VU.

Section 8.02 of Contract F074, 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 leaxe and
related rights.” Because of the continuing nature of the political violenec, OPIC was not
in a position lo remoye the equipment, Therefore, OPIC determined, in the August 2,
2002 MOD, that, it would require an assignment of rights, rather than an assignment of
the leases, as a condition precedent to payment of compensation, pursuant to Section 8.02
of the Contract. The Insured entered into thal assignment of rights.

b, The Insured's Dulics Pursuant to the Contracts

Article [X of each Contract establishes the dutics of the Insured.

OPIC! determines thut the Insured has fully complied with all of its obligations pursuant
to the provisions of Article 1X of each Contract. In particular, the Insured is tn
compliance with regard to its eligibility. [t gave prompt notice to OPIC of the events of
political violence that gaye risc to the claim and has taken reasonable measures to
preserve the property. ‘The Insured has fully cooperated with OPIC by giving 1 complete
access to its books and records, which OPIC has determined to be adcquate, and made
availuble for interviews cxccutives and other employees with direct knowledge of the
Project. Section 10.18 of Contract No. F074 amended Article TX 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 thosc duties.

Conclusion

For the foregoing reasons, OPIC concludes that the claim of the Insured is valid. The
combined aniount of compensation to be paid for the lease coverage for the period
Tannary i through Tamuary 5, 2004 with respect to Jcasc payment defaults and [rom May
19, 2001 through January 5, 2004, for physical damage is determined to be $36,923.17,
including interest.

OVERSEAS PRIVATE INVESTMENT CORPORATION

By: tin SS wit

Peter S. Watson

President und Chicl Executive Officer

Date: Soy iS, 2a,



VL

scheduled payment or (ii) the date occurring one month prior to the date of Teceipt 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 cffeel for
such period.”

Because there arc thirteen separate Icase contracts with different commencement and
payment dates, OPIC, for its administrative convenience, and with ihe consent of the
Insured, concluded that it would consider apptications tor compensation on a quarterly,
accrued basis. This procedure avoids the Insured having to submit, and OPIC to consider,
a multiplicity of small claims. While this procedure is not consistent with the language of
Section 7.01 of the Contract, it reaches the same result with fewer burdens on both the
Insured and OPIC.

Analysis of the Compensation Claimed
a. Application of the Contracts to the Claim

The Insured is entitled to compensation, pursuant to Section 7.01 of Contract #074, in the
amount of $7,040.66, the insured portion of lease payments for the period in defaul,
From that amount OPIC wilt deduct $704.06, which represents the 10% self-insurance
requirement of the Contract. The Insurcd is entitled to compensation, pursuant to Section
7.01 (a}(3) of Contract F030, in the amount of $33,844.61 for the physical damage to the
project. From thut amount OPIC will deduct $3,384.46, which represcnis the 0% self-
insurance requirement of the Contract. The total of the two claims before interesL
theretore is $36,796.75. To that will be added interest in the amownt of $126.42 computed
at the average daily fedcrat (unds cate for the defaulted lease payments as required by
Section 3.01 (a)Gi) of Contract F074, tor a lolul of $36,923.17.

(1). Adjustments to Compensation

‘The adjustment to compensation set forth in Scclion 7.02of the Contracts, which
authorizes OPIC to “reduce its compensation by the amount of any compensation
recciyed 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 adjusunent lo compensation set forth in Section 7.02.3 of Contract F074 docs not
apply, as the Insured has nol Icaxed uny other assets to the lessce.

{2). Limitations 10 Compensation

‘The limitations to compensation set forth in Sections 7.02(a) and (c) of Contract F030
and Sections 7.(3{a) and (b} of Contract F074 do nol apply, as the proposed
compensation will not cxeeed the covered amount and the claim does not include any
penalty interest or penalty fecs. The active amount for Contract F030 is $3,150,060 and
for Contract 074 is $363,354, The active amount wit be reduced by the amount of
compensation paid.

(3). Assignment of Leases



L

MUMORANDLUM OF DETERMINATIONS

Political Violence Claim of Sector Resources, | ld.and Sector
Capital Corporation

Contract of Insurance No. F030
Contract of Tasurance No, F074

‘The Claim

By letters daled May 5 and June 21, 2004, copies attached, Sector Resources, Ltd." (the
“Ingured”) filed av application for compensation pursuant to Contract of Insurance No.
F074 for the period January | through January 5, 2004 for defaulted lease payments and
pursnant to Contract of Insurance No. F030 for physical damage to the Project that
occurred al some time during the pertod May 19, 2001 to January 6, 2004, the date that
the Insured was able Lo tcgain possession and resturt the Project. The Insured atteges that
an act of political violence, as more fully «excribed below, occurred on May 19, 2001, at
the sile of the Las Animas procious mincrals mine in the State of Volima, Colombia (lhe
"Project”) and continued uti] January 6, 2004, The Insured advised OPIC that, as a result
of the political violence, it ceased all operations at the Project and sustained covered
losses, but, as of January 6, 20004, it was able resume operations.

OPIC has determined that the claim is valid and that compensation is now payable in the
combined amount of $36,923.17, including interest.

The Insurance Contract
“rhe Contracts of Insurance were entered into with the Insured in 1999.

Contract of Insurance No. F030, an OPIC Form 234 KGT 12-85 (Second Revised) NS,
(“Contracl F030") was issued effective August 18, 1999, to cover the Insurcd’s
$3,500,000 equity investment in the Project. The maximum coverage under this policy is
$7,522,062. he active amount coverage is currently $3,150,000.

