VII.

Conclusion
For the foregoing reasons, OPIC concludes that the claim of the Investor is valid. The

amount of compensation to be paid for the lease coverage for the period October 1
through December 31, 2002 is determined to be $114,565.64, inclnding interest.

OVERSEAS PRIVATE INVESTMENT CORPORATION

by PE Sle 55 |
poe

Peter §. Watson

President and Chief Executive Officer

Date: Z2/3f0%



(1). Adjustments to Compensation

The adjustment to compensation set forth in Section 7.02.2 of the Contract, which
authorizes OPIC to “reduce its compensation by the amount of any compensation
received by the Insured from any other sources on account of the political violence,” does
not apply, as the Insured has not received any other compensation.

The adjustment to compensation set forth in Section 7.02.3 of the Contract does not
apply, as the Insured has not leased any other asscts to the lessee.

(2). Limitations to Compensation

The limitations to compensation sct forth in Sections 7.03(a) and (b) of the Contract do
not apply, as the proposed compensation will not exceed the covered amount and the
claim does not include any penalty interest or penalty fees. The active amount is
$1,277,992. The active amount will be reduced by the amount of compensation paid.

(3). Assignment of Leases

Section 8.02 of the Contract, as amended by Section 10,14 requires the Insured to either
transfer to OPIC, within ten days after OPIC notifies the Insured of the amount of
compensation it will pay, the lease agreement in respect of which compensation is to be
paid or, at OPIC’s option, to “transfer to OPIC a beneficial interest in such lease and
related rights.” Because of the continuing nature of the political violence, OPIC is not in
a position to remove the equipment. Additionally, itis possible that the political violence
will cease and the Insured will be able to resume operations. If that were to occur, then
OPIC would be relieved of making furthcr payments pursuant to the Contract. Therefore,
OPIC determincil, in the August 2, 2002 MOD, that, it would require an assignment of
rights, rather than an assignment of the leascs, as a condition precedent to payment of
corpensation, pursuant to Section 8.02 of the Contract. The Insured entered into that
assignment of rights.

b. The Insured’s Duties Pursuant to the Contract
Article IX of the Contract establishes the duties of the Insured.

OPC determines that the Insurcd has fully complied with all of its obligations pursuant
to the provisions of Article LX of the Contract, In particular, the Insured is in compliance
with regard to its eligibility. It gave prompt notice to OPIC of the events of political
violence that gave risc lo the claim and has taken reasonable measures to preserve the
property, She Insured has fully cooperated with OPIC by giving it complete access to its
books and records, which OPIC has determined to be adequate, and made available for
interviews executives and other employees with direct knowledge of the Project. Section
10.18 of Contract No. F074 amended Article IX of the Contract to add additional duties
including, among others, Environmental Compliance and Workers Rights. OPIC, in the
August 2, 2002 MOD determined that the Insured had fully complied with its obligations
with respect to those dutics. The mine has been closed since, May 19, 2001. Therefore
these provisions are not applicable to the instant determination. ,



1.

Lith

MEMORANDUM OF DETERMINATIONS
Political Violence Claim of Sector Capital Corporation

Contract of Insurance No. F074

The Claim

By letter dated January 21, 2003, (Exhibit A), Sector Capilal Corporation (the “Insured”
or “Investor”) filed an application for compensation pursuant to Contract of Insurwnce
No. F074 for the period October 1 through December 31, 2002. The Insured alleges that
an act of political violence, as more fully described below, occurred on May 19, 2001, at
the site of the Las Animas precious minerals mine in the State of Tolima, Colombia (the
Project”) and is continuing. The Insured has advised OPIC that, as a result of the
political violence it has ceased all operations at the Project and has sustained covered
losses.

OPIC has determined that the claim is valid and that compensation is now payable in the
amount of $114,565.64 including interest.

The Insnrance Cantract

The Contract of Insurance was entered into with the Insured in 1999,

Contract of Insurance F074, an OPIC Form 234 LP 7-86A Pi. (Rev. 9/89), (the “Contract”)
(Exhibit B) was issued effective August 18, 1999, to cover the Insured"s $2 million lease
payments for equipment used at the Project. The maximum coverage under this policy is
$3,500,000. The active amount of coverage on October 1, 2002 was $1,237,495. However,

on its next renewal date, Novernber 18, 2002, the Insured elected an active amount of
$1,277,992.

Factual Background

A. The Project and the Insured.

The Projcct involves the acquisition and expansion of the Las Animas
underground quartz, gold and silver mine (“Las Animas”) in the State of Tolima,
Colombia. Sector Resources, Ltd. (“Sector Resources”), a U.S.-owned Cayman
Islands company, has made up to a $3.5 million cquily investment into its
Colombian brunch (“Sector Resources Colombia”}, as well as 4 $2 million



Iv.

equipment leasc to the Colombian branch through one of its U.S. affiliates, Sector
Capital Corporation (“Scetor Capital").

