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prior leases to Lessee covering the Leased Premises ( Lessor's records indicate unrecouped AMR to be <br />$295,400 as of November 26, 1996). <br />In the event Lessee does not extract coal from the Leased Premises during the Primary Term, <br />Extended Term or any additional term so agreed to by Lessor, the minimum amounts above paid to the <br />Lessor will be' forfeited. Acreage changes resulting -from partial .surrender or partial: assignment shall <br />reduce the rental : proportionately. Further, at the end of each 10 -year period, commencing from the date <br />hereof, Lessor may reasonably' change the rate or amount of advance minimum royalty to be paid by <br />Lessee; provided,' howeveri:any`-Ificiease in the rate or amount of the advance minimum royalty shall be <br />increased:by. the Producer'P.A66%.hi eX; Table 5, Coal Mining; as'fiust publishOd by,U.S. Department of <br />Labor Bureau`rif Labor Statistics;; such increase as mbasiii ed'.over the previous ten 3�ear period. <br />Iri case'of assignment, of this Lease, all advance minirnuiii royalty paid to the ):lessor shall be carried <br />forward and credited to the-new assignee. <br />2. PRODUCTION ROYALTY — During the Primary. Term and Extended Term of this Lease, Lessor hereby <br />reserves and Lessee agrees to pay to Lessor as production royalty the following: <br />For coal removed by underground mining methods a sum equal to eight percent ( 8 % ) of the <br />Gross Sale Price (as herein defined) at the first point'of side for the term of this Lease; for coal removed <br />by strip mining methods a sum equal.to twelve and one -half, percent ( 12.5 % ) of the Gross Sale Price <br />at the first point of sale; aad for lignite removed by strip mining' methods a sum equal to six and one <br />quarter percent ( 6.25 %') of the Gross Sale Price'at. the first point of sale, for each and every ton ( <br />2000 lbs.) of coal or lignite mined:from the Leased Premises, or, in the event the coal or lignite mined by <br />either underground or strip-mining methods. is sold on a'captive market, a•sum equal to the same respective <br />percents -of the reasonable market value of coal or lignite of the same quality from the wine general area <br />and mined under the same general conditions, whichever is greater. In no case shall the production royalty <br />-to the Lessor be less'thin •seve &'cents ' ( $ 0.70• .) per ton. "Lignite" means coal having: an average <br />­,calorific.value of -1,300 btu's or less pet-pound. This °-value may'be'riegotiated between Lessee"and Lessor. <br />. For the•pui-pose of this Lease,, the Sale Price"•shall'be the "•Averake'Gioss•Sides Price ":per• <br />ton of coal-actually mined, .removed, sold ghd:shipped- from:the Leased• Premise§ uiing any month which <br />'shall'be an amount :equal to the Total• grog's •pi•oceeds:froin all such sales of such coal during such month <br />divided by the total number of tons of such coal, except that deductions shall be made from the total gross <br />proceeds for the, following items to the extent included in such 'total gross proceeds (i) transportation or <br />delivery costs incurred by'Lessee in transporiingsuch coal froin the Division of Mineral & Geology permit <br />boundary to point of sale; and (ii) any-direct costs actually incurred in washing the'.coal, not to exceed <br />$4.00 per ton (such last deduction hereinafter called "the Washing Deduction "). The Washing Deduction <br />shall not-be applicable to greater than 15% of the coal mined,-removed and sold from the Leased Premises. <br />At any time during the team of this Lease; Lessor shall have the right to provide Lessee written notice that <br />Lessor wishes to renegotiate the Washing Deduction. As soon as is reasonably practicable after Lessee's <br />receipt of such notice,' the parties in good faith shall renegotiate the Washing Deduction to reflect a <br />deduction that is mutually acceptable to Lessor and Lessee. In the event Lessor and Lessee are unable to <br />renegotiate the Washing Deduction, Lessor shall have the right.to require the elimination of the Washing <br />Deduction -in the calculation of the Average Gross Sales Price. <br />If requested by Lessor, Lessee shall furnish proof of price received for all coal sold. Such royalty shall <br />be due and payable on or before the last day of each calendar month during the term of this Lease for coal <br />mined; * Temoved, and sold by Lessee'during the preceding calendar month. <br />3. 'a WEIGHT'OF 'iCOAL._ It- is agreed that all coal • mined •and,takdottoni -the'. Leased-•Premises: shall-be <br />weighed and the weight thereof shall be entered in due form in weight records kept for such purposes by <br />Lessee:" If is agreed that •the term "ton" as used herein means a ton of 2000 pounds of merchantable coal <br />as slidwri-by milners' payroll theck'numbers or- official:railtoad•seale=tickets, or by weight- determfued at <br />Page 3 of 10 <br />