Wednesday, April 02, 2008

Court Approves Lionel's Bankruptcy Plan and Settlement with MTH

Following are 2 postings from the O Guage Railroading (OGR) Forum made by Erol Gurcan, aka locolawyer. Erol is really a lawyer and an O guage modeler who has been closely following the court proceedings on Lionel's backruptcy and the MTH vs. Lionel lawsuits.
Also see our post below of an AP news story on the same topic.

Posted to the OGR Forum on 3/27/08 by locolawyer

Court Approves Lionel's Bankruptcy Plan and Settlement with MTH

FRIENDS

March 27, 2008-In what should be one of their last court appearances, lawyers for MTH, Lionel and Sanda Kan (Lionel’s principal manfacturer of trains) appeared in a New York Bankruptcy Court this morning.

At the end of the hearing this morning, Judge Burton Lifland approved Lionel’s confirmation plan for reorganization. The court also approved Lionel’s settlement with MTH.

Under the confirmation plan, Lionel’s unsecured creditors will be paid 100% of their claims in cash and with post petition interest. This is usually unheard of when a corporation exits bankruptcy. Creditors are usually paid pennies on the dollar.

Lionel’s attorney Adam Harris informed Judge Lifland that they had acquired 59 million dollars in new equity from Guggenheim funding, and obtained another 10 Million in funding from Train Acquisition LLC, in order to pay off all debts in preparation for exiting from bankruptcy. Train Acquisition LLC manages the Lionel account for the estate of Martin Davis, which owns 75% of the company. (Twenty percent is owned by rock and roll singer Neil Young, with Richard Kughn owning the other 5%).

The only party that filed papers objecting to Lionel’s bankruptcy plan was its principal supplier, Sanda Kan Industrial Ltd. However, their objections were withdrawn after a written agreement was worked out by the attorneys prior to appearing in court today.

The practical effect of Lionel’s plan being confirmed today is that they should be emerging from bankruptcy as early as next week, and most likely within a couple weeks. Lionel’s attorney, Adam Harris expected Lionel to be out of bankruptcy “within two weeks” once the final small details are resolved. Lionel CEO Jerry Calabrese told me today he believed Lionel would be out of bankruptcy “sometime within one month.” Once this occurs, Lionel will be issuing a press release. They have been in bankruptcy since November 15, 2004.

Judge Lifland noted today that “Lionel has thrived while they have been in bankruptcy.”

The court also approved Lionel’s settlement with MTH concerning BOTH the trade secrets lawsuit and patent infringement claim involving synchronized smoke. Part of the bankruptcy confirmation plan includes a one time cash payment to MTH in settlement of both claims. This will take place shortly after Lionel emerges from bankruptcy. The settlement, once paid, will end eight years of litigation in the trade secrets case. Judge Lifland stated he believed the settlement was “fair and just.”

In sum, the long and difficult legal battles between the two model train rivals should soon be history.

Erol Gurcan


Posted to the OGR Forum on 3/28/08 by locolawyer

Guys,

I made a mistake in my article that started this thread. I stated that Train Acquisition MANAGES the Lionel account for estate of Martin Davis. It is Wellspring that manages the Lionel account. Train Acquistion LLC, aka the estate of Martin Davis OWNS 75% of Lionel.

Thanks to Keystone for pointing out my mistake. Bascially, the 10 Million financing obtained from Train Acquisition is like an entity giving themselves a loan.

Fortunately, the mistake did not materially affect what I reported concerning the confirmation of the bankruptcy plan and judicial approval of the settlement with MTH.

Some have also asked how yesterday's proceedings affect MTH's case with Korea Brass and the injunction. The simple answer is yesterday's proceedings had no effect on the MTH Korea Brass situation because that matter is pending in a different court. I will follow up in the near future to give all an update on the MTH Korea Brass proceedings. It's been a couple of months since I reported on that case.

Erol