Exhibit 10.3


    Nicor
      Inc.

    Form
      8-K

    Exhibit
      10.3

    PERFORMANCE
      CASH UNIT AGREEMENT

    NICOR
      INC. 2006 LONG-TERM INCENTIVE PROGRAM

    


    THIS
      AGREEMENT, entered into as of March 16th
      2006
      (the "Agreement Date"), by and between «First_Name» «MiName» «Last_Name»
      (the
      "Employee"), and Nicor Inc., an Illinois corporation (the
      "Company");

    WITNESSETH
      THAT:

     

    WHEREAS,
      the Company maintains the Nicor Inc. 2006 Long-Term Incentive Program (the
      "Program"), which is part of the Nicor Inc. 1997 Long-Term Incentive Plan (the
      “Plan”) and which are incorporated into and form a part of this Agreement, for
      the benefit of key executive and management employees of the Company and any
      related company; and

    


    WHEREAS,
      the Employee has been selected by the Compensation Committee of the Board of
      Directors of the Company (the "Committee") to receive a Performance Cash Unit
      award;

    


    NOW,
      THEREFORE, IT IS AGREED, by and between the Company and the Employee, as
      follows:

    


    1.
      Award.
      The
      Employee is hereby awarded «PU»
      Performance Cash Units, effective as of the Agreement Date.

    


    2.
      Amount
      of Payment.
      Subject
      to the provisions of this Agreement, the Program and the Plan, the Company
      shall
      distribute to the Employee, for each Performance Cash Unit awarded under this
      Agreement, an amount equal to one dollar times the sum of, (1) the number of
      Performance Cash Units MULTIPLIED BY (2) the Total Shareholder Return
      Performance Factor (as defined below) for the Performance Period (as defined
      below).

    


    3.
      Time
      of Payment.
      Amounts
      due under paragraph 2 with respect to Performance Cash Units shall be paid
      as a
      lump sum cash payment as soon as practicable after the end of the Performance
      Period; provided, however, if payment is not made by 2 1⁄2 months following the
      end of the Performance Period, payment will be made no later than December
      31 of
      the calendar year following the end of the Performance Period.

    


    4.
      Total
      Shareholder Return.
      For
      purposes of this Agreement, the Total Shareholder Return (TSR) is defined as
      the
      three-year total shareholder return of the Company calculated with dividends
      reinvested, for all shares of common stock of the Company (“Company Stock”)
      reported for the New York Stock Exchange - Composite Transactions ending on
      the
      last day of the Performance Period (or, if Company Stock is not traded on that
      date, on the next preceding date on which Company Stock is traded). For purposes
      of calculating the TSR: (i) the starting stock price will be an average of
      the
      closing prices for the 20 trading days ending on December 31, 2005 and (ii)
      the
      ending stock price will be an average of the closing prices for the 20 trading
      days ending on December 31, 2008.

    


    5. Performance
      Period.
      For
      purposes of this Agreement, the Performance Period shall be the period beginning
      January 1, 2006, and ending December 31, 2008.

    


    6.
      Performance
      Factors.
      For
      purposes of this Agreement, the term "Total Shareholder
      Return Performance Factor" for the Performance Period shall be determined in
      accordance with Exhibit 1 to this Agreement.

     

    7.
      Vesting.
      The
      Employee shall be vested in and entitled to payment of benefits under this
      Agreement only if the requirements of either paragraph (a) or paragraph (b)
      next
      below are satisfied: 

    


    
      	 	
              (a)

            	
              The
                Employee is continuously employed by the Company and the Related
                Companies
                during the period beginning on the Agreement Date and ending on December
                31, 2008.

            


    

    


    
      	 	 	
              (b)

            	
              The
                Employee is continuously employed by the Company and the Related
                Companies
                during the period beginning on the Agreement Date and ending on March
                16,
                2007, and such employment terminates on or after March 16, 2007 and
                before
                January 1, 2009 by reason of his Retirement (as defined below) or
                death.

            


    

    


    The
      Employee shall not be vested in or entitled to payment of benefits under this
      Agreement unless the requirements of paragraph (a) or paragraph (b) next above
      are satisfied. Nothing in this paragraph 7 shall be deemed to increase the
      amount of benefits (if any) payable under this Agreement, as determined without
      regard to this paragraph 7.

    


    8.
      Heirs
      and Successors.
      This
      Agreement shall be binding upon, and inure to the benefit of, the Company and
      its successors and assigns, and upon any person acquiring, whether by merger,
      consolidation, purchase of assets or otherwise, all or substantially all of
      the
      Company's assets and business. Subject to the terms of the Plan, any benefits
      payable to the Employee under this Agreement that are not paid at the time
      of
      the Employee's death shall be paid at the time and in the form determined in
      accordance with the provisions of this Agreement, to the beneficiary designated
      by the Employee in writing filed with the Committee in such form and at such
      time as the Committee shall require. If a deceased Employee fails to designate
      a
      beneficiary, or if the designated beneficiary of the deceased Employee dies
      before the Employee or before complete payment of the amounts distributable
      under this Agreement, the Committee shall, in its discretion, direct that
      amounts to be paid under this Agreement be paid to:

    


    
      	 	
              (a)

            	
              one
                or more of the Employee's relatives by blood, adoption or marriage
                and in
                such proportion as the Committee decides;
                or

            


    

    


    
      	 	
              (b)

            	
              the
                legal representative or representatives of the estate of the last
                to die
                of the Employee and his
                beneficiary.

