LIONEL STATEMENT ON K-LINE & OTHER TOPICS

[Bob Keller]

FROM THE LIONEL WEBSITE:

K-Line announcement from Jerry Calabrese 02/16/2006

February 16, 2006

Dear Friends,

First of all, let me wish a belated happy and healthy 2006 to all. In the spirit of those really long holiday newsletters we get from friends and family, I offer you my own. I hope the following information is of interest and clears up at least a few questions and curiosities.

ACELA - It’s been a real adventure, but I’m happy to tell you that just about all of the Acelas have been delivered. To those of you who bought one, congratulations and enjoy it. To those of you who didn’t, but have enjoyed speculating about it, thanks for all your interest and good wishes. There’s a lot I could say about how much work went into making it, and how proud we are to have gotten it done, but the Acela is perfectly capable of speaking for itself.

K-LINE – Having said that, another situation, K-Line, is in need of some explaining. The K-Line bankruptcy continues to generate a lot of legal documents, rumors and speculation that can only be weighed in verbal tonnage and lawyer’s fees. That’s why I want to set the record straight in plain English.

Pending only the final documentation of our agreement with Sanda Kan, K-Line’s main manufacturer and principal creditor, Lionel will take control of the K-Line brand, its tooling, its inventory of unsold products, and everything else that lawyers and accountants call, “assets.” As soon as we can straighten things out and get organized, Lionel will make new products under the K-Line brand, and market and sell those products as part of the Lionel line.

For those of you who have paid for but not received K-Line club products, Lionel is going to make good on your orders. It may take us a little time to sort things out, but I believe giving people what they’ve already paid for is the right thing to do, even though we will be doing so at our own expense. It’s also an important step in rebuilding the K-Line brand and demonstrating Lionel’s long term commitment to K-Line’s fans.

It’s too early to lay out the exact details of how everything will be done in the incorporation of K-Line into Lionel, but we’re working on it and expect a reasonably smooth transition.

NEW YORK CITY - We closed down the Grand Central, MTA Museum store Christmas layout and exhibit a couple of weeks ago. We were pleased to be told that more than 200,000 people came by to see it this year, a new record according to the folks at MTA. For those of you who didn’t get a chance to visit GST while it was on display, we have a ton of photos and video that we plan to put up on our site soon. Once again, hats off to Roger Farkash and his crew for making it a memorable return of the big L to the Big Apple.

Speaking of New York City, we’re also happy to let you know that as of this month, Lionel will open a new office and showroom at 33rd Street and Madison Avenue. The new office is only a few blocks from Lionel’s historical home and the old Madison Hardware, and it will be used in conjunction with our Chesterfield office. As soon as the dust settles, we plan to open the showroom for tours and, on a limited basis, access to the public.

Finally, I just want to say “thanks” to all of the Lionel fans and retailers who made 2005 one of the best in our recent history, and saw us through some pretty tough times just one year ago. We appreciate your dedication and support and promise to do our best to make 2006 even better.

Best regards,

Jerry Calabrese

[tmcc man]

Thanks for sharing that with us Bob.

[Anonymous]

I'm glad to hear Kline will be around in any form>

[Big_Boy_4005]

I was just thinking that this would be an excellent opportunity for Lionel to clean up it's product line. They could use the K-line name for all of their 027 and non scale products, and focus the Lionel name on the scale stuff. Actually, it wouldn't matter to me if they reversed that idea and made K-line scale and Lionel non-scale.

Just the idea of separate divisions and separate catalogs would give the entire market place better definition. Consumers would still have all the same choices, they would just know where to look for what they wanted.

I hate the humongous catalogs!!!

[AntonioFP45]

I'm happy that Lionel will continue onward. IMHO, things seemed a bit shaky after the bankruptcy announcement; but then again many businesses have hit bottom and bounced back up again.

Big_Boy_4005, hopefully Lionel will take the route that you've mentioned. Athearn did it and is enjoying some success in the "Genesis" line when they obtained Rail Power Products.

Though I'm currently an HO scaler, my first trains were Lionel O scale when I was a kid. I had a 3 car Santa Fe passenger set that my Dad gave me for my 7th birthday. I know now the sacrifice he made to save up and get me that train. I'm forever greatful.

Gave me many hours of enjoyment.

[Anonymous]

I think it all remains to be seen.

Let us look to our S Gauge friends and see how well Lionle has done in the past and currently with Flyer.

[Anonymous]

My initial observation is that this is a good move for Lionel. While it is not clear yet what Lionel plans to do with K-Line, the fact that the brand will still be around is good for the O gauge industry.

There are still many questions that have not been resolved concerning the bankrupcy of K-Line and it's partners. One of the questions is whether Lionel is only obtaining the marketing rights of the K-Line brand. It appears that Lionel, through a licensing agreement with Sanda Kan, will take control of the assets of K-Line but not actually purchase K-Line.

Financially, this allows Lionel to move forward with the K-Line brand, which they can incorporate into their product line to supplement their own products,
without any of the financial obligations of purchasing a company overwhelmed in debt.

From a PR and business perspective, Lionel comes out looking very good.
They will honor the advance purchases made by K-Line Club members and perhaps add a line of lower cost product to their current catalog.

Jerry Calebrese seems like a CEO with a vision. His hands on approach to running the company and his do it now attitude is a welcome change from past Lionel CEO's.

Steven Tapper
Northern Central High Railers