Nicor
      Inc.


Form
      10-K


Exhibit
      10.62







**CHANGE-IN-CONTROL
      AGREEMENT**





THIS
      AGREEMENT dated as of November 22, 2002 (the “Agreement Date”) is made by and
      among Nicor Inc. (the “Company”), an Illinois corporation, and Claudia J.
      Colalillo (the “Executive”). This Agreement replaces and supercedes in its
      entirety that Agreement entered into by and between the Company and the
      Executive dated June 2, 2000, (the “Prior Agreement”).





ARTICLE I


PURPOSES





The
      Board
      of Directors of the Company (the “Board”) has determined that it is in the best
      interests of the Company and its shareholders to assure that the Company and
      Nicor Gas will have the continued services of the Executive, despite the
      possibility or occurrence of a Change in Control of the Company. The Board
      believes it is imperative to reduce the distraction of the Executive that would
      result from the personal uncertainties caused by a pending or threatened Change
      in Control, to encourage the Executive’s full attention and dedication to the
      Company and Nicor Gas, and to provide the Executive with compensation and
      benefits arrangements upon a Change in Control which are competitive with those
      of similarly-situated corporations. This Agreement is intended to accomplish
      these objectives.





ARTICLE II


CERTAIN
      DEFINITIONS





When
      used
      in this Agreement, the terms specified below shall have the following
      meanings:





2.1  The
      “Agreement Term” shall begin on the Agreement Date and shall continue through
      December 31, 2002. As of December 31, 2002, and on each
      December 31 thereafter, the Agreement Term shall automatically be extended
      for one additional year unless, not later than the preceding June 30,
      either party shall have given notice that such party does not wish to extend
      the
      Agreement Term. If a Change in Control shall have occurred during the Agreement
      Term (as it may be extended from time to time), the Agreement Term shall
      continue for a period ending on the two-year anniversary of the date of the
      Change in Control, but if the Termination Date (as defined below) occurs during
      that two-year period, then the Agreement Term shall continue until the end
      of
      the Severance Period (as defined below). Unless the Termination Date occurs
      during the two-year period after a Change in Control so that the Agreement
      Term
      is extended to include the Severance Period, as provided in the immediately
      preceding sentence, the Agreement Term shall not extend beyond the two-year
      anniversary of the Change in Control.





2.2  “Effective
      Date” means the first date during the Agreement Term on which a Change in
      Control occurs.





2.3  “Change
      in Control” means:








2.3.1  The
      acquisition by any individual, entity or group (within the meaning of
      Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the
      meaning of Rule 13d-3 promulgated under the Exchange Act) of any shares of
      Common Stock of the Company or any voting securities of the Company entitled
      to
      vote generally in the election of directors if, as a result of such acquisition,
      such person owns 20% or more of either (i) the outstanding shares of common
      stock of the Company (the “Outstanding Company Common Stock”), or (ii) the
      combined voting power of the outstanding voting securities of the Company
      entitled to vote generally in the election of directors (the “Outstanding
      Company Voting Securities”); provided, however, that for purposes of this
      subsection 2.3.1, the following acquisitions shall not constitute a Change
      in
      Control: (A) any acquisition by the Company, (B) any acquisition by an
      employee benefit plan (or related trust) sponsored or maintained by the Company
      or any corporation controlled by the Company (a “Company Plan”), or (C) any
      acquisition by any corporation pursuant to a transaction which complies with
      subsections 2.3.3.1, 2.3.3.2 and 2.3.3.3 of this definition; provided further,
      that for purposes of clause (A), if any Person (other than the Company or
      any Company Plan) shall become the beneficial owner of 20% or more of the
      Outstanding Company Common Stock or 20% or more of the Outstanding Company
      Voting Securities by reason of an acquisition by the Company, and such Person
      shall, after such acquisition by the Company, become the beneficial owner of
      any
      additional shares of the Outstanding Company Common Stock or any additional
      Outstanding Company Voting Securities (other than pursuant to any dividend
      reinvestment plan or arrangement maintained by the Company) and such beneficial
      ownership is publicly announced, such additional beneficial ownership shall
      constitute a Change in Control; or





2.3.2  Individuals
      who, as of the date hereof, constitute the Board of Directors of the Company
      (for purposes of this Section 2.3, the “Incumbent Board”) cease for any
      reason to constitute at least a majority of the Incumbent Board; provided,
      however, that any individual becoming a director subsequent to the date hereof
      whose election, or nomination for election by the Company shareholders, was
      approved by a vote of at least a majority of the directors then comprising
      the
      Incumbent Board shall be considered as though such individual were a member
      of
      the Incumbent Board, but excluding, for this purpose, any such individual whose
      initial assumption of office occurs as a result of an actual or publicly
      threatened election contest (as such terms are used in Rule 14a-11
      promulgated under the Exchange Act) or other actual or publicly threatened
      solicitation of proxies or consents by or on behalf of a Person other than
      the
      Board of Directors of the Company; or





2.3.3  Consummation,
      including receipt of any necessary regulatory approval, of (i) a reorganization,
      merger, consolidation or other business combination involving the Company or
      (ii) the sale or other disposition of more than 50% of the operating assets
      of the Company (determined on a consolidated basis), other than in connection
      with a sale-leaseback or other arrangement resulting in the continued
      utilization of such assets (or the operating products of such assets) by the
      Company (any transaction described in


2


part
        (i)
        or (ii) being referred to as a “Corporate Transaction”); excluding, however, a
        Corporate Transaction pursuant to which:





2.3.3.1  all
      or
      substantially all of the individuals and entities who are the beneficial owners,
      respectively, of the Outstanding Company Common Stock and Outstanding Company
      Voting Securities immediately prior to such Corporate Transaction beneficially
      own, directly or indirectly, more than 60% of, respectively, the then
      outstanding shares of common stock and the combined voting power of the then
      outstanding voting securities entitled to vote generally in the election of
      directors, as the case may be, of the ultimate parent entity resulting from
      such
      Corporate Transaction (including, without limitation, an entity which, as a
      result of such transaction, owns the Company or all or substantially all of
      the
      assets of the Company either directly or through one or more subsidiaries)
      in
      substantially the same proportions as their ownership, immediately prior to
      such
      Corporate Transaction of the Outstanding Company Common Stock and Outstanding
      Company Voting Securities, as the case may be;





2.3.3.2  no
      Person
      (other than the Company, any Company Plan or related trust, the corporation
      resulting from such Corporate Transaction, and any Person which beneficially
      owned, immediately prior to such Corporate Transaction, directly or indirectly,
      20% or more of the Outstanding Company Common Stock or the Outstanding
      Company Voting Securities, as the case may be) will beneficially own, directly
      or indirectly, 20% or more of, respectively, the then outstanding common
      stock of the ultimate parent entity resulting from such Corporate Transaction
      or
      the combined voting power of the then outstanding voting securities of such
      entity; and





2.3.3.3  individuals
      who were members of the Incumbent Board will constitute at least a majority
      of
      the members of the board of directors of the ultimate parent entity resulting
      from such Corporate Transaction; or





2.3.4  A
      tender
      offer (for which a filing has been made with the Securities and Exchange
      Commission (the “SEC”) which purports to comply with the requirements of
      Section 14(d) of the Exchange Act and the corresponding SEC rules) is made
      for the stock of the Company, which has not been negotiated and approved by
      the
      Board, provided that in case of a tender offer described in this subsection
      2.3.4, the Change in Control will be deemed to have occurred at the first time
      during the offer period when the Person (as defined in subsection 2.3.1, above)
      making the offer beneficially owns or has accepted for payment stock of the
      Company with 20% or more of the combined voting power of the then Outstanding
      Company Voting Securities; or





2.3.5  Approval
      by the shareholders of the Company of a plan of complete liquidation or
      dissolution of the Company.




3





2.3.6  For
      purposes of this Section 2.3, (i) the term “Company " shall
      mean Nicor Inc. and shall include any Successor to Nicor Inc.; and (ii) the
      term “Successor to Nicor Inc.” shall mean any corporation, partnership, joint
      venture or other entity that succeeds to the interests of Nicor Inc. by means
      of
      a merger, consolidation, or other restructuring that does not constitute a
      Change in Control under paragraphs 2.3.1, 2.3.3 or 2.3.4
      above.