A complete discussion of the factual background of the Project, the events
triggering the political violence, the remedial steps taken by the Insured and the
Insured’s compliance with the Contract are contained in the August 2, 2002
Memorandum of Determinations (the “MOD”), The MOD considered and
approved the initial claim by the Insured for the period May 19, 2001 through
May 18, 2002. The MOD found the claim to be valid and, at page 10, concluded
that, if the political violence continued, the Insured would be entitled to receive
additional compensation pursuant to the Contract for claims for defaults on lease
payments, which claims were to be submitted quarterly. OPIC retained the
accounting firm of Deloitte & Touche (“Deloitte”) to assist it in analyzing the
Insured’s initial claim. Deloitte prepared a report to OPIC, That report included an
analysis and model of the Jeasc claims throughout the term of all thirtecn leases
with payment schedules on an actual and accrued basis.

Determinations Under the Contract

A determinution under an OPIC insurance contract addresses three categories of issues:
(1) whether the acts complained of satisfy all the elements required to bring them within
the scope of coverage; (2) the amount of compensation payable; and (3) whether the
insured fulfilled its duties under the insurance contracts.

As stated above, the August 2, 2002 MOD concluded that the loss was due to
political violence. Accordingly, as the instant application alleges a consccutive
default arising from a continuation of the political violence, Section 8.01{c) of
the Contract provides that OPIC shall be liable for subsequent consecutive
defaults unless it determines that the latter defaults were not caused by political
yiolence. OPIC also paid a subsequent claim for defaulted lease payments for the
period May 19 through September 30, 2002 pursuant to a Memorandum of
Determinations dated October 25, 2002. The Insured submitted documentary
evidence, including a report dated November 19, 2002 of an additional visit to the
site by guerillas on November 17, 2002, demonstrating that the political violence
is continuing. The United Statcs Embassy in Bogota has confirmed that political
violence is continuing in the area where the Project is located. Accordingly, OPIC
has no busis for determining that the continuing closnre of the Project and losses
covered under the Contract were not the result of political violence. As will be
discussed, more fully, below, it is further determincd that the Insured fulfilled its
dutics under the Contract, and compensation should now be paid in the total
amount of $114,565.64,

1. Section 6.Q1 of the Contract — That the loss was due to political violence,



VI

(a) The evidence submitted by the Insured regarding the activities of the
FAR clearly satisfies all of the elements required to bring them within the scope
of the definition of “political violence” set forth in Section 6.01 of the Contract.

2. Section 6.01 of the Contract — that political violence has been the direct and
immediate cause of defaults on scheduled lease payments.

(a) The requirement of coverage pursuant (o the provisions of Section 6.01
of the Contract “is the direct and immediate cause of a default on a scheduled
payment and such default continues for one month.” Accordingly, the scope of
coverage condition has clearly been met.

3. Section 6.02 of the Contract — That none of the Exclusions applies.

(a) The Contract has, as a single exclusion, provocation on the part of the
Insured. The evidence submitted by the Insurcd clearly demonstrates that it
engaged in no activity that would bring it within the Exclusions provisions of
Section 6.02 of the Contract.

Basis of Compensation Under the Contract

Section 7.01 of the Contract provides that, assuming the requirements of Article VI are
satisfied, OPIC shal) pay compensation in the amount of the insured portion of the
scheduled payment in default “plus interest aceruing from the later of (i} the date of the
scheduled payment or (ii) the date occuring one month prior to the date of reecipt by
OPIC of the completed application for political violence compensation, through the date
of payment of compensation by OPIC, at the average daily federal funds rate in effect for
such period.”

Because there are thirteen separate lease contracts with different commencement and
payment dates. OPIC, for its administrative convenience, and with the consent of the
Insured, concluded that it would consider applications for compensation on a quarterly,
accrued basis. This procedure avoids the Insured having te submit, and OPIC to consider,
a multipticity of small claims. While this procedure is not consistent with the language of
Section 7.0) of the Contract, it reaches the same result with fewer burdens on both the
Insured and GPIC.

Analysis of the Compensation Claimed

The Insured is entitled to compensation, pursuant to Section 7.01, in the amount of
$126,732, the insured portion of lease payments for the period in default. Attached hereto
as Exhibit C is a schedule of lease payments prepared on an accrual basis through the
term of euch of the thirteen leases. From that amount OPIC will deduct $12,673, which
Tepresents the 10% self-insurance requirement of the Contract. To that will be added
interest in the amount of $506.64 computed at the average daily federal funds rate for the
period as required by the Contract, for a total of $114,565.64.