Nicor Gas Company
                                                               Form 10-K
                                                               Exhibit 1.01


                          NORTHERN ILLINOIS GAS COMPANY

                                   $75,000,000

                              FIRST MORTGAGE BONDS
                      6 5/8% SERIES DUE FEBRUARY 1, 2011

                             UNDERWRITING AGREEMENT
                                                              January 25, 2001
ABN AMRO Incorporated
1325 Avenue of the Americas--10th Floor
New York, New York 10019

Dear Sirs:

       Northern  Illinois Gas Company,  doing business as Nicor Gas Company (the
"Company")  proposes,  subject to the terms and conditions  stated herein and in
the General Terms and Conditions of Underwriting  Agreement in the form of Annex
A hereto, a copy of which you have previously received, to issue and sell to you
(the  "Underwriter"),  $75,000,000  aggregate  principal amount of the Company's
First Mortgage Bonds (the "Bonds").  All of the provisions of such General Terms
and Conditions of Underwriting Agreement are incorporated herein by reference in
their entirety,  and shall be deemed to be a part of this Underwriting Agreement
to the same  extent as if such  provisions  had been set  forth in full  herein.
Unless  otherwise  defined  herein,  terms  defined  in the  General  Terms  and
Conditions of Underwriting Agreement are used herein as therein defined.

       An  amendment  to the  Registration  Statement,  or a  supplement  to the
Prospectus,  as the case may be,  relating  to the Bonds in the form  heretofore
delivered  to you is now  proposed  to be filed or mailed  for  filing  with the
Commission. Such amendment or supplement sets forth the terms of the Bonds.

       Subject to the terms and conditions set forth herein,  the Company agrees
to issue and sell to the  Underwriter,  and the  Underwriter  agrees to purchase
from the Company, all of the Bonds on the following terms and conditions:

Aggregate principal amount of Bonds
   to be purchased:.......................      $75,000,000

Rate of interest per annum to be borne by the
   Bonds (payable semiannually):..........      6.625%  (such  rate  to  be  a
                                                         multiple of .001%)

Maturity date of the Bonds:...............      February 1, 2011

Price to be paid to the Company for
   the Bonds:.............................      98.903%   of   the   principal
                                                amount  of  the   Bonds   plus
                                                accrued   interest,   if  any,
                                                from   date  of   Supplemental
                                                Indenture   to  the   date  of
                                                delivery of the Bonds.

Initial public offering price of
   the Bonds:.............................      99.553%   of   the   principal
                                                amount  of  the   Bonds   plus
                                                accrued   interest,   if  any,
                                                from   date  of   Supplemental
                                                Indenture   to  the   date  of
                                                delivery  of  the  Bonds.  (If
                                                other, give details.)


<PAGE>


Place for delivery of Bonds:..............      The Depository Trust Company
                                                55 Water Street
                                                New York, New York 10004

Date and time of Time of Delivery:........      February 1,  2001 at 9:00 a.m.
                                                Chicago Time

Place for checking Bonds on the business day
   prior to Time of Delivery:.............      The Depository Trust Company
                                                55 Water Street
                                                New York, New York 10004

Redemption and Sinking Fund:..............      The Bonds  will be  redeemable
                                                in  whole  at any  time  or in
                                                part from  time to time,  at a
                                                redemption  price equal to the
                                                greater  of  (i) 100%  of  the
                                                principal  amount of the Bonds
                                                to  be  redeemed  or  (ii) the
                                                sum of the  present  values of
                                                the    remaining     scheduled
                                                payments  of   principal   and
                                                interest  thereon   (exclusive
                                                of  interest  accrued  to  the
                                                date      of       redemption)
                                                discounted,    at   the   then
                                                current   treasury  rate  plus
                                                25 basis  points,  to the date
                                                of  redemption on a semiannual
                                                basis   (assuming   a  360-day
                                                year   consisting   of  twelve
                                                30-day  months),  plus in each
                                                case,   accrued   and   unpaid
                                                interest   on  the   principal
                                                amount  being  redeemed to the
                                                date   of    redemption.    No
                                                sinking fund will be provided.

Address for notices per Section 12 of the General
Terms and Conditions of Underwriting Agreement:     ABN AMRO Incorporated
                                                    1325 Avenue of the
                                                    Americas--10th Floor
                                                    New York, New York 10019

       If the foregoing is in accordance  with your  understanding,  please sign
and return to us the enclosed  counterparts  hereof,  whereupon it will become a
binding agreement between the Underwriter and the Company in accordance with its
terms.