2.3.7  By
      entering into this Agreement, the Executive irrevocably consents to the
      modification of the definition of “Change in Control” (including “change in
      control”) in all Employee Benefit Arrangements (as defined below), by
      substituting for such definition in each such Employee Benefit Arrangement
      the
      definition of “Change in Control” set forth above, with such substitution to be
      effective on the first date this Agreement has been signed by both the Company
      and the Executive. For purposes of the preceding sentence, the term “Employee
      Benefit Arrangement” shall mean each agreement with the Executive to which the
      Company or any Subsidiary is a party, and each plan or arrangement maintained
      by
      the Company or any Subsidiary, and including any awards outstanding under any
      such agreement, plan, or arrangement, to the extent that such award, agreement,
      plan, or arrangement contains a definition of “Change in Control.” However, to
      the extent that the Employee Benefit Arrangement provides for an award based
      on
      common stock of the Company (including, without limitation, an award of stock
      options or shares of restricted stock), and such Employee Benefit Arrangement
      provides that vesting or exercisability of such award will occur at the time
      of
      the Change in Control (rather than the occurrence of a subsequent event, such
      as
      termination of employment), the definition of “Change in Control” that is
      substituted for the definition in such Employee Benefit Arrangement shall be
      the
      definition of “Change in Control” set forth above, except that
      Section 2.3.4 shall be modified by adding, at the end of such Section,
      immediately prior to the word “or,” the following: “provided, however, that the
      Change in Control shall occur three (3) business days before such tender offer
      is to terminate, unless the offer is withdrawn first, if the Person making
      the
      offer could own, by the terms of the offer plus any shares beneficially owned
      by
      that Person, stock with 50% or more of the combined voting power of the then
      Outstanding Company Voting Securities when the offer (and any subsequent
      offering period) terminates;”





2.3.8  By
      entering into this Agreement, the Executive irrevocably consents to the
      amendment of the Nicor Inc. Stock Deferral Plan to provide for distribution,
      as
      soon as practicable following a Change in Control, of any amounts which may
      then
      be deferred for the Executive under such plan.





2.4  “Code”
      means the Internal Revenue Code of 1986, as amended.





2.5  “Employment
      Period” means the period commencing on the Effective Date and ending on the
      two-year anniversary of that date.





2.6  “Incentive
      Plan” shall have the meaning set forth in Section 3.2.2.


4





2.7  “Notice
      of Termination” means a written notice given in accordance with
      Section 11.8 which sets forth (a) the specific termination provision
      in this Agreement relied upon by the party giving such notice, (b) in
      reasonable detail the facts and circumstances claimed to provide a basis for
      termination of the Executive’s employment under such termination provision, and
      (c) if the Termination Date is other than the date of receipt of such
      Notice of Termination, the Termination Date.





2.8  “Plans”
      shall have the meaning set forth in Section 3.2.3.





2.9  A
      “Potential Change in Control” shall exist during any period in which the
      circumstances described in Sections 2.9.1, 2.9.2, or 2.9.3 exist (provided,
      however, that a Potential Change in Control shall cease to exist not later
      than
      the occurrence of a Change in Control):





2.9.1  The
      Company enters into an agreement, the consummation of which would result in
      the
      occurrence of a Change in Control, provided that a Potential Change in Control
      described in this Section 2.9.1 shall cease to exist upon the expiration or
      other termination of all such agreements.





2.9.2  Any
      person (including the Company) publicly announces an intention to take or to
      consider taking actions the consummation of which would constitute a Change
      in
      Control; provided that a Potential Change in Control described in this
      Section 2.9.2 shall cease to exist upon the withdrawal of such intention,
      or upon a reasonable determination by the Board that there is no reasonable
      chance that such actions would be consummated.





2.9.3  The
      Board
      adopts a resolution to the effect that, for purposes of this Agreement, a
      Potential Change in Control exists; provided that a Potential Change in Control
      described in this Section 2.9.3 shall cease to exist upon a reasonable
      determination by the Board that the reasons that gave rise to the resolution
      providing for the existence of a Potential Change in Control have expired or
      no
      longer exist.





2.10  “Severance
      Incentive” means the greater of (i) the target annual incentive under an
      Incentive Plan applicable to the Executive for the Performance Period in which
      the Termination Date occurs, or (ii) the average of the actual annual
      incentives paid (or payable, to the extent not previously paid) to the Executive
      under the applicable Incentive Plan for each of the two calendar years preceding
      the calendar year in which the Termination Date occurs.





2.11  “Severance
      Period” means the period beginning on the Executive’s Termination Date and
      ending on the third anniversary thereof; provided, however, that no Severance
      Period will occur unless the Executive’s Termination Date occurs under
      circumstances described in Section 5.1 (relating to termination by the
      Executive for Good Reason or by the Company and Nicor Gas other than for Cause
      or Permanent Disability).


5





2.12  “Subsidiary”
      shall mean any corporation, partnership, joint venture or other entity during
      any period in which at least a fifty percent interest in such entity is owned,
      directly or indirectly, by the Company (or a successor to the
      Company).





2.13  “Termination
      Date” means the first day on or after which the Executive is not employed by the
      Company or Nicor Gas; provided, however, that (a) if the Company and Nicor
      Gas terminate the Executive’s employment other than for Cause or Disability (as
      defined in Section 4.1.2), then the Termination Date shall be the date of
      receipt of the Notice of Termination and (b) if the Executive’s employment
      is terminated by reason of death or Disability, then the Termination Date shall
      be the date of death of the Executive or the Disability Effective Date (as
      defined in Section 4.1.1), as the case may be.





2.14  “Welfare
      Plans” shall have the meaning set forth in Section 3.2.4.





ARTICLE III


TERMS
      OF
      EMPLOYMENT





3.1  Position
      and Duties .





3.1.1  The
      Company hereby agrees to cause the Company and/or Nicor Gas to continue the
      Executive’s employment during the Employment Period and, subject to
      Article IV of this Agreement, the Executive agrees to remain in the employ
      of the Company and Nicor Gas, as applicable, subject to the terms and conditions
      hereof. During the Employment Period, (i) the Executive’s position
      (including status, offices, titles and reporting requirements), authority,
      duties and responsibilities shall be at least commensurate in all material
      respects with the most significant of those held, exercised and assigned to
      the
      Executive at any time during the 90-day period immediately preceding the
      Effective Date, and (ii) the Executive’s services shall be performed at the
      location where the Executive was employed immediately preceding the Effective
      Date or any office or location less than 25 miles from such
      location.





3.1.2  During
      the Employment Period, and excluding any periods of vacation and sick leave
      to
      which the Executive is entitled, the Executive agrees to devote reasonable
      attention and time during normal business hours to the business and affairs
      of
      the Company and Nicor Gas, as applicable, and, to the extent necessary to
      discharge the responsibilities assigned to the Executive hereunder, to use
      the
      Executive’s reasonable best efforts to perform faithfully and efficiently such
      responsibilities. During the Employment Period it shall not be a violation
      of
      this Agreement for the Executive (i) to serve on corporate, civic or
      charitable boards or committees, (ii) to deliver lectures, fulfill speaking
      engagements or teach at educational institutions and (iii) to manage
      personal investments, to the extent that such other activities do not, in the
      reasonable judgment of the Chief Executive Officer of the Company (the “CEO”),
      inhibit or prohibit the performance of the Executive’s duties under this
      Agreement, or conflict in any material way with the business of the Company
      or
      any Subsidiary; provided, however, that the


6







Executive
      shall not serve on the board of any business, or hold any other position with
      any business, without the consent of the CEO.





