2007 NICOR ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS


    2007
      NICOR ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS

    


    


    
      	 	
              The
                2007 Nicor Annual Incentive Compensation Plan for Officers is designed
                to
                link participant incentive compensation to the accomplishment of
                corporate
                and operating unit financial performance, as well as non-financial
                measures of operating performance across the Company and operating
                units.
                It ties the pay an individual receives to Company performance and
                non-financial goals. This plan is intended to provide a framework
                for a
                performance-based bonus program for
                Nicor.

            


    

    


    
      	 	
              Purpose

            


    

    The
      purpose of this Plan is to provide meaningful annual incentive award opportunity
      to the participants. Awards will be directly tied to the achievement of
      corporate financial and goals and non-financial objectives.

    


    
      	 	
              Eligible
                Group

            


    

    Officers
      of Nicor are eligible for participation. As such, participation is limited
      to
      employees in positions which enable them to make significant contributions
      to
      the performance and growth of the Company.

    


    Compensation
      Objective

    Base
      Salary + Bonus Target = Short-Term Compensation Objective

    


    An
      individual's short-term compensation objective will be based on salary plus
      a
      bonus, expected to be earned if established performance targets are met.
      Short-term compensation above (or below) target levels may be paid in the event
      performance exceeds (or falls short of) goals.

    


    Base
      Salary

    Standards
      for base salaries will be targeted to the 50th
      percentile of the appropriate blend of general and industry survey data. Base
      salaries are reviewed annually by the Compensation Committee of the Board of
      Directors.

    


    Bonus
      Targets

    The
      bonus
      target amount varies according to pay, job responsibilities and ability to
      impact the organization and is consistent with the bonus opportunity ranges
      set
      by officer salary bands. Higher responsibility and impact levels result in
      greater dollars at risk.

    


    Performance
      Targets

    Performance
      criteria focus on the achievement of established and documented strategic goals.
      Performance targets may include measures of corporate financial and operating
      performance, defined group objectives or individual performance objectives.
      Each
      particular performance target will be assigned weighting reflected as a
      percentage of compensation objectives.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    Goal
      Setting Guidelines

    The
      most
      important aspect of this Plan will be the establishment of effective goals.
      In
      addition to measures of corporate financial and operating performance, other
      non-financial measures of performance will also be established. The goals should
      be realistic and measurable wherever possible by quantifiable performance
      criteria. It is recognized that measurement of some goals will require
      subjective assessments of performance. Goals must be consistent with the
      longer-term strategic plan.

    


    A
      set of
      guidelines will be devised by the Nicor Human Resources Department to aid in
      this process. These guidelines will provide direction as to the formulation
      and
      reporting of non-financial goals.

    


    Amount
      of
      bonus payment for financial/budget related goals can vary above and below target
      based upon results achieved. For targets met, bonus amount will be 100% of
      target. When targets are exceeded or are not reached, bonus will be
      proportionately more or less than the target.

    


    The
      Compensation Committee may make appropriate upward or downward adjustments
      if,
      after taking into consideration all of the facts and circumstances of the
      performance period, it determines that adjustments are warranted.

    


    Plan
      Schedule

    The
      2007
      Nicor Incentive Compensation Plan runs on a calendar year basis, with the
      strategic planning cycle and budgeting process serving as the primary link
      to
      performance and bonus targets. The Accounting Department is responsible for
      the
      determination of actual financial results. Performance will be reviewed at
      least
      twice a year to monitor progress and adjust accruals.

    


    Year-end
      results should be available and evaluated as early as possible in the following
      year. No bonus shall be paid until the Compensation Committee of the Board
      of
      Directors (the “Compensation Committee”) approves such payment. Following
      approval of the Compensation Committee, bonuses will be paid to participants
      by
      March 15 of the year in which such approval is given, unless payment by March
      15
      is not administratively practicable, in which case payment shall be made by
      December 31.

    


    Form
      of Payment

    All
      awards will be paid in cash, except that a participant in the Stock Deferral
      Plan may elect to defer up to 50% of their award into that plan and a
      participant in the Salary Deferral Plan may elect to defer 10% to 20% of their
      award into that plan. Deferral elections must meet the guidelines and timing
      of
      the Stock Deferral and/or Salary Deferral Plans to be effective. Appropriate
      taxes for the entire award amount will be withheld from the portion of the
      award
      being paid in cash.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    In
      addition, a participant may elect by writing to the Compensation Committee
      prior
      to July 1 to have all or a portion of the incentive award otherwise payable
      in
      the following year to be deferred; provided that such bonus meets the
      requirements of “performance based compensation” within the meaning of Section
      409A of the Internal Revenue Code of 1986, as amended (the “Code”).