                                                Very truly yours,

                                                NORTHERN ILLINOIS GAS COMPANY


                                                By
                                                Title:   Vice   President  and
                                                         Treasurer

The foregoing  Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.

ABN AMRO Incorporated

By
Title:


<PAGE>








                                                                         ANNEX A

                          NORTHERN ILLINOIS GAS COMPANY

                                   $75,000,000

                              FIRST MORTGAGE BONDS

            GENERAL TERMS AND CONDITIONS OF UNDERWRITING AGREEMENT

       Northern Illinois Gas Company,  an Illinois  corporation (the "Company"),
proposes to enter into an Underwriting  Agreement into which these General Terms
and Conditions are incorporated by reference (the "Underwriting Agreement") and,
subject to the terms and  conditions  stated  therein,  to issue and sell to the
underwriter or underwriters named in Schedule I to the Underwriting Agreement up
to  $75,000,000   aggregate   principal  amount  of  its  First  Mortgage  Bonds
(hereinafter called the "Bonds") under the registration statement referred to in
Section 2(a) hereof.  Such Bonds will be issued  under the  Company's  Indenture
dated as of January 1, 1954, to Continental Bank, National Association,  Trustee
(the  "Trustee"),  as supplemented by supplemental  indentures dated February 9,
1954,  April 1, 1956,  June 1, 1959,  July 1, 1960,  June 1, 1963, July 1, 1963,
August 1, 1964,  August 1, 1965, May 1, 1966, August 1, 1966, July 1, 1967, June
1, 1968,  December 1, 1969,  August 1, 1970, June 1, 1971, July 1, 1972, July 1,
1973,  April 1, 1975,  April 30, 1976,  April 30, 1976, July 1, 1976,  August 1,
1976,  December 1, 1977,  January  15,  1979,  December 1, 1981,  March 1, 1983,
October 1, 1984,  December 1, 1986,  March 15, 1988, July 1, 1988, July 1, 1989,
July 15, 1990, August 15, 1991, July 15, 1992, February 1, 1993, March 15, 1993,
May 1, 1993,  July 1, 1993,  August 15, 1994,  October 15,  1995,  May 10, 1996,
August 1, 1996, June 1, 1997, October 15, 1997,  February 15, 1998, June 1, 1998
and  February  1, 1999,  respectively,  and as to be further  supplemented  by a
Supplemental  Indenture (the  "Supplemental  Indenture") which will be dated the
first or fifteenth day of the calendar month in which the "Time of Delivery" (as
hereinafter  defined)  falls,  creating  the series in which the Bonds are to be
issued. Said Indenture as so supplemented is hereinafter called the "Indenture."
The term  "Underwriters"  herein shall refer to the several  persons,  firms and
corporations  named in  Schedule I to the  Underwriting  Agreement  and the term
"Representatives"  herein  shall  refer to the  Underwriters  identified  as the
Representatives  who  are  acting  on  behalf  of  the  Underwriters  (including
themselves) in the Underwriting  Agreement.  All obligations of the Underwriters
under  the  Underwriting   Agreement  are  several  and  not  joint.  The  terms
"Underwriters",  "Representatives",  "persons", "firms" and "corporations" shall
include the singular as well as the plural.

       The terms of the  issuance  of the  Bonds  shall be as  specified  in the
Underwriting Agreement. The Underwriting Agreement shall constitute an agreement
by the  Company and the  Underwriters  to be bound by all of the  provisions  of
these General Terms and Conditions of Underwriting Agreement, as follows:

       Section  1.  Sale  of  Bonds.  Sales  of the  Bonds  will  be made to the
Underwriters,  for whom the Representatives  will act as such. The obligation of
the Company to issue and sell any of the Bonds and the  obligation of any of the
Underwriters to purchase any of the Bonds shall be evidenced by the Underwriting
Agreement.  The  Underwriting  Agreement  shall specify the aggregate  principal
amount of Bonds to be purchased,  the rate and time of payment of interest to be
borne by the Bonds,  the maturity date of the Bonds, the price to be paid to the
Company for the Bonds, the initial public offering price or other offering terms
of such  Bonds and the  redemption  prices  and  other  special  terms,  if any,
relating to the Bonds, the names of the Underwriters of such Bonds, the names of
the Representatives of such Underwriters and the amount of Bonds to be purchased
by each Underwriter,  and, subject to the provisions of Section 3 hereof,  shall
set forth the date, time and manner of the delivery of such Bonds.  The terms of
the  Bonds  will be set  forth  in the  Prospectus  Supplement  (as  hereinafter
defined). The Underwriting Agreement shall be in the form of an executed writing
(which may be in counterparts) and may be evidenced by an exchange of telecopied
communications  or any other  rapid  transmission  device  to  produce a written
record of communications transmitted.


