KB Toys has announced a reorganization plan that would put the company under the control of Prentice Capital Management, a New York City-based investment firm.  The plan, which has been endorsed by a committee of unsecured creditors, involves Prentice investing $20 million and providing a seasonal overadvance credit facility of up to $25 million in exchange for 90% of the common stock and 100% of the preferred stock of the reorganized KB Toys company.   The other 10% of the common stock is to be held in trust for the benefit of KB's creditors -- a group headed by toymakers Hasbro and Lego Systems that also includes numerous other manufacturers and landlords for the KB stores.

KB officials hope that the plan will allow the company to emerge from Chapter 11 bankruptcy before the holiday shopping season, without having to close any of its remaining 648 stores or further purge the ranks of its employees.  During the past year KB has closed more than 600 stores (see 'KB Toys Plans to Close More Stores'), sold off the company's Internet business, shut down a distribution center and eliminated more than 7,000 jobs (roughly half of its workforce).

The reorganization plan will not proceed if KB receives a better offer for its assets in a proposed bankruptcy auction.  The plan also does not settle pending lawsuits filed by creditors accusing the company's leadership of siphoning off some $121 million via a stock redemption program just before filing for bankruptcy (see 'Court Battles Over KB Payments').