            


    

    


    9.
      Retirement.
      For
      purposes of this Agreement, the term "Retirement" means: (a) termination of
      employment because the Employee has reached normal retirement age of 65 years;
      (b) termination of employment because the Employee becomes Disabled; or (c)
      termination of employment before age 65 because of early retirement pursuant
      to
      any plan of the Company or a Related Company that covers the Employee and that
      is qualified under section 401(a) of the Internal Revenue Code. For purposes
      of
      this Agreement, the term "Disabled" means the inability of the Employee, by
      reason of a medically determinable physical or mental impairment, to engage
      in
      any substantial gainful activity, which condition, in the opinion of a physician
      selected by the Committee, is expected to be total and permanent during the
      remainder of the Employee's lifetime.

    


    10.
      Transferability.
      Performance Cash Units awarded under this Agreement are not transferable except
      as designated by the Employee by will or by the laws of descent and
      distribution. Notwithstanding the foregoing, the Committee may permit
      Performance Cash Units awarded under this Agreement to be transferred by a
      participant for no consideration to or for the benefit of the participant's
      immediate family (including a trust for the benefit of a participant's immediate
      family or to a partnership for members of a participant's immediate family),
      subject to such limits as the Committee may establish, and the transferee shall
      remain subject to all terms and conditions applicable to such award prior to
      such transfer. Immediate family is defined as the participant's spouse,
      children, stepchildren and adoptive relationships.

    


    11.
      Employment.
      This
      Agreement does not constitute a contract of employment, and does not confer
      on
      the Employee the right to be retained in the employ of the Company or any
      Related Company. 

    


    12.
      Change
      in Control.
      In the
      event that a change in control (within the meaning of the Plan) occurs prior
      to
      the end of the Performance Period, Performance Cash Units may be paid out in
      such manner and amounts as determined by the Committee.

    


    13.
      Plan
      Governs.
      Notwithstanding anything in this Agreement to the contrary, the terms of this
      Agreement shall be subject to the terms of the Program and of the Plan, copies
      of which may be obtained by the Employee from the office of the Secretary of
      the
      Company. 

    


    14.
      Administration.
      The
      authority to manage and control the operation and administration of this
      Agreement shall be vested in the Committee, and the Committee shall have all
      powers with respect to this Agreement as it has with respect to the Program
      and
      the Plan. Any interpretation of the Agreement by the Committee and any decision
      made by it with respect to the Agreement is final and binding on all
      persons.

    


    15.
      Amendment.
      This
      Agreement may be amended by written agreement of the Employee and the Company,
      without the consent of any other person. Notwithstanding the foregoing, the
      Company may in its sole discretion, amend the this Agreement, the Program or
      the
      Plan in such manner as it may determine is necessary or desirable either
      for the Performance Cash Units to be exempt from the application of
      Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) or to
      satisfy the requirements of Section 409A of the Code, provided that no such
      amendment may change the Program's "performance goals," within the meaning
      of Section 162(m) of the Code, with respect to any person who is a "covered
      employee," within the meaning of Section 162(m) of the Code.

    


    IN
      WITNESS WHEREOF, the Employee has hereunto set his hand, and the Company has
      caused these presents to be executed in its name and on its behalf, and its
      corporate seal to be affixed hereto, all as of the Agreement Date.

    


    _____________________________

    «First_Name» «MiName» «Last_Name»

     

    Nicor
      Inc.


       Nicor
      Inc.

    By:
      __________________

    Russ
      Strobel

    Chairman,
      President and

    Chief
      Executive Officer

    


    


    


    ATTEST:

    


    ____________________ 

    Assistant
      Secretary

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
      I

    


    


    PERFORMANCE
      CASH UNIT AGREEMENT

    NICOR
      INC. 2006 LONG-TERM INCENTIVE PROGRAM

    


    


    Performance
      Factor

    


    The
      following Schedule shall be used to determine the Performance
      Factor.

    


     

    
      	
              If
                the Nicor Total

              Shareholder
                Return Is:

            	
              The
                Performance

              Factor
                Shall Be:

            
	 	 
	
              At
                or above the 90th
                percentile

            	
              2.00

            
	
              At
                the 75th
                percentile

            	
              1.50

            
	
              At
                the 60th
                percentile

            	
              1.00

            
	
              At
                the 50th
                percentile

            	
              0.75

            
	
              At
                the 40th
                percentile

            	
              0.50

            
	
              At
                the 25th
                percentile

            	
              0.25

            
	
              Less
                than the 25th
                percentile

            	
              0.00

            


    

    


    For
      purposes of this Exhibit 1, the percentile of the Nicor Total Shareholder Return
      shall be the three year total shareholder return of the Company for the
      Performance Period, as compared to the companies in the Standard and Poor's
      utility group for the Performance Period. If the Standard and Poor's utility
      group is not available for the entire Performance Period, the Committee shall
      apply such other measure as it determines to be appropriate to preserve the
      intent of this Agreement. For results between performance levels, the
      Performance Factor will be interpolated.