Direct Dial: 212-407-4935
e-mail: fstoller@loeb.com
July 27, 2005
John Reynolds, Assistant Director
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Mail Stop
Re: Stone Arcade Acquisition Corporation
Form S-1 Registration Statement
File No. 333-124601
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Dear Mr. Reynolds:
On behalf of our client, Stone Arcade Acquisition Corporation, a Delaware
corporation (the "Company,"), we transmit herewith for filing with the
Securities and Exchange Commission (the "Commission"), pursuant to Section 6 of
and Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"), and Rule 101(a)(1)(i) of Regulation S-T under the Commission's Electronic
Data Gathering and Retrieval System (EDGAR), one complete electronic version of
Amendment No. 3 ("Amendment No. 3") to the Company's Registration Statement on
Form S-1 (No. 333-124601) (together, the "Registration Statement"), including
one complete electronic version of the exhibits filed therewith Amendment No. 3
responds to the comments set forth in the Staff's letter dated July 25, 2005
(the "Staff's Letter").
In order to facilitate your review of Amendment No. 3, we have responded,
on behalf of the Company, to each of the comments set forth in the Staff's
Letter, on a point-by-point basis. The numbered paragraphs set forth below
respond to the Staff's comments and correspond to the numbered paragraphs in the
Staff's Letter. Page numbers refer to the marked copy of Amendment No. 3.
The Company's responses to the Staff's comments set forth in the Staff's
Letter are as follows:
Comment
Number Response
------ --------
Prospectus Summary
Securities and Exchange Commission
July 27, 2005
Page 2
1. We have expanded the disclosure to reflect that the warrants issued
upon exercise of the representative's unit purchase option are also
subject to redemption.
Risk Factors
2. We have revised the last sentence of risk factor 14 to clarify that
the equity stake referred to is the initial $25,000 equity stake.
Use of Proceeds
3. We have expanded the disclosure to reflect that if a deposit depleted
enough of our non-trust fund assets, the Company may need additional
funds to consummate a business combination, which funds could be
provided in the form of advances from insiders, thereby increasing the
excess out-of-pocket expenses that could be reimbursed following a
business combination.
Proposed Business
4. We have deleted the language referenced in the Staff's Letter.
5. We have expanded the language regarding finders' fees generally, and
what the Company may do in particular.
Conflicts of Interest
6. We have added additional bullet point disclosure in response to the
Staff's Letter.
Principal Stockholders
7. Exhibit 10.7 has been revised and refiled to reflect that only the
existing stockholders or their respective affiliates may make the open
market warrant purchases. Accordingly, the language that was
previously deleted regarding the purpose of such arrangement has been
reinserted.
8. We have revised Exhibit 10.7 and the disclosure in the prospectus to
reflect that each order will be a limit order not held under NASD
rules governing such orders. Such rules require execution at the best
possible price for the purchaser. The word "will" has been changed to
"may" in the first sentence in response to the Staff's Letter.
Securities and Exchange Commission
July 27, 2005
Page 3
Certain Transactions
9. We have deleted the language regarding the stock dividend based on the
Company and the representative's confirmation that the deal size will
not be increased.
10 The last sentence under "Principal Stockholders" has been revised to
reflect that our five officers and directors are our "promoters" as
such term is defined in the Federal securities laws.
Underwriting
11. Except for delivery of a preliminary prospectus to those individuals
and entities that have requested a copy of a preliminary prospectus
and consented to electronic delivery and/or reference to the SEC's
EDGAR database web site for access to the preliminary prospectus,
neither the lead underwriter nor any members of the anticipated
underwriting syndicate have, nor do they intend to, engage in any
electronic offer, sale or distribution of the securities
electronically. Should we become aware that the lead underwriter or
any members comprising the underwriting syndicate intend to make any
such electronic offers, sales or distributions, the Company will
promptly supplement our response.
12. Neither the Company nor the underwriters have any arrangements with
third parties to host or access the Company's preliminary prospectus
on the internet. The Company has informed the underwriters of its
obligation to inform the Staff of any such arrangements that are
subsequently entered into. If either the Company or the underwriters
enter into any such arrangement, the Company will promptly supplement
its response.
13. Neither the Company nor the underwriters intend to engage in a
directed unit program in conjunction with this offering.
Financial Statements
14. The disclosure regarding the UPO, as well as clarification that the
UPO is only issuable on the closing of the offering, has been included
in Note F to the Financial Statements. The four year life of the UPO
reflects the maximum four year exercise period permitted by the NASD
(i.e. the UPO cannot be exercised during the first year after the
offering and perhaps for up to two years if a business combination is
not consummated before then). In fact, in the event the UPO is not
exercised until the last year, the holder will only receive the shares
Securities and Exchange Commission
July 27, 2005
Page 4
of common stock, since the public warrants will already have expired.
We have revised the disclosure to indicate that the volatility
assumption is based on the volatility of the referenced index, not the
specific companies included in the index, and that the volatility of
an index may not always be representative of the volatility of the
underlying securities. We have read paragraph 285 of FAS 123 regarding
calculation of expected volatility for valuing stock-based employee
compensation and believe our calculations to be reasonable and
consistent with the guidance offered by this paragraph.
The index is the Standard and Poor's Supercomposite Paper Packaging
Index, a capitalization weighted index that is comprised of the
following companies:
Name Ticker Symbol Market Value at 7/25/05
---- ------------- -----------------------
Bemis Co. BMS $3.018 billion
Caraustar Industries CSAR $334 million
Chesapeake Corp. CSK $442 million
Longview Fibre LFB $1.072 billion
Packaging Corp. PKG $2.294 billion
Rock-Tenn Corp. RKT $479 million
Sealed Air Corp. SEE $4.303 billion
Sonoco Products SON $2.850 billion
Temple-Inland TIN $4.367 billion
Exhibits
15. We have revised Section 6.2 of Exhibit 1.1 to provide that the
agreement "will" (instead of "may") be terminated in the event that
neither the underwriters nor the company cure a default relating to
more than 10% of the Firm Units or Option Units.
16. Our firm's legality opinion has been revised and refiled in response
to the Staff's Letter.
Your prompt attention to this filing would be greatly appreciated. Should
you have any questions concerning any of the foregoing please contact me by
telephone at (212) 407-4935.
Securities and Exchange Commission
July 27, 2005
Page 5
Sincerely,
Fran M. Stoller
Loeb & Loeb LLP