1. FACTS AND CLAIMS
1.1 International bid stage - Contract between EBO SA and Greek Police

The Greek Police, through the Greek Ministry of National Defense, and in cooperation with the Hellenic Weapon Industry of SA ["EBO SA"], wanted to acquire bullet-proof vests for its personnel. EBO SA undertook to manufacture and provide the vests to the Greek Police. Prior to the conclusion of the contracts, EBO SA launched an international lowest-bidder tender for the supply of bullet-proof material to be used in the manufacture of the bullet-proof vests. EBO SA sent invitations to various manufacturers (Dupont, Twaron Products, Plasan Sasa, Petris Solvises, Ares Protection, DSM Dyneema).

Based on EBO SA's invitation, Electromichaniki Kimis EPE, a corporation with its registered seat in Greece and a direct subsidiary of EBO, SA, offered to manufacture bullet-proof vests providing a level of protection corresponding to the specifications set out by the National Institute of the USA (NIJ) 0101.03, level IIA, with the understanding that the vests would be tested at an official laboratory in accordance with the methods of NIJ.

Eletromichaniki Kimis EPE had past experience with the unprocessed material of DSM Dyneema, a corporation with its registered seat in the Netherlands. Their cooperation had started on 1994, when DSM Dyneema sold UD Dyneema sheets to Eletromichaniki Kimis EPE.

Detailed evaluation criteria [for light equipment of NIJ IIIa type] were sent by EBO SA together with the invitation to DSM Dyneema. On 14 February 2000, DSM Dyneema submitted its Financial Tender to EBO SA for alternative specifications/solutions of material Dyneema SB21 and Dyneema SB 31 in connection with the order set by the Greek Ministry of National Defense. In particular, Dyneema UD-XSB 31 was an experimental light bullet-proof material. At annex 4 of its offer, DSM Dyneema noted that this was a new material in the market and did not exist for enough time to have data resulting from real experience; however, it warranted that Dyneema UD-XSB 31 complied with the specifications set out in the technical manual issued for this type, for a "life" expectancy of ten years from the date of delivery, provided that the terms set out in the technical manual were complied with.

EBO SA selected the Institute of Granfield University in order to proceed with ballistic tests on the RMCS Shrivenman at two models NIJ 0101.03 and NIJ 0108.01. At the tests that took place in November 2000 at the University of Granfield in order to select a supplier for Electromichaniki Kimis EPE, following the request by EBO SA, use was made of the potential bullet-proof materials and not of vests manufactured by such material with specific design.

Based on the results at the University of Granfield, EBO SA and Elecctromichaniki Kimis SA considered that the offer submitted by DSM Dyneema was the most beneficial and elected to purchase from DSM Dyneema the unprocessed bullet-proof material UD-XSB31, in order for Electromichaniki Kimis EPE to manufacture bullet-proof vests.

On 21 June 2001, an agreement (no. 16A/2001) was executed between the Ministry of National Defense and EBO SA [the "EBO Supply Agreement"] under which EBO SA agreed to supply to the Greek Army and the Greek Police 10,020 bullet-proof vests with protection level IIA and 2,000 bullet-proof slabs with protection level III. The EBO Supply Agreement, among others, provided that:

(a) EBO SA would have the exclusive responsibility for the qualitative examination of the DSM Dyneema material (and any technical improvements - amendments) to be performed at its premises (Clause 5 and 7); and

(b) The contractual material would be accompanied, upon delivery to the Committee for the final take over, with compliance certificates of the Seller and of EBO SA which would cover the inland part, as well as the vest as a final product (Clauses 5 § 2 and 7 § 1);

(c) Following production of the vests by EBO SA and delivery of each installment and written notice to the Greek Ministry of Defense, the Greek Ministry of Defense would proceed with a qualitative examination of the end product and qualitative receipt of the product (Clause 7 § 2);

(d) EBO SA warranted the good "behavior" of the bullet-proof material of DSM Dyneema for ten years (Clause 9 § 1).

