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Bain Capital LLC says it ain’t so! The Boston buyout shop has joined with former KB Toys Inc. chief executive Michael L. Glazer in asking Delaware’s Court of Chancery to rule they did nothing wrong in the April 2002 recapitalization of the toy retailer. Bain Capital reaped $88 million in the transaction and it wants to keep the money. In December 2000, then-KB Toys owner Big Lots Stores Inc. sold KB to the retailer’s senior executives and Bain Capital for $302.5 million. But Big Lots later claimed in court papers that it was shortchanged on the deal and that KB Toys owed it about $97 million. Big Lots sued KB’s directors and officers, demanding $52 million for alleged breach of fiduciary duty and fraud. KB Toys countered that it held substantial claims against Big Lots for breach of agreement under the 2000 sale. The dueling court motions had to take a backseat when the Pittsfield, Mass., toy store chain filed for Chapter 11 protection on Jan. 14, 2004 in the U.S. Bankruptcy Court for the District of Delaware in Wilmington. The filing followed a poor 2003 holiday sales season. The dispute between KB and Big Lots figured prominently in the case. But the lawsuits were stayed by the Wilmington court. After months of bickering, the two sides finally reached a settlement in July that gave Big Lots a $56.9 million unsecured claim, among other considerations. The settlement allowed KB to exit Chapter 11 on Aug. 30 with a new majority owner, PKBT Funding, a unit of private equity firm Prentice Capital Management. But the battle is not over for Bain and Glazer. Lawyers for creditors, who still hope to reap some cash, are asking the Wilmington bankruptcy court to order Bain to preserve and produce documents related to KB’s sale and recap. But in court papers, the attorneys claim just four e-mails are included in 22,000 documents Bain has already proffered. This leads to suspicions the Boston private equity house is holding out. Bain claims that when KB Toys went under, it was done in by competition from Wal-Mart Stores Inc. and little else. But no one could have forseen this at the time of the recap, Bain said. The Wilmington bankruptcy court has set a Nov. 29 hearing to consider creditor attorneys’ motion to demand more documents from Bain. The Chancery Court has yet to set to a date to hear Bain and Glazer’s motion. Copyright �2005 TDD, LLC. All rights reserved.

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