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540196l3C/3 1. ADVANCE MINIMUM ROYALTY - As minimum and advance royalty, without relation to the amount of coal mined from the Leased Premises, Lessee shall pay annually in advance to Lessor the following amouttts: Royalty due for coal.pzoduced from the Leased Premises shall be credited against (i) any advance minimum royalty paymem under this Lease, and (ii) any unrewuped advance minimum royalty payments under any prior leases to Lesstx covering the Leased Premises (CO 3229 and CO 609); provided however, the presem balances of the umecouped advance minimum royalty payments under previous ]eases shall each be recouped only from royalty due for coal produced from that part of the Leased Premises previously covered by each respective prior lease. Notwithstanding the foregoing proviso, Lessee shall be entitled to credit up to per year against royalty due hereunder for wal produced from that part of the Leased Premises previousry covered by lease CO 3229 from present umecouped advance minimum royalty payments under previous lease CO 609. In the event Lessee does not extract coal from the Leased Premises during the Primary Term, Extended Term or any additional term so agreed to by Lessor, the minimum amounts above paid to the Lessor will be forfeited. Acreage changes resulting from partial surrender or partial assignment shall reduce the rental proportionately. Further, at the end of each ]0-year period, commencing from the date hereof, Lessor may reasonably change the rate or amount of advance minimum royalty to be paid by Lessee; provided, however, any increase in the rate or amount of the advance minimum royalty shall not be greater than the increase, if arty, between each such ]0th year and each preceding year in the Producer Price ]ndex, Table 5, Coal Mining, as first published by U.S. Department of Labor Bureau of Labor Statistics. In case of assignment of this Lease, all advance minynum royalty paid to the Lessor shall be cariied forward and credited to the new assignee. 2. PRODUC77ON ROYALTY -During the Primary Term and Extended Term of this Lease, Lessor hereby reserves and Lessee agrees to pay to Lessor as production royalty the following: For coal removed by underground mining methods a sum equal to eifht percent (~~fo ) of the Gross Sale Price (as herein defined) at the first point of sale for the term of this Lease; for coal removed by snip mining methods a sum equal to twelve and one-halt percent ( ]2.5 °.fo ) of the Gross Sale Price apt the fast point of sale; and for lignite removed by strip mining methods a sum equal to six and one Duarte percent ( 6.25 'xo) of the Gross Sale Price at the first point of sale, for each and every ton (2000 lbs.) of coal or lignite mined from the Leased Premises, or, in the event the coal or lignite mined by either underground ar strip mining methods is sold on a captive mazket, a sum equal to the same respecive percents of the reasonable market value of coal or lignite of the same quality from the same general area and mined under the same general conditions, whichever is greater. In no case shall the production royalty to the Lessor be less than seventy cents (S ~ 70_) per ton. "Lignite" means coal having an average calorific value of 7,300 bra's or less per pound. This value may be negotiated between Lessee and Lessor. For the purpose of this Lease, the "Gross Sale Price" shall be the "Average Gross Sales Price" per ton of coal actually mined, removed, sold and shipped from the Leased Premises during any month which shall be an amount equal to the total gross proceeds from all such sales of such coal during such month divided by the total number of tons of such coal, except [hat deductions shall be made from the total gross proceeds for the following items to the extent included in such total gross proceeds (i) transportation or delivery costs Page ~ of ~.