Note: The opinions/summary expressed in this article are strictly those of the author and are not necessarily those of the Officers and Directors of LOTS, nor of the LOTS organization as a whole.
February 17, 2006 - On February 15, 2006, a thread appeared on the OGR forum that Lionel purchased K-Line. My response at that time and in the past has been that it would be highly unlikely two bankruptcy judges (in different courts) would allow one company in bankruptcy to purchase another. As I have reported over the last two plus months, Sanda Kan (the company that manufactured K-Line' s trains before it filed for bankruptcy) was negotiating with K-Line to purchase substantially all of its assets (tooling, inventory and intellectual property such as trademarks, copyrights and patents). This remains the case. Additionally, on February 16, 2006, Lionel Chief Executive Officer Jerry Calabrese issued a statement on the Lionel website as follows,"Pending only the final documentation of our agreement with Sanda Kan,K-Line's main manufacturer and principal creditor, Lionel will takecontrol of the K-Line brand, its tooling, its inventory of unsold products, and everything else that lawyers and accountants call 'assets'." Many Lionel fans took this to mean that Lionel purchased K-Line and the deal was complete. However such is not the case. Firstly, Mr. Calabrese did not say the deal was complete, but was "pending." In other words, a deal has not been finalized. However, I believe that his statement about taking control Of K-line's brand and assets is premature AT THIS TIME in light of the real facts. Moreover,even if what Mr. Calabrese stated yesterday, ultimately occurs, Lionel will not own the K-Line brand, its tooling, inventory or assets. The following are the real facts at the present time. 1)The bankruptcy court in North Carolina where K-Line's bankruptcy is pending approved the sale of its assets to Sanda Kan before Christmas. According to K-Line's lead bankruptcy attorney, Terri Gardner, as of the current time, a deal has NOT been completed. In other words, Sanda Kan has not paid K-Line any money to date. It is expected an agreement will be finalized in the next week or so. Until a deal is finalized, Sanda Kan has NO ownership rights to K-Line's assets. 2) Sanda Kan and Lionel have entered into a tentative "licensing, sales and marketing agreement" whereby Lionel will be allowed to use and market the assets of K-Line. What this specifically means is that ownership of the assets will remain with Sanda Kan. Lionel will NOT own K-Lines former assets, but only have the rights to use them, much like it recently acquired the licensing rights to the NASCAR name. The agreement between the two calls for Lionel to pay Sanda Kan a minimum licensing fee of $500,000 in the calendar years 2006 and 2007, purchase a minimum of $2.5 million in K-Line products from them directly by the end of 2007, and "to use commercially reasonable efforts to promote the K-Line licensed brands." Additionally, Lionel has agreed to contribute $250,000 towards fulfilling certain pre-existing K-Line customer orders, which had been partially prepaid by its customers It must also be kept in mind that sometime in the future, Sanda Kan could decide to sell the assets to another entity. This is different than the situation where Lionel owns the rights to the American Flyer name and no one can take it away from them. 3) On February 16, 2006, Lionel's attorney filed a motion (an application for a court order) in the bankruptcy court where its own bankruptcy proceeding is pending, asking the judge for permission to allow it to enter into the licensing and marketing agreement with Sanda Kan. That motion is scheduled to heard on February 28, 2006. The court can refuse to grant this application, thus quashing the entire licensing arrangement. So in a nutshell, the following must occur in order for Lionel to be able to use and market K-Line's assets: 1) K-Line's bankruptcy deal with Sanda Kan must be competed, 2) Lionel and Sanda Kan's tentative deal must finalized by both parties, AND 3) the court must approve thelicensing, sales and marketing agreement which requires Lionel to pay Sanda Kan at least $3,750,000 by the end of next year. The court, in making its decision, must consider the amount of money Lionel is expected to payout in light of its current financial condition. It may also have to consider that it recently opened an office/showroom in New York where real estate is expensive While it is expected this will ultimately occur, there is the old adage, "don't count your chickens before they hatch' and the "Yogiism", "it ain't over until its over."Ironically. one would also think that Lionel would be gun shy about issuing a premature on-line statement in light of the now famous previous K-Line internet statement that caused the first "settlement" in the Lionel-K-Line trade secrets lawsuit to unravel in August, 2005, which shortly thereafter caused it to file for bankruptcy. Even if all of the above occurs, Lionel will not be owning K-Lines assets, so the previous rumors of Lionel buying K-Line were never true. At least two more weeks will go by before we really know what will happen with all of the above.
I will continue to keep you updated as necessary. | 
