Neil Young and Lionel seek court OK for deal

Article by: PATRICK FITZGERALD , Dow Jones News Service
Updated: February 4, 2008 - 9:28 PM

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WASHINGTON - Lionel LLC and minority owner Neil Young are asking a bankruptcy judge to let them buy out the rock star's partner in the company that designs the wireless control system for Lionel's model trains.

Lionel, which is hoping to exit bankruptcy protection in the coming months, is teaming up with the rock legend to buy out Young's partner in Creative Trains Co. Creative Trains is co-owned by a Young family trust and Louis Kovach.

Creative Trains and Lionel are partners in a joint venture called Liontech Trains that is developing Lionel's latest version of its Trainmaster control system. The system allows up to 99 trains on nine separate tracks to be run simultaneously by wireless remote control.

Young's company developed the Trainmaster technology. The 62-year-old rock musician is highly regarded in the model train industry for his design and technology abilities.

According to court papers filed Jan. 29, Kovach has agreed to sell his 50 percent stake in Creative Trains for $650,000. Lionel and the Young family trust will each pay half of the purchase price for Kovach's share of the company. As part of the deal, Kovach will serve as a consultant to Lionel for the next three years for $50,000 a year.

Lionel has pumped $1.5 million into its joint venture with Creative Trains. The joint venture -- Liontech Trains -- is a separate company from Liontech Co., which is also operating under Chapter 11 protection along with Lionel.

The model trainmaker, which has been operating under Chapter 11 bankruptcy protection since 2004, needs bankruptcy court approval of the deal because it doesn't have the in-house technology to develop a new version of its operating system.

A hearing on Lionel's request is scheduled for Feb. 21 in U.S. Bankruptcy Court in New York.