a. Claimant which is a Korean incorporation and Respondent which is an American incorporation entered into a Sales Agent Agreement ('The First Agreement of This Case’ hereunder) on June 1, 2006 to appoint Respondent as an exclusive sales and PR agent in USA and Canada for the rubber products and related spare parts that claimant produces. According to the First Agreement of This Case, Respondent is liable to make its best to sell and advertise Claimant’s products in the territory (Article 7.1) and Claimant shall be liable to pay USD 4,000 per month as Sales Support Fee till the earlier 1) for 2 years or 2) total order amount reaches USD 5,000,000(Article 8.3 and 9.2), and the term of agreement shall be 3 years after the day of agreement with 1 year extension possibility (Article 3.1).
Claimant and Respondent signed "Agreement on Contract Change" to change provisions of The First Agreement of This Case and to apply retroactively on May 16, 2008 (‘The Second Agreement of This Case’ hereunder). The main provisions of The Second Agreement of This Case are shown below.
In principle, the subject of the sales is Korean incorporation (Claimant),and to guarantee it, the signing party of the agreement resulted from PR and sales activities shall be Korean incorporation. The followings are guaranteed so that US incorporation (Respondent) can dedicate to sales activities with peace of mind during the term of this agreement as the sales agent of Korean incorporation.
2. Sales Right of US Incorporation
a. US incorporation pursues business as a contact point.
b. Territory and Customers of US incorporation are not restricted and it shall perform its business discussing the matter with Korean incorporation.
3. Restrictions on Product Range and Sales
The sales products of US incorporation shall include rubber related products for automobiles but US incorporation can transact other products or other companies after agreement with prior consultation. Additionally, US incorporation can produce and deliver products to the companies with which Korean incorporation directly deal.
This agreement is valid until May 31, 2017. Renewal of the agreement shall be negotiated a year before termination and renewal can be made every 4 year.
5. Confirmed Orders before Termination
If quotation or negotiation is pending before termination of the contract, it shall be processed in the same quotation method and conditions as if the contract had not been terminated.
6. Quotation Submittal
a. The final quotation shall be agreed in advance between two parties. Korean incorporation submits quotation to US incorporation based on the ex-factory price, and US incorporation submits the final price with Mark Up on the ex-factory price.
b. However, quotation for customer factories in Korea and China with which Korean incorporation has already dealt as of June 1 in 2008 does not accept Mark Up of US incorporation, and other things not specified here shall follow commercial practices in Korea.
c. US incorporation shall be consulted with Korean incorporation before submitting quotation to customer and if the final price in the order does not include Mark Up at all or include improper level of Mark Up, Korean incorporation shall consider profit of US incorporation separately.
7. Product Delivery Period
a. The term that Mark Up of US incorporation is acknowledged shall follow the term defined by quotation conditions to customer. Further extension of product delivery period shall be determined by mutual agreement.
b. ACR (Annual Cost Reduction) shall be paid by Korean and US incorporation according to pro rata of their share in the final price.
8. Range of Business
a. US incorporation shall be responsible for the whole process from the initial quotation to order taking and price related works.
b. After acceptance of order, Korean incorporation shall be responsible regardless of sales region. US incorporation can support Korean incorporation in this process, if necessary and the cost shall be paid by Korean incorporation.
9. Collection of Product Sales Money
Product sales money shall be received by Korean incorporation directly from customer and Korean incorporation shall deposit balance subtracting the quotation price submitted to US incorporation and ACR related amount to the account that US incorporation designated.
10. Aforementioned articles from 2 to 9 shall be applied to transactions with finished car companies only. With other companies than finished car companies, US incorporation shall be the party of the sales contract, receive sales payment and pay the amount to Korean incorporation.
11. Applicable Law and Dispute Settlement Process
Korean Law shall be applied to this agreement. All the disputes related to performance of this agreement shall be settled by arbitration by Korean Commercial Arbitration Board using Korean as medium of arbitration. The process can be processed through legal representatives that the parties designate, If necessary.
c. According to The Second Agreement of This Case, Respondent has performed sales activities as a sales agent of Claimant in US and other areas. In case customers are recruited resulted from sales activities of Respondent, in principle 1) In case the customer is a finished car manufacturer, Claimant shall enter into a Sales Contract with customer, receive product payment and pay Mark Up profit to Respondent (Transaction Type I hereunder), 2) in case the customer is not a finished car manufacturer, Respondent shall enter into a Sales Agreement with customer and receive product payment. Product shall be delivered to customer by Respondent who purchased the products from Claimant (Transaction Type II hereunder).
d. While they perform business according to The Second Agreement of This Case, there occurred the disputes regarding omitting some product payment received from customers between parties, and to resolve the disputes, they made the Sales Markup Agreement ("Markup Agreement" hereunder) relating with collecting payment and sales markup payment on April 29, 2011. Major contents of the aforementioned agreement are as follows.