<PAGE>


       Section 2.  Representations  and  Warranties of the  Company.The  Company
represents and warrants to, and agrees with, the several Underwriters that:

            (a) A registration  statement on Form S-3 with respect to the Bonds,
       including  a related  preliminary  prospectus,  has been  prepared by the
       Company in conformity  with the  requirements  of the  Securities  Act of
       1933,  as  amended  (the  "Act"),  and the rules and  regulations  of the
       Securities and Exchange  Commission (the "Commission") under the Act (the
       "Regulations"),  and has been filed with the  Commission  on December 17,
       1998 and, if one or more amendments to such registration statement, which
       may include an amended preliminary  prospectus,  have been filed with the
       Commission,  such  amendments  have  been  similarly  prepared;  and such
       registration statement has become effective. Such registration statement,
       as amended to the date of the Underwriting  Agreement,  together with the
       prospectus supplement referred to below is hereinafter referred to as the
       "Registration  Statement".  Such prospectus as supplemented  specifically
       relating to the Bonds and filed with the Commission  under Rule 424(b) of
       the Act is hereinafter  referred to as the  "Prospectus".  The Prospectus
       has been prepared by the Company in conformity  with the  requirements of
       the Act and the Regulations. Copies of the Registration Statement and any
       related  prospectus have been delivered to the  Representatives.  As used
       herein,  Registration  Statement,  Prospectus and preliminary  prospectus
       shall include, in each case, the material  incorporated  therein pursuant
       to Item 12 of Form S-3 filed under the  Securities  Exchange  Act of 1934
       (the "1934 Act") on or prior to the date of the  Underwriting  Agreement,
       and  "amended",   "amendment"  or   "supplement"   with  respect  to  the
       Registration  Statement or the Prospectus  shall be deemed to include the
       filing by the Company of any document pursuant to Sections 13(a),  13(c),
       14 or 15(d) of the 1934 Act after the date of the Underwriting Agreement.

            (b) The registration statement at the time it became effective,  and
       the related  prospectus and any amendments and supplements  thereto filed
       prior  to  the  date  of the  Underwriting  Agreement,  conformed  in all
       material  respects to the  provisions of the Act and the Trust  Indenture
       Act of 1939,  as amended  (the "Trust  Indenture  Act") and the rules and
       regulations of the Commission thereunder, on the date of the Underwriting
       Agreement  and at the Time of  Delivery  (referred  to in  Section 3) the
       Registration   Statement,   the   Prospectus,   and  any  amendments  and
       supplements  thereto,  and the  Indenture,  will  conform in all material
       respects to the Act, the Trust Indenture Act and the respective rules and
       regulations   of  the  Commission   thereunder;   and  at  the  time  the
       registration  statement became effective,  the registration statement and
       related  prospectus  did not contain any untrue  statement  of a material
       fact or omit to state a material  fact  required to be stated  therein or
       necessary to make the statements therein not misleading;  and at the date
       of  this  Underwriting  Agreement  and  at  the  Time  of  Delivery,  the
       Registration   Statement  and  the  Prospectus  and  any  amendments  and
       supplements thereto do not and will not contain any untrue statement of a
       material fact or omit to state a material fact necessary in order to make
       the statements therein not misleading;  provided,  however,  that none of
       the  representations  and  warranties in this  subsection  shall apply to
       statements in or omissions from the Registration  Statement or Prospectus
       or any  amendment  or  supplement  thereto  made in reliance  upon and in
       conformity with information  respecting the Underwriters furnished to the
       Company  in  writing  by or on  behalf  of any  Underwriter  through  the
       Representatives  expressly  for  use in  the  Registration  Statement  or
       Prospectus.