    


    Such
      deferral election shall specify whether such bonus, plus interest thereon shall
      be paid in either annual installments over a period of not more than five years,
      or a lump sum. Payment shall be made upon the earlier of separation from service
      (within the meaning of Section 409A of the Code) or such other date as the
      participant shall specify in the election. If payment is made upon separation
      from service, such payment will commence on the first regularly scheduled
      payroll of Nicor following the six months anniversary of the participant’s
      separation from service. 

    


    The
      participant may submit a request to change the original date of payment elected;
      provided, however, that any such change (i) must be made at least twelve months
      prior to the originally scheduled payment date, (ii) will not be effective
      for a
      period of twelve months, and (iii) must defer payment for at least five years
      beyond the originally elected date of payment. For this purpose, installment
      payments shall be treated as a single payment. The request to change a deferral
      election must be submitted in writing to the Compensation Committee who will
      take into consideration the particular facts and circumstances in its final
      determination. In no event shall the Compensation Committee allow a participant
      to defer a bonus or make changes to a deferral election if such election would
      violate Section 409A of the Code. 

    


    The
      Compensation Committee may modify any such election to the extent necessary
      to
      comply with Section 409A of the Code, as it may determine in its sole
      discretion. 

    


    Notwithstanding
      anything contained herein to the contrary, the portion of any bonus which would
      otherwise be payable to a “covered individual” within the meaning of Section
      162(m) of the Code, that is not deductible by reason of Section 162(m) of the
      Code, shall automatically be deferred and paid to the covered individual in
      a
      lump sum on the first payroll of Nicor following the six month anniversary
      of
      the covered individual’s separation from service.

    


    All
      amounts which are deferred shall be credited with compounded interest equal
      to
      the prime rate applied on a quarterly basis.

    


    
      	 	
              Integration
                with Existing Programs

            


    

    Base
      salaries will be managed with range bands at the appropriate blend of general
      and industry data for comparable positions, with total compensation objectives
      to be managed at a level appropriate with the performance of the company, as
      determined by the Compensation Committee. Salaries will be monitored each year
      and increases granted based on merit and range band. Bonus targets will be
      set
      as a 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    percentage
      of base salary. A change, other than the annual salary review, in the
      compensation objective will customarily occur during the year only through
      promotion to various levels, at which time the base salary and bonus target
      are
      also likely to change.

    


    Promotion
      of an employee during the year or reassignment to responsibilities in which
      new
      performance objectives apply will result in proration of the existing
      performance objectives and bonus target and assignment of new performance
      objectives as determined by the Compensation Committee. Promotion into an
      Executive Salary Band would create eligibility for bonus at a prorated amount,
      based on the effective date of the promotion.

    


    If
      a
      participant voluntarily terminates or is terminated for cause prior to the
      end
      of the performance period, then no award shall be granted. In the event a
      participant shall die, become disabled, retire or is terminated without cause
      before the end of the performance period, then the Compensation Committee will
      authorize payment of an award to the participant, or beneficiary, in such amount
      as the Committee deems appropriate.

    


    
      	 	
              Responsibility

            


    

    The
      Human
      Resources Department will be responsible for the administration of the process
      for the company. This will include:

    


    1)     monitoring
      market salary and total compensation levels;

     

    2)    
recommending
      structural
      changes in base salary and compensation objective adjustments;

     

    3)    
reviewing
      eligibility and performance targets;

     

    4)    
monitoring
      financial
      performance targets through the Accounting Department;

     

    5)    
communicating
      progress
      reports to participants;

     

    6)    
progress
      and exception
      reporting to Compensation Committee;

     

    7)    
monitoring
      compliance with
      related financial controls; and

     

    8)    
maintaining
      the accuracy of
      the plan document(s) governing the plan.

     

    The
      2007
      Nicor Annual Incentive Compensation Plan for Officers and changes to its
      performance targets and measurement criteria will be reviewed and approved
      by
      the Compensation Committee.

    


    In
      determining the actual bonus awards to be made, the Compensation Committee
      may
      take into account all of the facts and circumstances which exist during the
      year


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    and
      may
      make appropriate upward or downward revisions in performance criteria, add
      or
      delete objectives, or change the relative percentages assigned to the various
      performance objectives.

    


    
      	 	
              Amendment
                and Termination

            


    

    The
      Board
      of Directors may amend or terminate the Plan at any time without the consent
      of
      the participants. No such amendment or termination shall negatively impact
      any
      participant's amount which accrued under the Plan prior to the calendar year
      in
      which the amendment is made.

    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    Nicor
      Human Resources

    February
      2007