3.2  Compensation.





3.2.1  Base
      Salary .
      During
      the Employment Period, the Executive shall receive an annual base salary
      (“Annual Base Salary”), which shall be paid at an annual rate at least equal to
      twelve times the highest monthly base salary paid or payable, including any
      base
      salary which has been earned but deferred, to the Executive by the Company
      in
      respect of the twelve-month period immediately preceding the month in which
      the
      Effective Date occurs. During the Employment Period, the Annual Base Salary
      shall be reviewed no more than twelve months after the last salary increase
      awarded to the Executive prior to the Effective Date and, thereafter, at least
      annually, and shall be increased at any time and from time to time as shall
      be
      substantially consistent with increases in base salary awarded to other senior
      executives of the Company. Annual Base Salary shall not be reduced after any
      such increase unless such reduction is part of a policy, program or arrangement
      applicable to senior executives of the Company and of any successor entity,
      and
      the term Annual Base Salary as used in this Agreement shall refer to Annual
      Base
      Salary as so increased. Any increase in Annual Base Salary shall not limit
      or
      reduce any other obligation of the Company to the Executive under this
      Agreement.





3.2.2  Annual
      Incentive .
      In
      addition to Annual Base Salary, the Company shall pay or cause to be paid to
      the
      Executive an incentive award (the “Annual Incentive”) for each Performance
      Period or portion thereof which falls within the Employment Period. “Performance
      Period” means each period of time designated in accordance with any annual
      incentive award arrangement (“Incentive Plan”) which is based upon performance
      and approved by the Board or any committee of the Board, or in the absence
      of
      any Incentive Plan or any such designated period of time, Performance Period
      shall mean each calendar year. The Executive’s target and maximum Annual
      Incentive with respect to any Performance Period shall not be less than the
      target and maximum annual incentive award payable with respect to the Executive
      under the Company’s annual incentive program as in effect immediately preceding
      the Effective Date.





3.2.3  Incentive,
      Savings and Retirement Plans .
      During
      the Employment Period, the Executive shall be entitled to participate in all
      incentive, savings and retirement plans, practices, policies and programs
      (“Plans”) applicable generally to other senior executives of the Company, but in
      no event shall such Plans provide the Executive with incentive opportunities
      (measured with respect to long- term and special incentives, to the extent,
      if
      any, that such distinctions are applicable) or savings and retirement benefits
      which are less favorable, in the aggregate, than the greater of (i) those
      provided by the Company for the Executive under such Plans as in effect at
      any
      time during the 90-day period immediately preceding the Effective Date, or
      (ii) those provided generally at any time after the Effective Date to other
      senior executives of the Company.


7





3.2.4  Welfare
      Benefit Plans .
      During
      the Employment Period, the Executive and/or the Executive’s family, as the case
      may be, shall be eligible for participation in and shall receive all benefits
      under welfare benefit plans, practices, policies and programs (“Welfare Plans”)
      provided by the Company (including, without limitation, medical, prescription,
      dental, disability, salary continuance, employee life, group life, accidental
      death and travel accident insurance benefits), but in no event shall such
      Welfare Plans provide the Executive with benefits which are less favorable,
      in
      the aggregate, than the greater of (i) those provided by the Company for
      the Executive under such Welfare Plans as were in effect at any time during
      the
      90-day period immediately preceding the Effective Date, or (ii) those
      provided generally at any time after the Effective Date to other senior
      executives of the Company.





3.2.5  Other
      Employee Benefits .
      During
      the Employment Period, the Executive shall be entitled to other employee
      benefits and perquisites in accordance with the most favorable plans, practices,
      programs and policies of the Company, as in effect with respect to the Executive
      at any time during the 90-day period immediately preceding the Effective Date,
      or if more favorable, as in effect generally with respect to other senior
      executives of the Company.





3.2.6  Expenses .
      During
      the Employment Period, the Executive shall be entitled to receive prompt
      reimbursement for all reasonable expenses incurred by the Executive in
      accordance with the policies, practices and procedures of the Company as in
      effect with respect to the Executive at any time during the 90-day period
      immediately preceding the Effective Date, or if more favorable, as in effect
      generally with respect to other senior executives of the Company.





3.2.7  Office
      and Support Staff .
      During
      the Employment Period, the Executive shall be entitled to an office or offices
      of a size and with furnishings and other appointments, and to exclusive personal
      secretarial and other assistance, as in effect with respect to the Executive
      at
      any time during the 90-day period immediately preceding the Effective Date,
      or
      if more favorable, as provided generally with respect to other senior executives
      of the Company.





3.2.8  Paid
      Time Off .
      During
      the Employment Period, the Executive shall be entitled to paid time off in
      accordance with the plans, policies, programs and practices of the Company
      as in
      effect with respect to the Executive at any time during the 90-day period
      immediately preceding the Effective Date, or if more favorable, as provided
      generally with respect to other senior executives of the Company.





3.2.9  Subsidiaries .
      To the
      extent that immediately prior to the Effective Date, the Executive has been
      on
      the payroll of, and participated in the incentive or employee benefit plans
      of,
      a Subsidiary of the Company, the references to the Company
      contained




8


in
        Sections 3.2.1 through 3.2.8 and the other sections of this Agreement
        referring to benefits to which the Executive may be entitled shall be read
        to
        refer to such Subsidiary.





ARTICLE IV


TERMINATION
      OF EMPLOYMENT





4.1  Disability .





4.1.1  During
      the Agreement Term, the Company and Nicor Gas may terminate the Executive’s
      employment upon the Executive’s Permanent Disability (as defined in
      Section 4.1.2) by giving the Executive or his legal representative, as
      applicable, (1) written notice in accordance with Section 11.8 of the
      Company’s or Nicor Gas’, as applicable, intention to terminate the Executive’s
      employment pursuant to this section, and (2) a certification of the
      Executive’s Permanent Disability by a physician selected by the Company or Nicor
      Gas or its insurers and reasonably acceptable to the Executive or the
      Executive’s legal representative. The Executive’s employment shall terminate
      effective on the 30th day (the “Permanent Disability Effective Date”) after the
      Executive’s receipt of such notice unless, before the Permanent Disability
      Effective Date, the Executive shall have resumed the full-time performance
      of
      the Executive’s duties. During the period in which the Executive has a
      Disability, the Company or Nicor Gas, as applicable, may appoint a temporary
      replacement to assume the Executive’s responsibilities.





4.1.2  The
      Executive shall be considered to have a “Permanent Disability” during any period
      in which he has a Disability (as defined below); provided, however, that the
      Executive shall not be considered to have “Permanent Disability” until (i) for a
      period of 180 consecutive days, the Executive, as a result of a Disability,
      is
      incapable, after reasonable accommodation, of performing his duties under this
      Agreement on a full-time basis; (ii) such Disability is reasonably expected
      to
      continue for at least another 90 days; and (iii) at the Executive’s
      Termination Date, he is eligible for income replacement benefits under the
      Company’s or Nicor Gas’ long-term disability plan. The Executive shall be
      considered to have a “Disability” during any period in which he has a physical
      or mental disability which renders him incapable, after reasonable
      accommodation, of performing his duties under this Agreement.





4.2  Death .
      The
      Executive’s employment shall terminate automatically upon the Executive’s death
      during the Agreement Term.





4.3  Cause .
      The
      Company or Nicor Gas, as applicable, may terminate the Executive’s employment
      during the Employment Period for Cause. For purposes of this Agreement, “Cause”
means:


9





4.3.1  the
      Executive’s willful commission of acts or omissions which have, have had, or are
      likely to have a material adverse effect on the business, operations, financial
      condition or reputation of the Company or Nicor Gas;





4.3.2  the
      Executive’s conviction (including a plea of guilty or nolo contendere) of a
      felony or any crime of fraud, theft, dishonesty or moral turpitude;
      or





4.3.3  the
      Executive’s material violation of any statutory or common law duty of loyalty to
      the Company or Nicor Gas.





For
      purposes of this Agreement, no act, or failure to act, on the part of the
      Executive shall be considered “willful” unless it is done, or omitted to be
      done, by the Executive in bad faith or without reasonable belief that the
      Executive’s action or omission was in the best interests of the Company or Nicor
      Gas. Any act, or failure to act, pursuant to direction provided by the person
      to
      whom the Executive reports, or provided by a resolution duly adopted by the
      Board, or pursuant to advice of counsel for the Company or Nicor Gas, shall
      be
      conclusively presumed to be done, or omitted to be done, by the Executive in
      good faith and in the best interests of the Company or Nicor Gas.





