8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 23, 2006

STONE ARCADE ACQUISITION CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	000-51150	20-2699372
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

c/o Stone-Kaplan Investments, LLC One Northfield Plaza, Suite 480 Northfield, IL	60093
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (847) 441-0929

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

xSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry Into a Material Definitive Agreement

On June 23, 2006, Stone Arcade Acquisition Corporation (“Stone”), through its newly-formed, wholly-owned subsidiary KapStone Kraft Paper Corporation (“KapStone”), entered into a purchase agreement with International Paper Company (“IP”) pursuant to which it agreed to acquire substantially all of the assets of the Kraft Paper Business (“KPB”), a division of IP. The assets to be acquired consist of IP’s Roanoke Rapids, North Carolina facility, and Ride Rite® Converting, located in Fordyce, Arkansas. The purchase price for the KPB assets is $155,000,000 in cash, payable at closing, subject to certain closing and post-closing adjustments, plus two contingent payments, (A) of up to $35,000,000 and (B) $25,000,000, based on KPB’s annual earnings before interest, income taxes, depreciation and amortization (“EBITDA”) during the five year period immediately following the acquisition (the “Acquisition”). The first contingent payment will be equal to 5.3x KPB’s average annual EBITDA for the five year period immediately following the transaction, less $165 million and subject to a maximum of $35 million. The second contingent payment is an “all or nothing” payment and is payable if, and only if, KPB’s average annual EBITDA for the same five year period equals or exceeds $49.2 million. Both payments, if earned, will be due and paid at the end of the five year period. For the year ended December 31, 2005, KPB earned an EBITDA of $32.2 million on revenues of $223.4 million.

In addition, Stone received a commitment from LaSalle Bank, N.A. with respect to a five year senior credit facility in the amount of $95 million (the “Facility”), to be used at the closing of the Acquisition to finance a portion of the purchase price and thereafter to provide working capital for the operations of KPB. The Facility is to be comprised of a $35 million senior secured revolving credit facility and a $60 million senior secured term loan. The borrower under the Facility will be KapStone.

For other information regarding the acquisition, see the press release attached hereto and incorporated herein by reference.

Stone and its directors and executive officers may be deemed to be participants in the solicitation of proxies for the special meeting of Stone stockholders to be held to approve the Acquisition. Stockholders of Stone are advised to read, when available, Stone’s preliminary proxy statement and definitive proxy statement in connection with Stone’s solicitation of proxies for the special meeting because these statements will contain important information. The definitive proxy statement will be mailed to stockholders as of a record date to be established for voting on the proposed Acquisition. Stockholders will also be able to obtain a copy of the definitive proxy statement, without charge, by directing a request to: Stone Arcade Acquisition Corporation, c/o Stone-Kaplan Investments, LLC One Northfield Plaza, Suite 480, Northfield, IL 60093. The preliminary proxy statement and definitive proxy statement, once available, can also be obtained, without charge, at the Securities and Exchange Commission’s internet site (http://www.sec.gov).

Non-GAAP Financial Measures

This release contains disclosure of EBITDA for certain periods, which may be deemed to be a non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Management believes that EBITDA, or earnings before interest, taxes, depreciation and amortization, is an appropriate measure of evaluating operating performance and liquidity, because it reflects the resources available for strategic opportunities including, among others, investments in the business and strategic acquisitions. The disclosure of EBITDA may not be comparable to similarly titled measures reported by other companies. EBITDA should be considered in addition to, and not as a substitute, or superior to, operating income, cash flows, revenue, or other measures of financial performance prepared in accordance with generally accepted accounting principles.

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Item 9.01. Financial Statements and Exhibits

 (d)          Exhibits:

Exhibit No.	Description
99.1	Press release dated June 26, 2006

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: June 26, 2006		STONE ARCADE ACQUISITION CORPORATION
	By:	/s/ Roger W. Stone
		Roger W. Stone
		Chief Executive Officer

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EX-99.1

INTERNATIONAL PAPER PLAZA
400 ATLANTIC ST
STAMFORD CT 06821

News Release

International Paper Agrees to Sell Kraft Papers
to Stone Arcade Acquisition Corp.