(e) Within twenty days of the determination of a defect, the Greek Ministry of Defense would provide a written notification to EBO SA, in connection with any defective part, which would be covered by the contractual warranty and would return such defective part to the premises of EBO SA, accompanied by detailed relevant minutes explaining the reasons for which repair or replacement is necessary and EBO SA would proceed with any necessary repair as soon as possible at its own expenses (Clause 9 § 4);

(f) In the event that, within the warranty period, a defective part of the same material appears for a percentage exceeding 10% of the goods received, such defect would be classified as "systematic" and EBO SA would be obligated to replace the defective part in all material, free of charge for the Ministry of Defense; and

(g) The manufacturing of the vests would take place at the premises of EBO SA and at the premises of Greek sub-contractors (Clause 11 § 1).

1.2 Contract of sale between DSM Dyneema - Electromichaniki Kimis EPE

Following the said international lowest-bidder tender, DSM Dyneema [the "Seller"], agreed to sell to Electromichaniki Kimis EPE [the "Buyer"], 155,000 linear meters of bullet-proof material of the type "DYNEEMA UDX/SB31" [the "Material"] and with 160 cm in width, to be delivered in Athens, for the price of €2,515,464.00, under the terms of contract of sale no. 46/2001 dated 4 July 2001 [the "Sale Contract")]. It was agreed that the Seller would deliver the agreed quantity of Material in seven (7) installments as follows [as set out in Clause 2.1 of the Sale Contract]:

- 1st installment: 15,000 linear meters by January 2002;
- 2nd installment: 20,000 linear meters by February 2002;
- 3rd installment: 20,000 linear meters by March 2002;
- 4th installment: 25,000 linear meters by April 2002;
- 5th installment: 30,000 linear meters by May 2002;
- 6th installment: 30,000 linear meters by June 2002;
- 7th installment: 15,000 linear meters by July 2002.
The Department of Purchase and the Department of Qualitative Examination of the Buyer would take over each installment and would perform initial examination of the material (Clause 2.3 of the Sale Contract).

Each installment would be accompanied by a Quality Compliance Certificate (Clause 2.6 of the Sale Contract).

Payment of the purchase price by the Buyer would be effected as follows (as per Clause 3.2.1 of the Sale Contract):

- 40% of the total purchase price (i.e., €1,006,185.60) would be paid in advance by 15 July 2001 against a bank guarantee.

- The remaining balance (i.e., €1,509,278.40) would be paid in installments within thirty days after receipt of an invoice for each delivery installment (Clause 3.2.2 of the Sale Contract).
The Buyer was entitled under the Sale Contract to reject the Material in full or in part if it was not in absolute compliance with the contractual specifications (Clause 4.1 of the Sale Contract). In the event that the Material was rejected in full or in part, the Seller would be obliged to replace the rejected Material with an equal quantity of Material which would be in absolute compliance with the contractual specifications; the said replacement should be effected within thirty days as of the notification of the relevant report of the Buyer's Department of Quality Control; the Seller would bear any cost for the transportation of the replacement quantity of Material to the Buyer (Clause 4.2 of the Sale Contract). The Seller warranted that the Material was free from any legal defect (Clause 7.2 of the Sale Contract) and any apparent or hidden real defect (Clause 7.3 of the Sale Contract)1.3 Performance of the Sale Contract by Seller and Buyer

In order to perform the Sale Contract, the Buyer paid in advance to the Seller on 12 June 2001 the amount of €1,006,185.60 (40% of the total price). During the period between 11 January 2002 through 19 July 2002, the Seller delivered in installments to the Buyer (ten shipments) 125,129 liner meters of Material. The Quality Compliance Certificates that accompanied the delivered installments confirmed that:

(a) The Material complied with the applicable manufacturing specifications for the product level which had been examined, pursuant to the internal examination procedures adopted by the Seller; and

(b) The Buyer should examine the fitness of the level for the actual application and [the Buyer] was not discharged from its obligation to effect the usual examination for the product that it was taking over.

It is mentioned in the judgment that based on: (a) the content of the Quality Compliance Certificates; and (b) a witness statement under oath dated 5 November 2005 (delivered by the Seller's Vice-Chairman of the Department of Life Protection for Asia, the Court found that the Seller as supplier of raw material only warranted that the raw material should comply with its relevant specifications and no further warranty was provided. It was for the manufacturer of the vests to select the raw material for the manufacturing of the [bullet-proof] vests and to design and manufacture the vests in the appropriate manner, in order to achieve the necessary level of protection.