4.4  Good
      Reason .
      During
      the Employment Period, the Executive’s employment may be terminated by the
      Executive for Good Reason. For purposes of this Agreement, “Good Reason” means
      any material breach of this Agreement by the Company or Nicor Gas,
      including:





4.4.1  the
      failure to maintain the Executive in the office or position, or in a
      substantially equivalent office or position, held by the Executive immediately
      prior to the Change in Control;





4.4.2  a
      material adverse alteration in the nature or scope of the Executive’s position,
      duties, functions, responsibilities or authority;





4.4.3  a
      material reduction of the Executive’s salary, incentive compensation or
      benefits;





4.4.4  the
      failure of any successor to the Company to assume this Agreement, or a material
      breach of the Agreement by the Company or its successor;





4.4.5  a
      relocation of more than 25 miles of (i) the Executive’s principal
      workplace, or (ii) the principal offices of the Company or Nicor Gas, as
      applicable, (if such offices are the Executive’s principal workplace), in each
      case without the consent of the Executive;





4.4.6  the
      Company or Nicor Gas, as applicable, requiring the Executive to engage in travel
      that is materially greater than the Executive’s travel obligations during the
      1-year period immediately prior to the Change in Control; or


10





4.4.7  any
      failure by the Company or Nicor Gas, as applicable, to comply with any of the
      provisions of Section 3.2 of this Agreement, other than an isolated,
      insubstantial and inadvertent failure not occurring in bad faith and which
      is
      remedied by the Company or Nicor Gas, as applicable, promptly after receipt
      of
      notice thereof given by the Executive;





provided,
      however, that an act or omission of the Company or Nicor Gas, as applicable,
      shall not constitute Good Reason: (i) unless the Executive gives the
      Company or Nicor Gas, as applicable, written notice of such act or omission
      and
      the Company or Nicor Gas, as applicable, fails to cure such act or omission
      within the 30-day period after such notice, or (ii) if the Executive first
      acquired knowledge of such act or omission more than 6 months before the
      Executive gives the Company or Nicor Gas, as applicable, such notice, or (iii)
      if the Executive has consented in writing to such act or omission in a document
      that makes specific reference to this Section 4.4.





4.5  Without
      Cause During a Potential Change in Control .
      If the
      Executive’s employment is terminated by the Company and Nicor Gas, as
      applicable, without Cause during a Potential Change in Control, and such date
      of
      termination occurs not more than 180 days prior to the occurrence of a
      Change in Control and the Executive establishes by reasonable evidence that
      such
      termination of employment was materially connected with and in anticipation
      of
      the Change in Control, then the Executive shall be entitled to receive the
      benefits that would have been provided under Section 5.1, determined as
      though:





4.5.1  the
      Executive were rehired by the Company and Nicor Gas, as applicable, immediately
      prior to the Change in Control at the salary rate equal to the Executive’s
      highest salary rate during the one-year period prior to the date of the Change
      in Control, and with other Company and Nicor Gas compensation and benefit
      arrangements comparable to those provided to comparable executives of the
      Company and Nicor Gas;





4.5.2  the
      Executive’s employment were terminated by the Company and Nicor Gas without
      Cause immediately after the Change in Control; and





4.5.3  this
      Agreement were in full force and effect at the time of the Change in Control,
      and at the time of the Executive’s deemed termination of
      employment.





4.6  Right
      of Resignation and Termination .
      This
      Agreement does not constitute a guarantee of continued employment at any time,
      but instead provides for certain rights and benefits for the Executive during
      his employment following the occurrence of a Change in Control, and in the
      event
      his employment with the Company and Nicor Gas, as applicable, terminates under
      the circumstances described herein. The Company and Nicor Gas, as applicable,
      may terminate the employment of the Executive at any time for any reason,
      without breach of this Agreement, subject to its obligations set forth in
      Article V and elsewhere in this Agreement. The Executive may resign from the
      Company and Nicor Gas, as applicable, for Good Reason, or for any other reason,
      without breach of this Agreement, subject to the


11


Executive’s
        obligations set forth in this Agreement; provided that, in the event of a
        resignation without Good Reason, the Executive shall provide at least four
        weeks
        advance notice of such resignation to the Company and Nicor Gas, as applicable..
        Notwithstanding the foregoing provisions in this Section 4.6, the Company
        and Nicor Gas, as applicable, may suspend the Executive from performing his
        duties under this Agreement following the delivery of a Notice of Termination
        by
        the Executive without Good Reason; provided, however, that during the period
        of
        suspension (which shall end on the Termination Date), the Executive shall
        continue to be treated as employed by the Company and Nicor Gas, as applicable,
        for other purposes, and his rights to compensation or benefits shall not
        be
        reduced by reason of the suspension.





ARTICLE V


OBLIGATIONS
      OF THE COMPANY UPON TERMINATION





5.1  If
      by
      the Executive for Good Reason or by the Company and Nicor Gas, as Applicable,
      Other Than for Cause or Permanent Disability .
      If,
      during the Employment Period, the Company and Nicor Gas, as applicable, shall
      terminate the Executive’s employment other than for Cause or Permanent
      Disability, or if the Executive shall terminate employment for Good Reason,
      the
      Company’s and Nicor Gas’ obligations to the Executive shall be as set forth in
      this Section 5.1. As a precondition to fulfilling such obligations, the
      Company shall require the Executive to execute and deliver a release prepared
      by
      the Company and providing for the Executive’s release of any and all claims
      against the Company and its Subsidiaries (and those acting on behalf of them)
      that may have arisen on or before the date of the release, which release shall
      contain such other reasonable and customary terms as are specified by the
      Company. Notwithstanding any other provision of this section to the contrary,
      to
      the extent any portion of such release is subject to the seven-day revocation
      period prescribed by the Age Discrimination in Employment Act, as amended,
      or to
      any similar revocation period in effect on the Termination Date, no payment
      shall be due under this Section 5.1 until such revocation period has
      expired without such revocation occurring.





5.1.1  The
      Company shall, within five business days of such termination of employment,
      pay
      the Executive a cash payment equal to the sum of the following
      amounts:





5.1.1.1  to
      the
      extent not previously paid, the Annual Base Salary and any accrued paid time
      off
      through the Termination Date;





5.1.1.2  an
      amount
      equal to the product of (i) the Annual Incentive (as defined in
      Section 3.2.2) at target for any Performance Period in which the
      Termination Date occurs multiplied by (ii) a fraction, the numerator of
      which is the number of days the Executive was actually employed by the Company
      during such Performance Period, and the denominator of which is the number
      of days in the Performance Period; or, if greater, the amount of any Annual
      Incentive otherwise payable to the Executive with respect to a Performance
      Period in which


12







the
      Termination Date occurs, which payment shall be in full settlement of Annual
      Incentive amounts due with respect to any such Performance Period;
      and





5.1.1.3  all
      amounts previously deferred by or accrued to the benefit of the Executive under
      any nonqualified deferred compensation plan sponsored by the Company (including,
      without limitation, any vested amounts deferred under incentive plans), together
      with any accrued earnings thereon, and not yet paid by the Company;
      and





5.1.1.4  an
      amount
      equal to the product of (A) three (3) multiplied by (B) the sum
      of (i) the Executive’s Annual Base Salary, and (ii) the Severance
      Incentive.





5.1.2  For
      purposes of each of the Executive’s stock options granted under the Company’s
      Long Term Incentive Plan (the “LTIP”), any successor plan, or otherwise, that is
      or becomes exercisable on the Termination Date, the Executive’s termination of
      employment shall be disregarded, and each such option shall continue to be
      exercisable as though the Executive’s employment had continued through the last
      day on which such option would be exercisable in the absence of such employment
      termination (such earlier date being referred to herein as the “Applicable
      Expiration Date”). This Section 5.1.2 shall be applicable notwithstanding
      any term of any plan, arrangement, or agreement providing for early expiration
      of the option because of the Executive’s termination of employment, except for
      an amendment adopted in accordance with Section 11.7 of this Agreement and
      that by its specific terms amends this Agreement.