STAMFORD, Conn. — June 26, 2006 — International Paper (NYSE:IP) has signed a definitive agreement to sell its kraft papers business to Stone Arcade Acquisition Corp. (OTCBB:SCDE) for approximately $155 million in cash, subject to certain closing and post-closing adjustments, and two payments totaling up to $60 million, payable five years from the close of the transaction, contingent upon business performance. The kraft papers business generated approximately $220 million in sales in 2005 and includes the Roanoke Rapids, N.C., paper mill and the Ride Rite® dunnage bag plant in Fordyce, Ark.

The agreement is part of IP’s previously announced transformation plan to focus on uncoated papers and packaging. Proceeds from divestitures announced to date, including kraft papers, total approximately $9.3 billion.

The sale is expected to close in the third quarter, subject to satisfaction of various closing conditions, including regulatory approval and approval by Stone Arcade shareholders. After closing, the company will be called KapStone Kraft Paper Corporation — a division of KapStone Paper and Packaging Corporation. Tim Keneally, currently vice president of IP’s kraft papers business, will lead the KapStone Kraft Paper business.

“Kraft Papers has been a solid niche business for International Paper and we’re pleased to see that a number of interested parties, including Stone Arcade, agree with us,” said Carol Roberts, senior vice president of IP Packaging Solutions. “This agreement speaks to the quality of the people and the assets of this business.”

“The acquisition of IP’s kraft papers business is an important first step for our company, Stone Arcade,” said Roger Stone, chairman and CEO of Stone Arcade. “It provides us with a very solid platform from which we hope to expand. We look forward to working with the current management group to develop internal growth opportunities while we simultaneously explore strategic acquisitions.”

Matt Kaplan, Stone Arcade president and chief operating officer, added, “We are very excited regarding the acquisition of IP’s kraft paper business. Over the past several weeks, we have had the opportunity to visit the operations and meet many of its employees. Needless to say, we have been very impressed.”

International Paper’s kraft papers business produces approximately 400,000 tons of kraft papers, used in a variety of end-use products including approximately 9 million Ride Rite® dunnage bags. The business employs approximately 700 people. International Paper accounted for the results of its kraft papers business as a discontinued operation and wrote down the business’ assets in the first quarter of 2006.

Stone Arcade Acquisition Corporation is a publicly traded special purpose acquisition company founded in August 2005. Stone Arcade was formed for the purpose of identifying and effecting an asset acquisition or business combination with an unidentified business in the paper, packaging, forest products, and related industries.

Headquartered in the United States, International Paper has been a leader in the forest products industry for more than 100 years. The company is currently transforming its operations to focus on its global uncoated papers and packaging businesses, which operate and serve customers in the U.S., Europe, South America and Asia. These businesses are complemented by an extensive North American merchant distribution system. International Paper is committed to environmental, economic and social sustainability, and has a long-standing policy of using no wood from endangered forests. To learn more, visit www.internationalpaper.com.

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This press release may contain forward-looking statements. These statements reflect management’s current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i) the ability of the parties to successfully consummate the transactions contemplated by the sale agreements without a purchase price adjustment; (ii) the successful fulfillment (or waiver) of all conditions set forth in the sale agreements; (iii) the successful closing of the transactions within the estimated timeframes; and (iv) with the respect to the Company’s transformation plan, the ability of the Company to successfully negotiate satisfactory sale terms for assets that are contemplated for sale but are not currently under contract. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail in the company’s Securities and Exchange Commission filings.

Contacts:

For International Paper:

Media: Amy Sawyer, 901-419-4312, or Marshall Murphy, 901-419-4050
Investors: Brian McDonald, 203-541-8586, Darial Sneed, 203-541-8541, or Brian
Turcotte, 203-541-8632

For Stone Arcade Acquisition Corporation:
Roger Stone or Matt Kaplan, 847-441-0929