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specified in the notice other than obligations which have accrued or become <br />payable by Lorencito prior to the date of termination. <br />b. if Lorencito is producing coal in commercial quantities by hme 1, 2005, Hills will <br />negotiate with Lorencito for additional lands within the lands described in Exhibit <br />A hereto under which Hills own coal mineral interests, to be added to this Lease. <br />Neither party shall have any claim against the other under any legal or equitable <br />theory if such negotiations do not result in an agreement to add lands to the Lease. <br />Hills may use the additional lands and ttre minerals thereunder for arty purpose at <br />any time. However, Hills will not lease the coal under the additional lands to <br />others without first attempting to negotiate a coal lease on the additional lands <br />with Lorencito. <br />Payments to Hills <br />a. As full and complete royalty compensation to Hills for the rights granted <br />Lorencito herein, Lorencito shall pay Hills the advance royalty and the production <br />royalty provided for herein. The advance royalty and production royalty are <br />intended to and shall be sufficient to eliminate any implied development <br />obligations. <br />b. Lorencito shall pay Hills advance royalties ofd amtually on or before <br />January 10 (but not before January 1) during the term of this Lease, beginning on <br />or before January 1, 2002, unless this Lease has terminated prior to the due date. <br />For the first year's advance royalty payment for the period January 1, 2001 <br />through December 31, 2001, Lorencito shall pays upon the signing of <br />this Lease. <br />c. All annual advance royalty payments, including the first year advance royalty <br />payment, shall be recoupable from production royalties subsequently payable to <br />Hills on coal mined from the Leased Lands, up to the total annual advance <br />royalties paid in the then current Lease year and the tmrecouped advance royalty <br />payment from the immediately previous Lease year, but not to exceed a total of <br />Byway of example only, if Lorencito mines coal in 2003 Lorencito <br />could recoup the advance myalties paid in 2003 and 2002, but could not recoup <br />the advance royalty paid In 2001; by way offurther example, if Lorencito mines <br />coal in 2003 and recoups ~ against the advance royalty paid in 2003, <br />then Lorencito could recoup a total ofd in 2004 against the remaining <br />unrecouped advance royalties paid in 2003 and 2004 (if sufficient quantities of <br />coal were mined), however, any advance royalty paid in 2003 and not recouped in <br />2004 could not be recouped in Lease years after 2004. This recoupment provision <br />shall never be interpreted to result in an actual cash refund being due to Lorencito <br />from Hills, nor to result in Hills ever receiving less than the annual advance <br />royalty in the sum of -each year as required by this Lcaso. <br />d. Lorencito shall pay Hills a production royalty equal to 46.54 percent (46.54%) of <br />~percrnt ('%) of the net mine realization (~% of net mine realization) for <br />COAL LEASE FfNAr, G-25-0Ldoc <br />