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Ideal opposes releasing ASE from licensing and manufacturing contracts

Published December 4, 2018

DURHAM, N.C. (BRAIN) — Taiwan-based manufacturer Ideal Bicycle Corp. has told the bankruptcy court here that it opposes Advanced Sports Enterprises' request to be released from its manufacturing and licensing agreements with Ideal.

ASE, which filed for Chapter 11 bankruptcy protection on Nov. 16, has asked to be extricated from its agreements with Ideal, which, besides making most of its bikes, has long been a major investor in ASE and Advanced Sports Inc., the owner and distributor of bike brands including Fuji, Breezer, Kestrel and SE Bikes.

ASE wants the licensing contracts to be nullified in part to prevent Ideal from selling bikes it had built for ASE before the bankruptcy. ASE said selling the bikes through other channels or markets could devalue the bike brands, which are expected to be auctioned later this month.

Under a manufacturing agreement that ran through 2021, Ideal had rights to distribute bikes and parts and accessories under the ASE brands in Taiwan and China. Ideal also paid ASE $6 million for a licensing agreement that allowed Ideal to use the brands in Europe, Asia and Oceana for five years.

Ideal said it currently has $2.2 million worth of completed products ordered by ASE, as well as $5.6 million worth of partially completed products. On Nov. 13, Ideal had sent a letter to ASE demanding payment of $12.5 million in trade debt and said it would terminate outstanding purchase orders on Nov. 15 unless the situation was rectified. ASE did not responded to the demand, but filed the Chapter 11 petition three days later.

Ideal is asking the court to reject or at least delay ASE's motion to be released from the contracts. It said ASE had not presented evidence that if Ideal sells the inventory it would devalue ASE's assets. It also noted that if Ideal is forced to dispose of the products, Ideal could then make a claim against ASE for the full selling price of the inventory, which would increase ASE's debt obligations in the bankruptcy.

The court is expected to consider the motion at a hearing on Thursday.

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