5.1.3  On
      the
      Termination Date (i) the Executive shall become fully vested in, and may
      thereupon and until the Applicable Expiration Date of such stock incentive
      awards exercise in whole or in part, any and all stock incentive awards granted
      to the Executive under the LTIP, any successor plan or otherwise which have
      not
      become exercisable as of the Termination Date; (ii) all dividend performance
      units previously awarded to the Executive shall become fully vested, and a
      prorated calculation of the target value of all such units shall be done as
      of
      the Termination Date and full payment of such prorated target value shall be
      made by the Company within 30 days after the Termination Date; and
      (iii) the Executive shall become fully vested at the prorated target level
      in any other cash incentive awards granted for the performance period in which
      the Termination Date occurs under the LTIP, a successor plan or otherwise which
      have not, as of the Termination Date, become fully vested.





5.1.4  All
      forfeiture conditions that as of the Termination Date are applicable to any
      deferred stock unit, restricted stock or restricted share units awarded to
      the
      Executive by the Company pursuant to the LTIP, a successor plan or otherwise
      shall lapse immediately (to the extent such awards are outstanding immediately
      prior to the Termination Date).


13





5.1.5  During
      the Severance Period (or until such later date as any Welfare Plan of the
      Company may specify), the Company shall continue to provide to the Executive
      and
      the Executive’s family welfare benefits (including, without limitation, medical,
      prescription, dental, disability, individual life and group life insurance
      benefits) which are at least as favorable as those provided under the most
      favorable Welfare Plans of the Company applicable (i) with respect to the
      Executive and his family during the 90-day period immediately preceding the
      Termination Date, or (ii) with respect to other senior executives and their
      families during the Severance Period. In determining benefits under such Welfare
      Plans, the Executive’s annual compensation attributable to base salary and
      incentives for any plan year or calendar year, as applicable, shall be deemed
      to
      be not less than the Executive’s Annual Base Salary and Target Annual Incentive.
      The cost of the welfare benefits provided under this Section 5.1.5 shall
      not exceed the cost of such benefits to the Executive immediately before the
      Termination Date or, if less, the Effective Date. Notwithstanding the foregoing,
      if the Executive obtains comparable coverage under any Welfare Plans sponsored
      by another employer, then the amount of coverage required to be provided by
      the
      Company hereunder shall be reduced by the amount of coverage provided by such
      other employer’s Welfare Plans. The Executive’s rights under this
      Section shall be in addition to and not in lieu of any post-termination
      continuation coverage or conversion rights the Executive may have pursuant
      to
      applicable law, including, without limitation, continuation coverage required
      by
      Section  4980B of the Code. For purposes of determining eligibility for
      (but not the time of commencement of) retiree benefits under any Welfare Plans
      of the Company, the Executive shall be considered (i) to have remained
      employed until the last day of the Severance Period and to have retired on
      the
      last day of such period, and (ii) to have attained the age the Executive
      would have attained on the last day of the Severance Period.





5.1.6  If
      the
      Executive participates in the Company’s nonqualified supplemental executive
      retirement plan (“SERP”), the amount payable under subsection 5.1.1.4 of
      this Agreement shall be taken into account for purposes of determining the
      amount of benefits to which the Executive is entitled under the SERP; provided
      that such amount shall be taken into account as though it was earned equally
      over the Severance Period, and further provided that the Executive shall be
      deemed to have attained the age he or she would have attained as of the last
      day
      of the Severance Period, and completed the number of years of service he or
      she
      would have completed as of the last day of the Severance Period. The Severance
      Period shall be taken into account for purposes of determining the amount of
      and
      eligibility to begin to receive benefits under the SERP. If the Executive
      participates in the Company's nonqualified Supplemental Senior Officer
      Retirement Plan ("SSORP"), on the Termination Date (i) the Executive shall
      become fully vested in all contributions (and in any earnings applied to such
      contributions) made by the Company on behalf of the Executive under the SSORP
      or
      any successor plan, if applicable, and (ii) the Company shall immediately make
      an additional contribution to the SSORP of an amount equal to the product of
      (x)
      the Annual Deferral Percentage (as defined in the SSORP) used for the most
      recently completed SSORP Plan Year, times (y) the amount payable under
      subsection 5.1.1.4 of this Agreement.


14





5.1.7  On
      the
      Termination Date (i) the Executive shall become fully vested in all
      contributions made by the Company on behalf of the Executive under the Company’s
      Savings Investment Plan (the “SIP”) or any supplemental or successor plan, if
      applicable, and (ii) the Company shall immediately make an additional
      contribution to the SIP (or, if such contribution is not permitted under the
      terms of the SIP, to a non-qualified plan providing benefits comparable to
      the
      benefits provided under the SIP) or any supplemental or successor plan, if
      applicable, equal to the aggregate maximum matching contributions which the
      Company would have made on behalf of the Executive to the SIP or any
      supplemental or successor plan, if applicable, for the Severance Period,
      calculated as if the amount payable under subsection 5.1.1.4 of this Agreement
      had been earned equally over the Severance Period and the Executive had made
      the
      maximum allowable voluntary contributions to the SIP or any supplemental or
      successor plan, if applicable. In addition, if the Executive is not eligible
      to
      participate in the Company’s defined benefit retirement plan, the Company shall
      also contribute to the SIP or any supplemental or successor plan, if applicable,
      on the Termination Date an amount equal to the aggregate additional “retirement
      growth” contributions which the Company would have made on behalf of the
      Executive for the Severance Period if the amount payable under subsection
      5.1.1.4 of this Agreement had been earned equally over the Severance
      Period.





5.1.8  The
      Company shall, at its sole expense, as incurred, pay on behalf of Executive
      all
      fees and costs charged by a nationally recognized outplacement firm selected
      by
      the Company (subject to approval by the Executive, which shall not be withheld
      unreasonably) to provide outplacement service.





5.2  If
      by
      the Company and Nicor Gas for Cause .
      If the
      Company and Nicor Gas, as applicable, terminates the Executive’s employment for
      Cause during the Employment Period, this Agreement shall terminate without
      further obligation by the Company and Nicor Gas, as applicable, to the
      Executive, other than the obligation immediately to pay the Executive in cash
      the Executive’s Annual Base Salary through the Termination Date, plus any
      accrued paid time off, in each case to the extent not previously
      paid.





5.3  If
      by
      the Executive Other Than for Good Reason .
      If the
      Executive terminates employment during the Employment Period other than for
      Good
      Reason (including, but not by way of limitation, voluntary retirement other
      than
      for Good Reason), and other than for Disability or death, this Agreement shall
      terminate without further obligation by the Executive or by the Company, other
      than the obligation of the Company immediately to pay the Executive in cash
      the
      Executive’s Annual Base Salary through the Termination Date, plus any accrued
      paid time off, in each case to the extent not previously paid.





5.4  If
      by
      the Company and Nicor Gas, as applicable, for Permanent
      Disability .
      If the
      Company and Nicor Gas, as applicable, and Nicor Gas, as applicable, terminates
      the Executive’s employment by reason of the Executive’s Permanent Disability
      during the Employment Period, this Agreement shall terminate without further
      obligation to the Executive, other than:


15





5.4.1  the
      Company’s obligation immediately to pay the Executive in cash all amounts
      specified in Sections 5.1.1.1, 5.1.1.2 and 5.1.1.3, in each case, to the extent
      unpaid as of the Termination Date (such amounts collectively, the “Accrued
      Obligations”), and





5.4.2  the
      Executive’s right after the Permanent Disability Effective Date to receive
      disability and other benefits at least equal to the greater of (i) those
      provided under the most favorable disability Plans applicable to disabled senior
      executives of the Company in effect immediately before the Termination Date,
      or
      (ii) those provided under the most favorable disability Plans of the
      Company in effect at any time during the 90-day period immediately before the
      Effective Date.





5.5  If
      upon Death .
      If the
      Executive’s employment is terminated by reason of the Executive’s death during
      the Employment Period, this Agreement shall terminate without further obligation
      to the Executive’s legal representatives under this Agreement, other than the
      obligation immediately to pay the Executive’s estate or beneficiary in cash all
      Accrued Obligations. Notwithstanding anything in this Agreement to the contrary,
      the Executive’s family shall be entitled to receive benefits at least equal to
      the most favorable benefits provided under Plans of the Company to the surviving
      families of senior executives of the Company, but in no event shall such Plans
      provide benefits which in each case are less favorable, in the aggregate, than
      the most favorable of those provided by the Company to the Executive under
      such
      Plans in effect at any time during the 90-day period immediately before the
      Effective Date.