            (c) The documents incorporated by reference into the Prospectus,  at
       the time they were filed with the  Commission,  complied in all  material
       respects  with  the  requirements  of the  1934  Act  and the  rules  and
       regulations of the Commission  thereunder (the "1934 Regulations"),  and,
       at the date of this  Underwriting  Agreement and at the Time of Delivery,
       when read together with the Prospectus  and any  supplement  thereto will
       not  contain an untrue  statement  of a material  fact or omit to state a
       material  fact  required to be stated  therein or  necessary  to make the
       statements therein not misleading, and any documents filed after the date
       of the  Underwriting  Agreement and so  incorporated  by reference in the
       Prospectus  will, when they are filed with the Commission,  comply in all
       material  respects  with  the  requirements  of the 1934 Act and the 1934
       Regulations,   and  when  read  together  with  the  Prospectus  and  any
       supplement  thereto will not contain an untrue statement of material fact
       or omit to  state a  material  fact  required  to be  stated  therein  or
       necessary to make the statements therein not misleading.

            (d) Arthur  Andersen LLP are  independent  public  accountants  with
       respect to the  Company and its  subsidiaries  as required by the Act and
       the Regulations.

            (e) The financial statements included in the Registration  Statement
       present fairly the financial position of the Company and its consolidated
       subsidiaries  as  of  the  dates  indicated  and  the  results  of  their
       operations for the periods specified,  and said financial statements have
       been prepared in conformity with generally accepted accounting principles
       applied on a consistent basis during the periods involved.

            (f) The Company is a corporation  in good  standing,  duly organized
       and validly  existing  under the laws of Illinois,  and has due corporate
       authority  to carry on the business in which it is engaged and to own and
       operate the  properties  used by it in such  business as described in the
       Prospectus.  The  Company's  subsidiary  constitutes  less than 5% of its
       consolidated   assets  and  during  the  year  ended  December  31,  2000
       contributed  less than 5% of its consolidated  annual operating  revenues
       and net income,  and the Company does not consider its  subsidiary  to be
       material.

            (g) The execution and delivery of the  Underwriting  Agreement  have
       been  duly  authorized  by the  Company  and the  Underwriting  Agreement
       constitutes a valid and legally  binding  obligation of the Company;  the
       Bonds have been duly authorized,  and when issued and delivered  pursuant
       to the  Underwriting  Agreement  and the  Indenture,  will have been duly
       executed,  authenticated,  issued and delivered and will constitute valid
       and legally  binding  obligations of the Company in accordance with their
       respective terms, entitled to the benefits provided by the Indenture; the
       Supplemental Indenture has been duly authorized in substantially the form
       filed as an exhibit to the Registration  Statement and, when executed and
       delivered  by the Company and the  Trustee,  will  constitute a valid and
       legally  binding  instrument  enforceable  in accordance  with its terms,
       except to the extent the  enforceability  of the Bonds and the  Indenture
       may be limited by bankruptcy, insolvency, reorganization or other laws of
       general   application   relating  to  or  affecting  the  enforcement  of
       creditors' rights or general equity principles; and the Indenture and the
       Bonds as executed and delivered will conform in all material  respects to
       the descriptions thereof in the Prospectus.

            (h) The  issue  and  sale of the  Bonds  and the  compliance  by the
       Company with all of the provisions of the Bonds,  the Indenture,  and the
       Underwriting Agreement and the transactions contemplated thereby will not
       conflict  with  or  result  in  any  breach  or  violation  of any of the
       provisions of, or constitute  (disregarding any grace or notice period) a
       default  under,  or  result  in the  imposition  of any  lien,  charge or
       encumbrance  upon any  property or assets of the Company  pursuant to the
       terms of, any other indenture, or any mortgage, loan agreement, contract,
       note,  lease or other  agreement or  instrument to which the Company is a
       party  or by which  the  Company  may be  bound  or to  which  any of the
       property or assets of the Company is subject, nor will such action result
       in any  violation  of the  provisions  of the  charter  or by-laws of the
       Company or any statute or any order, rule or regulation applicable to the
       Company of any court or any federal,  state or other regulatory authority
       or other governmental body having jurisdiction over the Company or any of
       its properties.

