital Asset Treasury, Cryptocurrency, Blockchain, De-SPAC, Earnout, Lock-up, SEC Filing, Form 8-K, Mountain Lake Acquisition Corp, Dragonfly Digital Management