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ASE asks court to cancel Roubaix contract with Specialized and to abandon inventory

Published December 19, 2018
DURHAM, N.C. (BRAIN) — Advanced Sports Enterprises has asked a bankruptcy court to cancel its licensing agreement with Specialized Bicycle for the Roubaix trademark. ASE also is asking the court for permission to abandon inventory worth about a third of a million dollars wholesale, currently held by a broker.
ASE on Wednesday asked for an expedited hearing on both matters and the court agreed to hold a hearing  Jan. 3. The hearing on the inventory was originally scheduled for Jan. 10. A hearing on the Roubaix motion hadn't been scheduled. 
ASE is asking the court to reject the trademark licensing agreement it has held with Specialized since 2003.  ASE’s Advanced Sports Inc. division, the parent of Fuji Bicycles, owns the Roubaix trademark and has had a Fuji Roubaix road bike model in its lineup since 1992. In 2013, the trademark was the center of a much publicized dispute between Specialized and a Canadian retailer, Cafe Roubaix. Specialized had threatened to sue the retailer over use of the Roubaix name, but ASI stepped in to note that Specialized actually was a licenser of the mark, not the owner. The dispute was settled amicably. 
In the court filing made Wednesday, ASE said it had determined that the licensing agreement with Specialized “is no longer necessary in connection with the operation of (ASE's) businesses and that it negatively impacts the potential purchase price that can be obtained for (ASE's) assets.”
It said rejecting the contract would substantially increase the value of the mark, which is among the ASE assets set to be sold next month. Wells Fargo Bank was assigned a security interest in the Roubaix trademark, as well as many other ASE-owned marks, including Fuji, Breezer, Kestrel and SE, in 2016.
Inventory in limbo
On Monday, ASE asked the court for permission to abandon inventory that is in the possession of a broker, Expeditors International of Washington, Inc.
The inventory was ordered by ASE's Performance Direct e-commerce division. When ASE filed its petition for Chapter 11 on Nov. 16, the inventory was in the country but still in the possession of the broker. The broker will not release the inventory until it is paid about $151,000 for freight, customs duties and other charges, some of which are continuing to accrue as the goods sit. 
Bankruptcy law allows trade creditors to make a claim for priority payment on shipments received within 20 days before a Chapter 11 filing, as an administrative expense necessary for the continued operation of the business. 
However, according to ASE’s motion, inventory in possession of a broker is in unexplored legal territory. "The undersigned is not aware of any caselaw discussing the circumstance in which goods were delivered pre-petition, but not received (i.e., physically possessed) until after the petition date," the motion reads. "However, it is difficult to contemplate a finding that a claim for goods received within the 20 days pre-petition would be entitled to administrative expense status, but goods received post-petition would not.”
ASE argues that proceeds from the sale of the inventory would be less than what it owes the broker, so paying the charges and taking the inventory would not contribute to the ongoing operation of the business. Performance is currently liquidating its inventory, so the goods would be sold at far less than full retail. 
According to 123 pages of invoices that ASE filed with the court, the inventory in possession of the broker includes hundreds of bicycle display stands from a Hong Kong company, almost 1,000 wheels from Kemco Group, hundreds of Elite trainers and bottle cages, a few hundred WTB tires, a few hundred Kali Chakra Solo helmets, 67 cartons of Lezyne accessories, a few hundred Bulldog locks from Todson, some SRAM components, and a large amount of parts and accessories labeled with the house brands Forte, Spin Doctor, Travel Trac, and others.
The total cost of the inventory according to the included invoices is about $332,000 as totaled by BRAIN. ASE told the court it was unable to find three invoices connected to the order. Lezyne, Elite, and Todson are among ASE's largest unsecured creditors, as is Ramiko, a Taipei exporter that sold much of the house-branded inventory included in the shipment. 
December 20 hearing
A hearing is scheduled for Thursday on several issues, including ASE's request to for the court to reject its trademark licensing and manufacturing agreements with Ideal Bicycle. On Wednesday, Wells Fargo, one of ASE's largest secured creditors, filed a statement with the court in favor of rejecting the licenses for the use of ASE-owned bike brands. ASE has argued that rejecting the license would increase the value of those brands; it also would prevent Ideal from selling branded bikes it has already built for ASE but has not delivered.
Wells Fargo said canceling the contracts "represents the exercise of sound business judgment by the Debtors, and is in the best interests of these estates." It said that if the contracts are not canceled, it would have "a chilling effect on the sales process." The official committee of unsecured creditors also supported the motion by ASE.

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