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Bankrupt Lionel LLC has settled a lawsuit accusing rival K-Line Electric Trains Inc. of stealing trade secrets to develop its model engines and transformers. K-Line and the other defendants admitted in the settlement to paying a former Lionel chief engineer to develop advanced versions of Lionel’s engines and electrical transformers, according to a Lionel statement made Aug 10. Hillsborough, N.C.-based K-Line could not be reached for comment. Lionel filed the suit in late July with the U.S. Bankruptcy Court for the Southern District of New York in Manhattan, where it petitioned for Chapter 11 protection Nov. 15. The suit named K-Line, its owner Maury Klein, and Robert Grubba, a former Lionel employee who now works for K-Line, as defendants. Lionel accused them of paying a second ex-Lionel official for the insider information. The company famous for model trains alleged that the defendants infringed on its copyright and violated related trade secrets. As part of the complaint, K-Line agreed to cease the sale of all products that use Lionel’s technology by the end of fiscal year 2005, Lionel said. K-Line must also pay Lionel up to $700,000 for legal expenses, as well as royalties on all those products that they sell during that period, Lionel said. “This action wasn’t about money. It was about making clear to the world that K-Line’s new and sophisticated technical features were really the property of Lionel,” Jerry Calabrese, the company’s CEO, said in a statement. “This action makes it clear that we will not tolerate the kinds of behavior that forced us to take this action.” Lionel filed for bankruptcy in Manhattan after a jury in U.S. District Court for the Eastern District of Michigan in Detroit made a $38.6 million judgment against it. The jury ruled that Lionel must pay the award to rival MTH Electric Trains for stealing one of its train designs. Lionel is appealing that ruling to the 6th U.S. Circuit Court of Appeals. Private equity firm Wellspring Capital Management LLC owns 80 percent of Chesterfield, Mich.-based Lionel while rock star Neil Young owns the balance. U.S. Bankruptcy Judge Burton Lifland approved $50 million in debtor-in-possession financing that is being equally split between Wachovia Bank Corp. and Guggenheim Corporate Funding LLC. The DIP matures in three years and is being used to pay down $35 million in debt. O’Melveny & Myers is debtor counsel. Conway, Del Genio, Gries & Co. LLC is financial adviser. Copyright �2005 TDD, LLC. All rights reserved.

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