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Scott Hochfelder is general counsel and secretary of KB Toys Inc., which calls itself “the nation’s largest mall-based specialty toy retailer.” The company runs about 650 stores in 44 states, Guam, and Puerto Rico. KB Toys is privately held and has headquarters in Pittsfield, Mass. Tell us a little bit about the history of the company. The company dates back to 1922, when it began in the wholesale confection business. The name of the company originally was Kaufman Brothers (hence, the KB). The company sold candy and soda-fountain supplies primarily to merchants in the New England area. Sometime during the 1940s a toy wholesaler offered their company as payment for an outstanding debt, and that is how the Kaufmans got into the toy business. Over time the company turned the satisfaction of a debt into a successful retail toy business. KB Toys grew into the nation’s largest mall-based toy retailer. We went from one store in the late 1950s to, at our peak, about 1,300 stores in 2003. Unfortunately, in early 2004, the company filed for bankruptcy and spent 18 months in bankruptcy. We downsized considerably and shed our less-profitable operations � this included closing stores, selling a distribution center, and licensing our Internet businesses. We cut the chain of stores to 640. We’re still the largest mall-based retailer, though. Our new management team is incredibly motivated and has plans, over the next three years, to make a variety of strategic changes, including adding new locations. What do you think were the causes of bankruptcy? There was no single reason. It was one of these complex, multifaceted situations. There has been a demographic shift in our customer and changes in customer and children’s preferences. And 9/11 did have an impact on retailers. Of course, there is also the issue of a small retailer based in Bentonville, Ark. Wal-Mart has made a concerted effort to be a category leader. In 2003, Wal-Mart was very aggressive on prices and triggered a price war with Target and Toys “R” Us. KB Toys was, essentially, collateral damage. In terms of preferences, younger children are moving more to electronics, and the preferred destination has become the mass electronic discounters. So, all of these factors came together, forcing our prior management team into the difficult decision to file for bankruptcy. We emerged from bankruptcy on August 29, 2005. It is a “new” KB Toys, with a new management team and new vigor. We also have new strength in strategic investors and, frankly, a bright outlook going forward. The new team came in this past fall, so they’ve only been on the job for 90 days now. I expect that in the coming months we will start to see some material changes. We’re in the process of fine-tuning our strategic plan for 2006 and beyond. I expect that we’re going to emphasize customer service, sharpen our pencils and open our minds on merchandise, focus on selling toys that kids want at great values, demand excellence on execution in all business aspects, evaluate our lease portfolio and consider what markets we can grow into, provide a great shopping experience for all of our customers, and ensure that KB Toys is a fun and family-appropriate place to visit. It is, after all, a toy store. For a general counsel, you follow the business very closely. One of my goals has been to be not only a legal adviser who can use the two-dollar words but also to be an integral business partner. My belief is that our department can be more valuable if we understand where the business is going to grow. The legal department is not in the business of making decisions of what toys to buy or what color a gift card should be, but these sorts of business decisions have legal components, and we make a huge effort to get a handle on how the business operates. Fortunately, I work with enlightened people who understand these departmental and functional synergies. What’s the makeup of your legal department? We have four people: three attorneys and one administrative assistant. We have an incredibly supportive and collegial team. One attorney focuses exclusively on our lease portfolio, so he’s the “lease/real estate guy.” That’s a very important element of what we do � manage and document leases with various landlords. Although our landlord relationships were stressed during the bankruptcy, they have been supportive, and I believe that we enjoy a great relationship with our landlords. Another attorney, who is more junior, is more of a generalist. Her work touches on store operations, employment, marketing, litigation management, and smaller contracts. It’s a wonderful training ground for her and an unusual opportunity for a new attorney to be able to touch and feel so many diverse legal and business matters. As for my work, I oversee all the legal functions. This really spans the gamut, from litigation management to corporate compliance, from benefits to corporate governance. I report to Rob Feldman, executive vice president and chief financial officer of the company. He is a hands-on CFO, and we work closely on a variety of matters. What outside firms do you use? We use several law firms, large and small, that have some world-class attorneys, including Greenberg Traurig, Wilmer Cutler Pickering Hale and Dorr, Alston & Bird, and Young Conaway Stargatt & Taylor. In addition, we use a variety of smaller and regional firms. With regard to our firms, we are explicit about our expectations � we want excellence, responsiveness, cost-efficiency, and diversity. What are your biggest challenges on the job? Among our greatest challenges is converting our mind-set from a Chapter 11 debtor to a profitable player in the retail industry. An awful lot of Chapter 11 is about playing defense. And now it’s time for our company to operate as more of an offensive player � that is, offensive in a good way. We want to do things that truly support the business and value to the organization � help our merchants buy products that are compelling and act quickly when they