1.4 Non-payment of outstanding purchase price by the Buyer

Every shipment went through qualitative and quantitative examination by the Department of Purchase and the Department of Qualitative Examination of the Buyer and the Buyer never rejected any quantity of delivered Material. The Buyer paid the price for the first six installments/shipments of Material. However, the Buyer did not pay the price for the subsequent four installments/shipments corresponding to:

- 5,461 (inv. no. 13196/30 May 2002),

- 25,000 (inv. no. 13.195/31 May 2002),

- 24,600 (inv. no. 13.439/19 July 2002), and

- 24,600 (inv. no. 13.440/19 July 2002) linear meters of Material
although: (a) 60 days passed [an additional period of 30 days was granted by the Seller to the Buyer] as of the date of issue of each invoice; and (b) the quantities of Material had been taken over by the Buyer.

1.5 Meeting in Athens 25 September 2002 - Failure at 20 September 2002 ballistic test: penetration of a bullet-proof vest

There was correspondence between the Seller and the Buyer and a meeting took place in Athens on 25 September 2002 where: (a) the Buyer informed the Seller that it would discharge the outstanding invoices by the end of September 2002; and (b) for first time, the Buyer informed the Seller that there was a "failure" during tests effected by the Greek Police on 20 September 2002. The Seller during the meeting agreed to offer to the Buyer full assistance, transparency and access to its records and declared that it would do its best for the clearance of the matter.

In connection with the said "failure" during the tests, from the text of the judgment the following appears to have happened:

On 20 September 2002, the Visiting Team for Qualitative Examination, which had been established for the monitoring of the EBO Supply Agreement, proceeded with ballistic examination at the premises of the ballistic station of PYRKAL of a bullet-proof vest manufactured from sample Material originating from the 5th installment/shipment of Material. The ballistic examinations included shots with sub-machine-gun of 9 mm and MAGNUM pistol 44 mm. The following ammunition was used: 9mmX 19 Full Metal jacket Lot 304-IVI-79. This was not the ammunition set out in annex B of the EBO Supply Agreement which should be used for the operative examination of the sample bullet-proof vest.

In particular, during the ballistic examinations it was found that in the 5th shot (out of 6 shots) with the MP5 sub-machine-gun, from a five meter distance and with a speed of 426/15m/s, the vest was penetrated. In particular, as set out in a Failure Analysis dated 31 March 2003 prepared on behalf of EBO SA, the bullet-proof vest that was examined was of an external type with a zip on the front side and each of two front breastplates was covering the other front breastplate for approx. 10 cm; it was further noted that the "failure" took place at the imaginary line of overlapping of the specific vest.

Due to the said penetration it was resolved by the Visiting Team for Qualitative Examination and the representatives of the end-user of the vests (i.e., the Greek Police) that EBO SA should proceed with a Failure Analysis of the incident and the 5th lot of vests should be returned to EBO SA.

1.6 Correspondence related to the non-payment of the outstanding purchase price and the non-taking over of the remaining material

During the meeting that took place in Athens on 25 September 2002 (see paragraph 1.5 above), the Buyer did not set as a condition for the discharge of the outstanding invoices the issue of the results of the Failure Analysis.

The Buyer although having received goods the price of which corresponded to €438,771.58, did not pay this amount despite continuous notifications by the Seller. In addition, the Buyer told the Seller not to deliver the last installment of goods (the price of which corresponded to €290,856.22) since the bullet-proof vests that the Buyer manufactured for the Greek Police were defective, due to the fact that within the context of a sample check, a bullet penetrated a vest at a specific point. Despite the fact that the Buyer had reassured the Seller that it would discharge the outstanding invoices by the end of September 2002, [the Buyer] only discharged on 3 October 2002 invoice no. 13195/31 May 2007 (equal to €243,432 which was the purchase price for the 8th shipment).

By means of a facsimile message, the Seller protested on 8 October 2002 to the Buyer and to EBO SA over the non-payment of the outstanding invoices no. 13196/30 May 2002, 13439/19 July 2002 and 13440/19 July 2002, setting a new period of fourteen days for the discharge of the total outstanding amount, and informed the Buyer that otherwise it would assign the collection of the outstanding amount to a third party.