1. Tongmyung Tongsan Co., Ltd. (Former company name of the Claimant) guarantees Sales markup of DMTS, Inc. (Respondent) as follows.
1) The items for integrated collection and Sales Markup application shall be all the products that DMTS, Inc. has received orders from customers. However, if the products are delivered to the factories of the customer in Korea and China, those transactions are excluded from Markup application but other areas are included in markup application.
2) Sales Markup payment ratio is tentatively determined as 10% of deposit and payment shall be made from the joint account to their respective designated account according to the provision of Escrow Agreement.
3) Regarding Markup ratio tentatively decided at Clause 2), two companies shall decide average Markup ratio every April as it shall be coordinated because of different Markup rate for new products and ACR agreed with customers and Markup rate specified in Escrow Agreement shall be changed accordingly.
4) To check difference according to different Markup ratio per products and settle accordingly, both companies shall disclose collection related materials voluntarily and underpayment or overpayment resulted from settlement between two companies at the end of each month shall be deposited accordingly to respective account designated at Escrow Agreement by 20th of the next month.
2. Markup application term shall follow the term determined by quotation conditions but extension of delivery period in the future can be decided by mutual agreement.
e. Claimant and Respondent entered into ESCROW Transaction Agreement (’Escrow Agreement’ hereunder) with KEB on May 3, 2011 according to Mark Up Agreement. According to the provision of Article 1 and 3, when the product payment arrives at Escrow account, KEB will transfer 10% Sales markup amount of the deposit to the account of Respondent through automatic transfer and transfer the balance subtracting Sales Markup amount and various fees to the account of Claimant through automatic transfer. For any other transaction than specified in Escrow Agreement, Payment Agreement jointly signed by Claimant and Respondent is needed.
f. Claimant filed lawsuit to Seoul Central District Court as 2012KaDan3571 claiming that they have 0.6 billion Korean won Receivables of automobile related rubber part product payment and received decision of provisional attachment of Sales Markup Payment Request Right of Respondent against KEB.
g. Claimant notified to cancel the First and Second Agreement of This Case on October 30, 2012 ('Cancellation Notice on October 30, 2012’ hereunder) to Respondent claiming that Respondent has collected Part Sales Payment (‘Product Payment’ hereunder for unification) from customers violating "The First and Second Agreement of This Case" and did not pay the amount that should be paid to Claimant.
h. Around that time, Claimant filed a claim for arbitration to Korean Commercial Arbitration Board as 12113-0033 claiming that Respondent has not paid some of Transaction I and II product payment and tooling cost and requesting unpaid payment of 3,968,747,345 and delay penalty. Respondent filed counter claim to Korean Commercial Arbitration Board as 12113-0036 claiming that Respondent has credit of 1,477,536,542 and delay penalty for Business Supporting Cost and balance of Markup Profit from product payment deposited to Escrow account from June 16, 2011 to May 30, 2013. Arbitration Tribunal that tried the aforementioned cases accepted a part of claimed amount of each party and decided as follows on April 10, 2014. "Respondent shall pay 1,482,971,408 Korean won and interest on 1,150,038,201 Korean won from June 30, 2012 and on the rest of 332,933,207 Korean won from February 23, 2013 to April 10, 2014 at the rate of 6% per annum, and from the next day to the day when the payment is fully paid off at the rate of 20% per annum to Claimant." It is the arbitration judgment and it called ‘The First Arbitration Judgment’ and the arbitration process is called ‘The First Arbitration Process.’
i. Respondent made Set Off notification (‘Set Off Notification dated on January 28, 2015’ hereunder) showing its intention that the whole monetary credit of Claimant according to ‘The First Arbitration Judgment’ shall be set off from the unpaid Mark Up profit credit up to the date of Set Off Notification Date.
j. Claimant received the judgment of execution of ‘The First Arbitration Judgment' from Seoul Central District Court on May 15, 2015 as 2014 Ga Hab 537477 and received Seizure of Credit and Order of Collection on Sales Markup Payment Request Right of Respondent on KEB with the claiming amount of 1,974,587,387 Korean won (Principal 1,482,971,408 Korean won plus Delay Penalty 491,591,129 Korean won) from the same court on June 11, 2015 as 2015 Ta Chae 14056. Claimant collected 819,196,394 Korean won from KEB on July 1, 2015 based on the aforementioned Seizure of Credit and Order of Collection.