find a good value. We also want to support store operations, so our associates can provide great customer service. We also want to do things to support the finance and real estate departments. We are working with our marketing team to ensure that our promotions are informative and compliant but are also fun and exciting. The bottom line is, we’re trying to be a great supportive vehicle for a variety of disciplines in the company. One of the things the company strives to do is to hire and retain a great employee work force that has high morale, competitive pay, and benefits. KB Toys’ associates are our greatest assets; we need great people in order to succeed. We try to create an environment where employees are appreciated, respected, and motivated. There truly is, and will continue to be, a greater emphasis on our people, training them and empowering them. I think we have an enlightened management team that understands the value of the team. This approach not only makes good legal sense, it makes good business sense. Without our people, we’d be nothing but a box. What’s the best part of the job? One is the industry we are in � we’re not just any old retailer, we’re a toy retailer, and it’s great to be involved in a company that is selling toys and crafts to kids, because those things can be so important to a child’s development. We have the ability to have a product out there that has developmental value and can put a smile on a child’s face. That’s very gratifying and can be a lot of fun. Our people are passionate about the business. We have people who have made a career in the toy business � these people love toys and love being in the business. They have a really keen business sense about toys and the toy industry and the role toys play in people’s lives. And it’s fun to work with people who find what they’re doing fun and meaningful. The other great part of the job is that it is constantly changing and there are a lot of challenges with that change. Particularly in my tenure, we’ve gone from a company that was spinning off cash, to Chapter 11, to, hopefully, on the path to profitability. You really have to roll with the punches and have a positive outlook on the changes. So many things have changed here over the past few years. It actually makes it a really dynamic place to work. What’s your background? I’m from Chicago; I grew up in the city. My favorite job was as a vendor at Wrigley Field, mostly selling Pepsi and 7Up. My mom was an attorney, a 1963 law school grad where she was one of six women in her class. She is an inspiration for me. She died when she was 39 and I was 14. I did my undergraduate work at Brown, where I graduated with honors. Then I had a fellowship with the Coro Foundation, which focuses on leadership training for public affairs. As a Coro fellow, I was assigned to St. Louis, where I worked for the Teamsters and for the mayor of St. Louis, among many other positions. Then I moved to Washington, D.C., and worked for a consulting firm, ICF Consulting. I did policy work for the Environmental Protection Agency. Subsequently, I got a master’s degree in public policy at the University of Michigan and worked for a D.C. think tank. After receiving my master’s degree, I went to law school � Northwestern in Chicago � and graduated from law school 30 years after my mother, who also went to Northwestern. I actually liked law school, did OK, and made law review. After law school I worked for a Chicago-based law firm, Wildman Harrold, for four or five years, and for one of those years was lent out to Andersen Consulting and worked for them in-house. Then I went to work in-house for Levy Restaurants, a restaurant and food-service business, which was fascinating and fun. They operated premium food service at stadiums and arenas; at the same time, they were truly restaurateurs. I moved to Massachusetts to work for KB Toys in January 2002; I have been here for four years. I was promoted to general counsel this year. So, do you have toys in your office? Yes, I absolutely have toys in my office. Standing before me right now, I have a Darth Vader mask that makes noise; I have an Elmo, a Barney, Woody from “Toy Story.” I have little Simba from “The Lion King.” They’re sitting on the floor and on the bookshelf and also stacked on my file cabinet. They are a constant reminder that we work for a toy company. We’re not selling widgets, and we’re not in the funeral business � not that there is anything wrong with that � and I think it’s good to be reminded. The toys can also be a stress reliever at tense times. I also have a Magic 8-Ball, but I don’t use it to provide legal advice. I probably have three favorite toys from my childhood, and they still exist. I loved Lite Brite, Legos, and Lincoln Logs. Those are tried-and-true, time-tested toys. I loved them as a kid, and they’re still very popular products out there, not a fad. One toy I always wanted, but never got, was an Easy Bake Oven. Hopefully, I’ll get one now that I have kids. Read any good books lately? I’ve read some kid-oriented books, since I have three kids. The eldest is 5. The good news is that working at KB makes me a little bit of a rock star in my household. Our favorite books are Charlotte’s Web, various ninja and “Star Wars” books, a My Little Pony storybook, If You Give a Mouse a Cookie, and Goodnight Moon. These are good stories; they encourage the kids to read, and provide great bonding time. Outside of the office, my time is consumed with my wife, Jen Sacon, and our three kids. My wife, who is currently on “mom” duty, is an accomplished attorney, too. Before heading to the Berkshires in Massachusetts, she was a dean at the University of Chicago Law School. On weekends I am the soccer-practice and birthday-party chauffeur. I also try to have a weekly sushi date with my wife. I do various community activities, including some leadership-development work, and serve on a board for Tanglewood [Music Center]. I also try to keep track of my Chicago Cubs and the Bears.

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