On 8 October 2002, the Business Director of EBO SA by means of a facsimile message informed the Seller that the [Seller] would receive the purchase price on the condition that the Greek Police would pay the purchase price to EBO SA from the sale of the vests under the EBO Supply Agreement.

On 9 October 2002, by means of a facsimile message from the Business Director of EBO SA, the Seller was notified that payments of the outstanding purchase price would be suspended until completion of the analysis of the Failure Analysis.

On 18 October 2002, by means of facsimile message from the Business Director of EBO SA, the Buyer was informed that on 20 September 2002 the penetration happened on the vest during the test (see item 1.5 above) and invited the Buyer to participate in ballistic examinations over the same ballistic material that had been scheduled within the context of the failure analysis and which would take place on 30 October and 1 November 2002 over samples to be selected randomly from the Dyneema 110097 lot and in particular box no. DSM 2002203244 which included Material from which the penetrated vest had been manufactured.

As results from the Failure Analysis and from the content of a letter of the Buyer to the Greek Police dated 1 October 2003, in the ballistic Station of PYRKAL, the Material which was used for the text was the same as the Material that was used for the manufacturing of the vest which was penetrated.

1.7 Additional test on 30 October 2002

On 30 October 2002, while representatives of the Buyer were present, 80 shots were effected with an MP5 gun, from five meters distance and with the speed of 426+/-25m/s: these shots did not cause any unusual behavior of the Material in order to render it suspicious for the causing of failure.

1.8 Results of Failure Analysis

Having evaluated the ballistic tests with Dyneema SB 31 Material (see paragraph 1.5 and 1.7 above), the Failure Analysis dated 10 March 2003 concluded that from the results of the ballistic tests, one could not attribute the failure of the bullet-proof vest to a systematic failure of the bullet-proof Material Dyneema SB 31 that was used. However, since the failure occurred at the imaginary line of overlapping [of the two chest covers] of the specific vest, in order to test the design of the vest, a model was used in order to check the effect of the design factor (that is with chest overlapping 36 sheets of SB31 [40cmX40cm] and chest overlapping 36 sheets of SB31 [20cmX40cm]). In five shots that took place on 1 November 2002 in the PYRKAL Ballistic Station with the MP5 gun, from five meters at a speed of 426+/-15m/s, one penetration appeared. The Failure Analysis of 10 March 2003, among others, concluded that this penetration was a strong indication of bad operation of the bullet-proof Material Dyneema SB31 in the specific design [of the vest]. In addition, it concluded, that the tendency of the Material in the event of unidirectional structure of the SB31 Material when the chests are overlapping, was clearly larger in comparison with the case of homogeneous substratum. Finally, that the resistance of the chest to penetration was relative to the resistance of the fibres, which in the event of non-homogenous substratum was more distressed and as a result an increased possibility of penetration appeared. It was further noted in the judgment that at those shots, the following ammunition was used, i.e., 9X9mm NATO of the Canadian company IVI (LOT 304-I.V.I.-79), with a nominal mass of bullet 7.5g. (115 grains) and not the ammunition provided by annex B (part of the operating test of the bullet-proof vests) of the EBO Supply Agreement (see paragraph 1.1 above). There was no study over the analysis of the factor of the ammunition behavior. In addition, during the test there were high speeds V2 (average of 434m/s), in comparison to the requirements of the specification (426 m/s), while four out of the counted during test speeds V2 (out of 18), were exceeding the limit set by the specification (441m/s). At the end, the Failure Analysis suggested aramid material (Kevlar, Twaron) as a remedy for the improvement of the bullet-proofing operation of the Material [in comparison to the Dyneema SB31 structure], which is available in fabric form, due to the fact that in tests effected on 6 December 2002 at the ballistic station of PYRKAL with an MP5 gun, from a distance of five meters and speed of 426+/- m/s, with ten shots at sample of 40cmX40cm Twaron CT 709wrt (29 Layers) placed on top of sample 40cmX20cm SB31, it appeared that there was no penetration and that the bullets were deformed regularly and symmetrically, which constituted a strong indication that the causes which resulted in failure did not exist any more.

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