ARTICLE VI


CERTAIN
      ADDITIONAL PAYMENTS BY THE COMPANY





6.1  Gross-up
      for Certain Taxes .





6.1.1  If
      it is
      determined by the Company’s independent auditors that any benefit received or
      deemed received by the Executive from the Company pursuant to this Agreement
      or
      otherwise, whether or not in connection with a Change in Control (such monetary
      or other benefits collectively, the “Potential Parachute Payments”) is or will
      become subject to any excise tax under Section 4999 of the Code or any
      similar tax payable under any United States federal, state, local or other
      law
      (such excise tax and all such similar taxes collectively, “Excise Taxes”), then
      the Company shall, subject to Sections 6.6 and 6.7, within five business
      days after such determination, pay the Executive an amount (the “Gross-up
      Payment”) equal to the product of:





(a)  the
      amount of such Excise Taxes multiplied by


(b)  the
        Gross-up Multiple (as defined in Section 6.4). The Gross-up Payment is
        intended to compensate the Executive for all Excise Taxes payable by the
        Executive with respect to the Potential
 16
 
 Parachute
        Payments and any federal, state, local or other income or other taxes or
        Excise
        Taxes payable by the Executive with respect to the Gross-up
        Payment.




6.1.2  The
      determination of the Company’s independent auditors described in
      Section 6.1.1, including the detailed calculations of the amounts of the
      Potential Parachute Payments, Excise Taxes and Gross-Up Payment and the
      assumptions relating thereto, shall be set forth in a written certificate of
      such auditors (the “Company Certificate”) delivered to the Executive. The
      Executive or the Company may at any time request the preparation and delivery
      to
      the Executive of a Company Certificate. The Company shall cause the Company
      Certificate to be delivered to the Executive as soon as reasonably possible
      after such request.





6.2  Determination
      by the Executive .





6.2.1  If
      (i) the Company shall fail to deliver a Company Certificate to the
      Executive within 30 days after its receipt of his written request therefor,
      or (ii) at any time after the Executive’s receipt of a Company Certificate,
      the Executive disputes either (x) the amount of the Gross-Up Payment set
      forth therein, or (y) the determination set forth therein to the effect
      that no Gross-Up Payment is due (whether by reason of Section 6.7 or
      otherwise), then the Executive may elect to require the Company to pay a
      Gross-Up Payment in the amount determined by the Executive as set forth in
      an
      Executive Counsel Opinion (as defined in Section 6.5). Any such demand by
      the Executive shall be made by delivery to the Company of a written notice
      which
      specifies the Gross-Up Payment determined by the Executive (together with the
      detailed calculations of the amounts of Potential Parachute Payments, Excise
      Taxes and Gross-Up Payment and the assumptions relating thereto) and an
      Executive Counsel Opinion regarding such Gross-Up Payment (such written notice
      and opinion collectively, the “Executive’s Determination”). Within 30 days
      after delivery of an Executive’s Determination to the Company, the Company shall
      either (i) pay the Executive the Gross-Up Payment set forth in Executive’s
      Determination (less the portion thereof, if any, previously paid to Executive
      by
      the Company) or (ii) deliver to the Executive a Company Certificate and a
      Company Counsel Opinion (as defined in Section 6.5), and pay the Executive
      the Gross-Up Payment specified in such Company Certificate. If for any reason
      the Company fails to comply with the preceding sentence, the Gross-Up Payment
      specified in the Executive’s Determination shall be controlling for all
      purposes.





6.2.2  If
      the
      Executive does not request a Company Certificate, and the Company does not
      deliver a Company Certificate to the Executive, then (i) the Company shall,
      for purposes of Section 6.7, be deemed to have determined that no Gross-up
      Payment is due, and (ii) the Executive shall not pay any Excise Taxes in
      respect of Potential Parachute Payments, except in accordance with
      Sections 6.6.1 or 6.6.4.





6.3  Additional
      Gross-up Amounts .
      If for
      any reason it is later determined (whether pursuant to the subsequently-enacted
      provisions of the Code, final regulations or published


17


rulings
        of the IRS, a final judgment of a court of competent jurisdiction, a
        determination of the Company’s independent auditors set forth in a Company
        Certificate or, subject to the last two sentences of Section 6.2.1, an
        Executive’s Determination) that the amount of Excise Taxes payable by the
        Executive is greater than the amount determined by the Company or the Executive
        pursuant to Section 6.1 or 6.2, as applicable, then the Company shall,
        subject to Sections 6.6 and 6.7, pay the Executive an amount (which shall
        also be deemed a Gross-up Payment) equal to the product of:





(a)  the
      sum
      of (1) such additional Excise Taxes and (2) any interest, fines,
      penalties, expenses or other costs incurred by the Executive as a result of
      having taken a position in accordance with determination made pursuant to
      Section 6.1 or 6.2, as applicable,


multiplied
      by





(b)  the
      Gross-up Multiple.





6.4  Gross-up
      Multiple .
      The
      Gross-up Multiple shall equal a fraction, the numerator of which is
      one (1.0), and the denominator of which is one (1.0) minus the lesser
      of (i) the sum, expressed as a decimal fraction, of the effective marginal
      tax rates of all federal, state, local and other income and other taxes and
      any
      Excise Taxes applicable to the Gross-up Payment; or (ii) 0.80, it being
      intended that the Gross-up Multiple shall in no event exceed five (5.0).
      (If different rates of tax are applicable to various portions of a Gross-up
      Payment, the weighted average of such rates shall be used.)





6.5  Opinion
      of Counsel .
      “Executive Counsel Opinion” means an opinion of nationally-recognized executive
      compensation counsel to the effect (i) that the amount of the Gross-Up
      Payment determined by the Executive pursuant to Section 6.2 is the amount
      that a court of competent jurisdiction, based on a final judgment not subject
      to
      further appeal, is most likely to decide to have been calculated in accordance
      with this Article and applicable law and (ii) if the Company has previously
      delivered a Company Certificate to the Executive, that there is no reasonable
      basis or no substantial authority for the calculation of the Gross-Up Payment
      set forth in the Company Certificate. “Company Counsel Opinion” means an opinion
      of nationally-recognized executive compensation counsel to the effect that
      (i) the amount of the Gross-Up Payment set forth in the Company Certificate
      is the amount that a court of competent jurisdiction, based on a final judgment
      not subject to further appeal, is most likely to decide to have been calculated
      in accordance with this Article and applicable law and (ii) for purposes of
      Section 6662 of the Code, the Executive has substantial authority to report
      on his federal income tax return the amount of Excise Taxes set forth in the
      Company Certificate.





6.6  Amount
      Increased or Contested .





6.6.1  The
      Executive shall notify the Company in writing (an “Executive’s Notice”) of any
      claim by the IRS or other taxing authority (an “IRS Claim”) that, if


18


successful,
        would require the payment by the Executive of Excise Taxes in respect of
        Potential Parachute Payments in an amount in excess of the amount of such
        Excise
        Taxes determined in accordance with Section 6.1 or 6.2, as applicable. Such
        Executive’s Notice shall include the nature and amount of such IRS Claim, the
        date on which such IRS Claim is due to be paid (the “IRS Claim Deadline”), and a
        copy of all notices and other documents or correspondence received by the
        Executive in respect of such IRS Claim. The Executive shall give the Executive’s
        Notice as soon as practicable, but no later than the earlier of
        (i) 10 business days after the Executive first obtains actual
        knowledge of such IRS Claim or (ii) five business days after the IRS Claim
        Deadline; provided, however, that the Executive’s failure to give such notice
        shall affect the Company’s obligations under this Article only to the extent
        that the Company is actually prejudiced by such failure. If at least one
        business day before the IRS Claim Deadline the Company shall:





6.6.1.1  deliver
      to the Executive a Company Certificate to the effect that the IRS Claim has
      been
      reviewed by the Company’s independent auditors and, notwithstanding the IRS
      Claim, the amount of Excise Taxes, interest and penalties payable by the
      Executive is either zero or an amount less than the amount specified in the
      IRS
      Claim,





6.6.1.2  pay
      to
      the Executive an amount (which shall also be deemed a Gross-Up Payment) equal
      to
      the positive difference between (x) the product of the amount of Excise
      Taxes, interest and penalties specified in the Company Certificate, if any,
      multiplied by the Gross-Up Multiple, and (y) the portion of such product,
      if any, previously paid to the Executive by the Company, and





6.6.1.3  direct
      the Executive pursuant to Section 6.6.4 to contest the balance of the IRS
      Claim, then the Executive shall pay only the amount, if any, of Excise Taxes,
      interest and penalties specified in the Company Certificate. In no event shall
      the Executive pay an IRS Claim earlier than 30 days after having given an
      Executive’s Notice to the Company (or, if sooner, the IRS Claim
      Deadline).





