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Bankruptcy court cancels ASE's contracts with Ideal; Ideal to appeal

Published December 21, 2018

DURHAM, N.C. (BRAIN) — A U.S. bankruptcy judge has approved Advanced Sports Enterprises' motion to cancel its licensing and manufacturing contracts with Ideal Bike Corporation, a Taiwan-based manufacturer that has been a backer and manufacturer for ASE and its ASI division. Ideal told the court it will appeal the decision

Rejecting the contracts means Ideal cannot use ASE's trademarks, including the Fuji bike brand and others. ASE said the move increases the value of the trademarks, which are among the ASE assets set to be sold next month.

The move to reject the contracts was supported by the committee of unsecured creditors and by Wells Fargo, one of ASE's largest secured creditors.

Judge Benjamin Kahn said there was no reason to doubt ASE's decision and its reasoning that freeing the trademarks of the license agreement would make them more valuable, meaning that ASE's creditors would eventually recover more of the money they are owed (ASE made a similar argument in asking the court to reject its licensing agreement with Specialized, which licenses the Roubaix bike model name from ASE. A hearing on that request is scheduled for Jan. 10.).

Kahn's order bars Ideal from using any of the licensed trademarks or selling any bikes, parts or accessories with the ASI brands. 

Following a hearing Thursday, Ideal's lawyers told Kahn they would appeal and asked for a stay on his order pending the appeal. Kahn has scheduled a hearing for Jan. 3 to consider the stay request.

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

In previous court filings Ideal argued that if the contracts were rejected, it would be forced to dispose of products it already built for ASE. It said it had $2.2 million worth of completed products ordered by ASE, as well as $5.6 million worth of partially completed products.

It argued that if forced to dispose of that inventory, it would then make a claim against the bankrupt company for the full selling price of the inventory, which would increase ASE's debt obligations in the bankruptcy. In his order Thursday, Kahn said Ideal could file a claim for losses resulting from the decision but that claim will be treated like any other creditor's claim.

Ideal invested $20 million in ASI last January, taking a 50 percent share in the company, which is a division of ASE and the owner and distributor of brands including Fuji, Breezer, Kestrel and SE Bikes. Ideal has a 17 percent share in ASE, and also is one of ASE's largest secured creditors, owed over $24 million according to ASE's most recent schedule of assets and liabilities.

ASE was formed in 2017 as the parent company of ASI and the Performance retail chain. ASE filed for bankruptcy on Nov. 16.

Performance is continuing to run liquidation sales at all 102 of its locations. All the stores remain open.

The sale of all ASE assets is set for next month. The bid deadline is Jan. 11. An auction will be held Jan. 15 if there are competing qualified bids. Assets will be offered individually and in groupings.


Topics associated with this article: ASE Bankruptcy

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