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ADVANCE MINIMUM ROYALTY -- As minitnunt and advance royalty, without relation to the amount of <br />minerals mined from the leased premises, Lessee shall pay annually in advance to Lessor the following amounts: <br />LEASE PERIOD AMR <br />1998 tltru 1999 NONE <br />1999 tltru 2008 $20.000 each vear <br />2008 tltru 2018 $40.000 each vear <br />If Lessee does not extract minerals from the Leased Premises sufficient to return to the Lessor the minimum <br />amounts above specified, it is nevertheless understood that the above sums of money are due and payable to <br />Lessor whether or not minerals are mined, but that such advance minimum royalty shall be credited upon the first <br />royalties due as herein provided for minerals actually produced from the Leased Premises. In the absence of <br />production of minerals in continuous paying quantities before the expiration date of the lease, all advance <br />minimum royalties and all rentals shall be forfeited to Lessor. <br />Further, at the end of each five-year period, Lessor may increase the rate or amount of advance minimum <br />royalty to be paid by Lessee by a rate not to exceed the rate of increase of the average Producer's Price Index for <br />sand & gravel construction materials for the previous five year period, as published by the U.S. Department of <br />Labor, Bureau of Labor Statistics. Failure to comply with any new advance minimum royalty rate set by Lessor <br />may subject this lease to cancellatiottby thirty day written notice by Lessor. <br />In case of assignment of this lease, all advance minimum royalty paid to the state shall be carried forward <br />and credited to the new assignee. <br />2. PRODUCTION ROYALTY -- Lessor reserves as royalty, and Lessee agrees to pay to Lessor on or before the <br />last day of each calendar month following the month of production, 0.50 per ton of 2000/1, or 8% of the gross <br />sale price net transportation, at the first point of sale to an independent purchaser, whichever is greater. <br />Transportation is defined as all haulage beyond the Division of Minerals and Geology Permit boundary to the <br />first point of sale to an independent purchaser. Transportation charges to a retail sales yard shall not exceed the <br />per ton mile vale for local transptalers. <br />Further, at the end of each live-year period, commencing from the original lease date, for so long as this lease <br />remains in effect, Lessor may reappraise the property herein leased and increase the minimum per ton rate of <br />production royalty by a rate not to exceed the rate of increase of the average Producer's Price Index for sand & <br />gravel construction materials for the previous five year period, as published by the U.S. Department of Labor, <br />Bureau of Labur Statistics to he paid during each year of the succeeding five-year period. Failure to comply with <br />arty new royalty rate set by Lessor tray subject [his lease to cancellationby thirty-day written notice by Lessor. <br />Reporting of production royalty that is credited against advanced minimum royalty is also due on or before the <br />last day of each calendar month for mining during the preceding calendar month. <br />3. EXTENSION -- Lessee may have a preferential right to renew the lease or to receive a new lease after the <br />expiration of the secondary term, whichever may he determined by Lessor to be in the best interest of the State, <br />under the following conditions: <br />A. An advance minimum royalty, the amount to be negotiated before expiration of the lease, will be due and <br />payable annually commencing ott the date this lease is renewed or a new lease is executed and shall <br />continue until the expiration of the new or renewed lease. This amount may be adjusted by Lessor at the <br />end of each five-year period of the renewed or new lease. <br />B. Lessee shall furnish to Lessor satisfactory evidence of plans for mining during the term of the renewed <br />lease or during the term of a new lease. <br />C. Lessee shall furnish adequate geological evidence to Lessor that the acreage subject to the renewed or new <br />lease is in fact an integral part of and contains reserves in a logical mining unit. Whetlrerthe acreage is <br />or is not a part of a logical mitring unit will be determined by Lessor. <br />D. An extension of this Lease as determined by Lessor would be in the best interest of Lessor <br />4. EXTENSION BY PRODUCTION -- This lease may not be held in perpetuity; however, the lease will continue in <br />effect for an additiunal ten years, the secundary term, until July I7 ,' 2018 if minerals ar0 produced in paying <br />quantities prior to the end of the primary term. Cessation of production for a period in excess of 180 consecutive <br />days will automatically remove lease from producing status unless otherwise agreed to in writing by Lessor. <br />Lessees;tall rctify Lessor of each cec„atiar.:cf production, the reasons therefor, end the time period.during which <br />production will or did cease. <br />Paying_quantities means production sufficient to return royalties to Lessor equal to the advance minimum <br />royalty. <br />5. ANCILLARY USE -- Lessee may remove approved minerals, and place on the Leased Premises stock piles of <br />material mined from [Iris lease and such equipment as is approved by Lessor for this removal. All other ancillary <br />Page 2 of 7 <br />