6.6.2  At
      any
      time after the payment by the Executive of any amount of Excise Taxes or related
      interest or penalties in respect of Potential Parachute Payments (whether or
      not
      such amount was based upon a Company Certificate or an Executive’s
      Determination), the Company may in its discretion require the Executive to
      pursue a claim for a refund (a “Refund Claim”) of all or any portion of such
      Excise Taxes, interest or penalties as the Company may specify by written notice
      to the Executive.





6.6.3  If
      the
      Company notifies the Executive in writing that the Company desires the Executive
      to contest an IRS Claim or to pursue a Refund Claim, the Executive
      shall:





6.6.3.1  give
      the
      Company all information that it reasonably requests in writing from time to
      time
      relating to such IRS Claim or Refund Claim, as applicable,


19





6.6.3.2  take
      such
      action in connection with such IRS Claim or Refund Claim (as applicable) as
      the
      Company reasonably requests in writing from time to time, including accepting
      legal representation with respect thereto by an attorney selected by the
      Company, subject to the approval of the Executive (which approval shall not
      be
      unreasonably withheld or delayed),





6.6.3.3  cooperate
      with the Company in good faith to contest such IRS Claim or pursue such Refund
      Claim, as applicable,





6.6.3.4  permit
      the Company to participate in any proceedings relating to such IRS Claim or
      Refund Claim, as applicable, and





6.6.3.5  contest
      such IRS Claim or prosecute such Refund Claim (as applicable) to a determination
      before any administrative tribunal, in a court of initial jurisdiction and
      in
      one or more appellate courts, as the Company may from time to time determine
      in
      its discretion.





The
      Company shall control all proceedings in connection with such IRS Claim or
      Refund Claim (as applicable) and in its discretion may cause the Executive
      to
      pursue or forego any and all administrative appeals, proceedings, hearings
      and
      conferences with the IRS or other taxing authority in respect of such IRS Claim
      or Refund Claim (as applicable); provided that (i) any extension of the
      statute of limitations relating to payment of taxes for the taxable year of
      the
      Executive relating to the IRS Claim is limited solely to such IRS Claim,
      (ii) the Company’s control of the IRS Claim or Refund Claim (as applicable)
      shall be limited to issues with respect to which a Gross-Up Payment would be
      payable, and (iii) the Executive shall be entitled to settle or contest, as
      the case may be, any other issue raised by the IRS or other taxing
      authority.





6.6.4  The
      Company may at any time in its discretion direct the Executive to
      (i) contest the IRS Claim in any lawful manner or (ii) pay the amount
      specified in an IRS Claim and pursue a Refund Claim; provided, however, that
      if
      the Company directs the Executive to pay an IRS Claim and pursue a Refund Claim,
      the Company shall advance the amount of such payment to the Executive on an
      interest-free basis and shall indemnify the Executive, on an after-tax basis,
      for any income or other applicable taxes or Excise Tax, and any related interest
      or penalties imposed with respect to such advance.





6.6.5  The
      Company shall pay directly all legal, accounting and other costs and expenses
      (including additional interest and penalties) incurred by the Company or the
      Executive in connection with any IRS Claim or Refund Claim, as applicable,
      and
      shall indemnify the Executive, on an after-tax basis, for any income or other
      applicable taxes, Excise Tax and related interest and penalties imposed on
      the
      Executive as a result of such payment of costs and expenses.


20





6.7  Refunds .
      If,
      after the receipt by the Executive of any payment or advance of Excise Taxes
      advanced by the Company pursuant to Section 6.6, the Executive receives any
      refund with respect to such claim, the Executive shall (subject to the Company’s
      complying with the requirements of Section 6.6) promptly pay the Company
      the amount of such refund (together with any interest paid or credited thereon
      after taxes applicable thereto). If, after the receipt by the Executive of
      an
      amount advanced by the Company pursuant to Section 6.6, a determination is
      made that the Executive shall not be entitled to any refund with respect to
      such
      claim and the Company does not notify the Executive in writing of its intent
      to
      contest such determination within 30 days after the Company receives
      written notice of such determination, then such advance shall be forgiven and
      shall not be required to be repaid and the amount of such advance shall offset,
      to the extent thereof, the amount of Gross-up Payment required to be paid.
      Any
      contest of a denial of refund shall be controlled by
      Section 6.6.





ARTICLE VII


EXPENSES
      AND INTEREST





7.1  Legal
      Fees and Other Expenses .





7.1.1  If
      the
      Executive incurs legal fees or other expenses in an effort to secure, preserve,
      establish entitlement to, or obtain benefits under this Agreement (including,
      without limitation, the fees and other expenses of the Executive’s legal counsel
      in connection with the delivery of the Executive Counsel opinion referred to
      in
      Section 6.5), the Company shall, regardless of the outcome of such effort,
      promptly reimburse the Executive on a current basis for such fees and expenses
      following the Executive’s written submission of a request for reimbursement
      together with evidence that such fees and expenses were incurred.





7.1.2  If
      the
      Executive does not prevail (after exhaustion of all available judicial remedies)
      in respect of a claim by the Executive or by the Company hereunder, and the
      Company establishes before a court of competent jurisdiction, by clear and
      convincing evidence, that the Executive had no reasonable basis for his claim
      hereunder, or for his response to the Company’s claim hereunder, and acted in
      bad faith, no further reimbursement for legal fees and expenses shall be due
      to
      the Executive in respect of such claim and the Executive shall refund any
      amounts previously reimbursed hereunder with respect to such claim.





7.2  Interest .
      If the
      Company and Nicor Gas, as applicable, does not pay any amount due to the
      Executive under this Agreement within three days after such amount became due
      and owing, interest shall accrue on such amount from the date it became due
      and
      owing until the date of payment at an annual rate equal to 200 basis points
      above the base commercial lending rate published in The Wall Street Journal
      in
      effect from time to time during the period of such nonpayment.


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ARTICLE VIII


NO
      SET-OFF OR MITIGATION





8.1  No
      Set-off by Company .
      The
      Executive’s right to receive when due the payments and other benefits provided
      for under this Agreement is absolute, unconditional and subject to no set-off,
      counterclaim or legal or equitable defense. Any claim which the Company may
      have
      against the Executive, whether for a breach of this Agreement or otherwise,
      shall be brought in a separate action or proceeding and not as part of any
      action or proceeding brought by the Executive to enforce any rights against
      the
      Company under this Agreement.





8.2  No
      Mitigation .
      The
      Executive shall not have any duty to mitigate the amounts payable by the Company
      and Nicor Gas, as applicable, under this Agreement by seeking new employment
      following termination. Except as specifically otherwise provided in this
      Agreement, all amounts payable pursuant to this Agreement shall be paid without
      reduction regardless of any amounts of salary, compensation or other amounts
      which may be paid or payable to the Executive as the result of the Executive’s
      employment by another employer.





ARTICLE IX


NON-EXCLUSIVITY
      OF RIGHTS





9.1  Waiver
      of Other Severance Rights .
      Except
      as may be otherwise specifically provided in an amendment of this
      Section 9.1 adopted in accordance with Section 11.7 of this Agreement,
      the Executive’s rights under Section 5.1 of this Agreement shall be in lieu
      of any benefits that may be otherwise payable to or on behalf of the Executive
      pursuant to the terms of any severance pay arrangement of the Company or any
      Subsidiary or any other, similar arrangement of the Company or any Subsidiary
      providing benefits upon involuntary termination of employment and shall also
      be
      in lieu of any benefits under the Nicor Inc. Executive/Key Employee Severance
      Benefits Program (notwithstanding any provision of that program to the
      contrary); provided, however, that this Section 9.1 shall not affect the
      Executive’s rights to receive any benefits with respect to a termination of
      employment that occurs outside of the Employment Period.