Contract of Insurance 1074, an OPIC Form 234 |.P 7-86A PL (Rev. 9/89), (the “Contruct”)
was issucd effective August 18, 1999, to cover the Tnsured’s $2 million lease payments for
equipment used at Lhe Project. The maximum coverage under lhis policy is $2,314,843, The
active amount of coverage is currently $363,354.

1 The Insured bus subsnitted che claini on its own behalf uniler Contract Nu. F030 aad on behalf of its affiliate,
Soctor Capital Corporation wilh respect lo Contract No. F074, Both companies are referred tu as the “Iusured,”



In.

Iv.

Factual Background

A. The Project and the Insured.

The Project involves the acquisition and expansion of the Las Animas
underground quartz, gold and silver mine (“Lax Animas”) in the State of Tolima,
Colombia. Sector Resourees, Ltd. (“Scctor Resources”), a U.S.-owned Cayman
Islands company, has made up to a $3.5 million equity invesument into its
Colombian branch (“Sector Resources Colombia”), as well as a $2 million
equipment leuse to the Colombian branch through one of its U.S. affiliates, Scctor
Capitul Corporation (“Sector Capital”).

A complete discussion of the factual background of the Project, the events
triggering the political violence, the remedial sieps taken by the Insured and the
Insured’s compliance with the Contract are containce 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, ut page 10, concluded
thar, if the political violence continued, the Insured would be entitled to receive
additional conipensation pursuant to the Contract for claims for defaults on Icase
payments, which claims were to be submitted quarterly. OPIC retained the
accounting firm of Deloitte & Touche (“Deloitte”) to assist il in analyzing the
Insured’s initial claim. Deloitte prepared a report to OPIC. That report included an
analysis and model of the lease claims throughout the term of all thirteen leases
with payment schedules on an actual and accrued basis. The Insured was not able
to file a claim for the physical damage to the Project untit it had regained coniral
of the Project und assessed the loss or damage.

Determinations Under the Contracts

A determination under an OPIC insurance contract addresses threc categories of issucs:
(1) whether the acts complained of satis[y all the elements required to bing 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, 2902 MOD concluded that the loss was due to
political violence, Accordingly, as the instant application alleges a consecutive
default arising from a continuation of the political violence, Section 8.()1(¢} of
the Contract provides that OPIC shall be liable fir subsequent consecutive
defaults unless it determines that the fatter defaults were not caused by political
violence. OPIC also paid subsequent claims, pursuant to separate Memoranda of
Determinations, for defaulted lease payments for the periods May 19 through
September 31), 2002, Octaber | through December 31, 2002, January 1 through
March 31. 2003, April 1 through Iune 30, 2003, July 1 through September 30,
2003 and Oclober 1 tough December 31, 2003. The Insured, in its Icllcr of May
5, 2004, stated that the Colombian military has provided increased security in the



v.

areca where the project is }ocated by establishing a military presence in ancarby
town, thus evabling the Insured to resume operations, The Insure: has completed
ils uxscssmeat of the damaye caused by previous yucrilla visits, completed repairs
and, as of April 15, 2004, processed 10,000 Lons of ore. The Insured has provided
lo OPIC evidence of the costs incurred by it to effec! the repairs in order to restart
the project. OPIC has no basis for determining that the previous closurc of the
Project and losses coyered under the Contracts for the period covered by the claim
were not the result of pofitical violence. As will be discussed more filly. below, it
is further determined that the Insured fulfilled its duties under the Contract, and
compensation should now be paid in the total amount of $36,923.17, including
interest,

1. Section 6,01(b) of Contract F030 — That the loss was dug lw political
violence.

(a) Uhe evidence submitted by the Insured regarding the activilies of the
FARC clearly satisfies all of the clements required to bring them within the scope
of the definition of “political violence” set lorth in Section 6.01(b) of Contract
1630 with respect to the dumage to the assets of the Project.

2. Section 6.01 Scction 6.01 of Contract F074 — that political violence has been
the dircct and immediate cause of defaults on scheduted lease payments.

(a) The requirement of coverage pursuant to the provisions of Section 6.01
of the Contract “is the dircet and immediate cause of a default on a scheduled
payment and such default continues for on¢ month.” Accordingly, the scope of
coverage condition bas clearly hecn met.

3. Section 6.02(a)-(e) of Contract F030 and Section 6.02 of Contract F074 -— That
none of the Exedusions applies.

{a) Contract F030 lists five possible exclusions of which only two, failure
to take reasonable measures to protect or preserve the property and provocation
‘on the part of the Insured, are potentially applicable. Contract F074 has, as a
single exclusion, provocation on the part of the Insured. The evidence submitied
by the Insured clearly demonstrates that it engaged in no activity that would bring
it within the Exclusions provisions of the Contracts,

Basis of Compensation Under the Contracis

Section 7.01(a)(3) of Contract F030 provides that, subject to the limitations of Article
7.02, and assuming that the requirements of Article VI of the Contract are satisfied, OPIC
shall pay the rcasonable cost of repair. The Insured has provided to OPIC documentary
evidence of the reasonable cost of repair.

Section 7.01 of Contract F074 provides that, assuming the requirements of Article V1 are
satisficd, OPEC shall pay compensation in the amount of the insured portion of the
scheduled payment in delault “plus interest accruing from the later of (i) the date of the

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