9.2  Other
      Rights .
      Except
      as provided in Section 9.1, this Agreement shall not prevent or limit the
      Executive’s continuing or future participation in any benefit, bonus, incentive
      or other plans provided by the Company or any of its Subsidiaries and for which
      the Executive may qualify, nor shall this Agreement limit or otherwise affect
      such rights as the Executive may have under any other agreements with the
      Company or any of its Subsidiaries. Amounts which are vested benefits or which
      the Executive is otherwise entitled to receive under any plan of the Company
      or
      any of its Subsidiaries and any other payment or benefit required by law at
      or
      after the Termination Date shall be payable in accordance with such Plan or
      applicable law except as expressly modified by this Agreement.


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ARTICLE X


CONFIDENTIALITY





10.1  Confidentiality .
      The
      Executive acknowledges that it is the policy of the Company and its Subsidiaries
      to maintain as secret and confidential all valuable and unique information
      and
      techniques acquired, developed or used by the Company and its Subsidiaries
      relating to their business, operations, employees and customers, which gives
      the
      Company and its Subsidiaries a competitive advantage in the transmission,
      distribution, marketing, or sale of natural gas or in the energy services
      industry and other businesses in which the Company and its Subsidiaries are
      engaged (“Confidential Information”). The Executive recognizes that all such
      Confidential Information is the sole and exclusive property of the Company
      and
      its Subsidiaries, and that disclosure of Confidential Information would cause
      damage to the Company and its Subsidiaries. The Executive agrees that, except
      as
      required by the duties of his employment with the Company or its Subsidiaries
      and except in connection with enforcing the Executive’s rights under this
      Agreement or if compelled by a court or governmental agency, he will not,
      without the consent of the Company, disseminate or otherwise disclose any
      Confidential Information obtained during his employment with the Company or
      its
      Subsidiaries until such time as such information has been disclosed publicly
      by
      the Company or one of its Subsidiaries, or with its consent, or is otherwise
      a
      matter of public knowledge (unless the Executive has reason to know that such
      information became a matter of public knowledge through an unauthorized
      disclosure).





10.2  Remedy .
      The
      Executive and the Company specifically agree that, in the event that the
      Executive shall breach his obligations under this Article X, the Company
      and its Subsidiaries will suffer irreparable injury and shall be entitled to
      injunctive relief therefor, and shall not be precluded from pursuing any and
      all
      remedies it may have at law or in equity for breach of such obligations;
      provided, however, that such breach shall not in any manner or degree whatsoever
      limit, reduce or otherwise affect the obligations of the Company or Nicor Gas,
      as applicable, under this Agreement, and in no event shall an asserted breach
      of
      the Executive’s obligations under this Article X constitute a basis for
      deferring or withholding any amounts otherwise payable to the Executive under
      this Agreement.





ARTICLE XI


MISCELLANEOUS





11.1  No
      Assignability .
      This
      Agreement is personal to the Executive and without the prior written consent
      of
      the Company shall not be assignable by the Executive otherwise than by will
      or
      the laws of descent and distribution. This Agreement shall inure to the benefit
      of and be enforceable by the Executive’s legal representatives.





11.2  Successors .
      Before
      or upon the consummation of any Change in Control, the Company shall obtain
      from
      each individual, group or entity, if any, that becomes a successor of the
      Company by reason of the Change in Control, the unconditional written agreement
      of such individual, group or entity to assume this Agreement and to perform
      all
      of the obligations of the Company hereunder.


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11.3  Payments
      to Beneficiary .
      If the
      Executive dies before receiving amounts to which the Executive is entitled
      under
      this Agreement, such amounts shall be paid in a lump sum to the beneficiary
      designated in writing by the Executive, or if none is so designated, to the
      Executive’s estate.





11.4  Nonalienation
      of Benefits .
      Benefits payable under this Agreement shall not be subject in any manner to
      anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
      charge, garnishment, execution or levy of any kind, either voluntary or
      involuntary, before actually being received by the Executive, and any such
      attempt to dispose of any right to benefits payable under this Agreement shall
      be void.





11.5  Severability .
      If any
      one or more articles, sections or other portions of this Agreement are declared
      by any court or governmental authority to be unlawful or invalid, such
      unlawfulness or invalidity shall not serve to invalidate any article, section
      or
      other portion not so declared to be unlawful or invalid. Any article, section
      or
      other portion so declared to be unlawful or invalid shall be construed so as
      to
      effectuate the terms of such article, section or other portion to the fullest
      extent possible while remaining lawful and valid.





11.6  Arbitration .
      Any and
      all disputes between the parties hereto arising out of this Agreement (other
      than disputes related to Article VI or to an alleged breach of the covenant
      contained in Article X) shall be settled by arbitration before an impartial
      arbitrator pursuant to the rules and regulations of the American Arbitration
      Association (AAA) pertaining to the arbitration of commercial disputes.
      Either party may invoke the right to arbitration. The arbitrator shall be
      selected by means of the parties striking alternatively from a panel of seven
      arbitrators supplied by the Chicago office of AAA. The Arbitrator shall have
      the
      authority to interpret and apply the provisions of this Agreement, consistent
      with Section 11.10 below. The decision of the arbitrator shall be final and
      binding upon the parties. Judgment may be entered on the award in any court
      of
      competent jurisdiction. The arbitrator’s fees and expenses shall be borne by the
      Company.





11.7  Amendments .
      This
      Agreement shall not be altered, amended or modified except by written instrument
      executed by the Company and the Executive.





11.8  Notices .
      All
      notices and other communications under this Agreement shall be in writing and
      delivered by hand, by a nationally-recognized commercial delivery service,
      or by
      first-class registered or certified mail, return receipt requested, postage
      prepaid, addressed as follows:


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If
      to the
      Executive:





Claudia
      J. Colalillo


1193
      Arborside Drive


Aurora,
      Illinois 60504


If
      to the
      Company:





Nicor
      Inc.


1844
      Ferry Road


Naperville,
      Illinois 60563-9600


Attn:  Claudia
      J. Colalillo





or
      to
      such other address as either party shall have furnished to the other in writing.
      Notice and communications shall be effective when actually received by the
      addressee.





11.9  Counterparts .
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument.





11.10  Governing
      Law .
      This
      Agreement is intended to be interpreted and construed in accordance with the
      laws of the State of Illinois, without regard to its choice of law
      principles.





11.11  Captions .
      The
      captions of this Agreement are not a part of the provisions hereof and shall
      have no force or effect.





11.12  Number
      and Gender .
      Wherever from the context it appears appropriate, each term stated in either
      the
      singular or plural shall include the singular and the plural, and pronouns
      stated in either the masculine, the feminine or the neuter gender shall include
      the masculine, feminine and neuter genders.





11.13  Tax
      Withholding .
      The
      Company or Nicor Gas, as applicable, may withhold from any amounts payable
      under
      this Agreement any federal, state or local taxes that are required to be
      withheld pursuant to any applicable law or regulation.





11.14  No
      Waiver .
      A
      waiver of any provision of this Agreement shall not be deemed a waiver of any
      other provision, and any waiver of any default as to any such provision shall
      not be deemed a waiver of any later default as to that or any other
      provision.





11.15  Entire
      Agreement .
      This
      Agreement contains the entire understanding of the Company, Nicor Gas and the
      Executive with respect to its subject matter and specifically supercedes and
      replaces in its entirety the Prior Agreement.


25








IN
      WITNESS WHEREOF, the Executive and the Company have executed this Agreement
      as
      of the date first above written.





/s/
      CLAUDIA J.
      COLALILLO


Claudia
      J. Colalillo








Nicor
      Inc.





By:
      /s/ THOMAS L. FISHER


Chairman
      and CEO


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