            (i) Since the respective  dates as of which  information is given in
       the Registration  Statement and Prospectus and except as may otherwise be
       stated or  contemplated  therein;  (i)  there  has not been any  material
       adverse change in the condition,  financial or otherwise,  of the Company
       and its  subsidiaries  considered as one enterprise,  or in the earnings,
       affairs,  business  prospects  or  properties  of  the  Company  and  its
       subsidiaries considered as one enterprise,  whether or not arising in the
       ordinary  course of  business or arising  from any court or  governmental
       action,  order or decree, and (ii) there has been no transaction  entered
       into by the  Company or any  subsidiary  which is material to the Company
       and  its   subsidiaries   considered  as  one   enterprise,   other  than
       transactions in the ordinary course of business.

            (j) Except as set forth in the Prospectus,  the Company,  with minor
       exceptions,  and subject to  noncompliance  with certain  procedural  and
       other requirements in the procurement and granting of gas franchises in a
       number of smaller  municipalities  formerly  served by  Mid-Illinois  Gas
       Company, has statutory authority,  franchises,  licenses,  rights-of-way,
       easements  and consents,  free from unduly  burdensome  restrictions  and
       adequate for the conduct of the business in which it is engaged.

            (k)  The  Illinois   Commerce   Commission   has  entered  an  order
       authorizing  the issue and sale of the Bonds by the  Company  upon  terms
       consistent  with  the  Underwriting  Agreement,  and  no  other  consent,
       approval,  authorization  or other order or filing with any regulatory or
       governmental  body is required for the issuance and sale of the Bonds and
       consummation  of  the  transactions   contemplated  hereby,  except  such
       consents, approvals,  authorizations,  registrations or qualifications as
       may be required  under state  securities  or Blue Sky laws in  connection
       with the purchase and distribution of the Bonds by the Underwriters.

            (l) The Company is not in  violation  of its  charter or,  except as
       disclosed in the Prospectus,  in default in the performance or observance
       of any  obligation,  agreement,  covenant or  condition  contained in any
       contract,  indenture,  mortgage,  loan  agreement,  note,  lease or other
       instrument to which it is a party or by which it or its property is bound
       or  affected  which  is  material  to  the  Company  and  its  subsidiary
       considered as one enterprise.

            (m)  Except  as  set  forth  in  the   Registration   Statement  and
       Prospectus,  there are no legal or  governmental  proceedings  pending to
       which the Company or its  subsidiary  is a party or of which any property
       of the Company or its subsidiary is the subject,  and, to the best of the
       Company's  knowledge,  no such proceedings are threatened or contemplated
       by  governmental   authorities  or  threatened  by  others,   other  than
       proceedings  which,  if  determined  adversely  to the  Company  and  its
       subsidiary,  would not  individually  or in the aggregate have a material
       adverse effect on the business, properties, financial position, net worth
       or results of operations of the Company and its subsidiary  considered as
       a whole.

            (n) the  Company  has good  and  sufficient  title  to all  property
       described or referred to in the  Indenture  and  purported to be conveyed
       thereby  (except  property  released  from the lien of the  Indenture  in
       connection with the sale or other disposition  thereof),  subject only to
       the lien of the Indenture and to permitted liens as defined therein;  the
       Indenture has been duly filed for  recordation in such manner and in such
       places as is  required  by law in order to give  constructive  notice of,
       establish,  preserve and protect the lien of the Indenture; the Indenture
       constitutes  a  valid,  direct  first  mortgage  lien,  subject  only  to
       permitted  liens, on  substantially  all property of the Company,  except
       property expressly excepted by the terms of the Indenture;  the Indenture
       will,  when recorded or registered by the Company in accordance  with its
       covenants under the Indenture,  constitute a valid, direct first mortgage
       lien on all property of the  character of that now subject to the lien of
       the  Indenture  hereafter  acquired  by  the  Company,  subject  only  to
       permitted  liens  and to  liens,  if  any,  existing  or  placed  on such
       after-acquired property at the time of the acquisition thereof;

Any certificate  signed by any officer of the Company and delivered to you or to
Underwriters'  counsel  shall be deemed a  representation  and  warranty  by the
Company to each Underwriter as to the statements made therein.

       Section 3. Purchase,  Sale and Delivery of Bonds. Following the execution
of the Underwriting Agreement, the several Underwriters propose to make a public
offering  of  their  respective  portions  of  the  Bonds  as  soon  as  in  the
Representatives'  judgment it is  advisable  upon the terms and  conditions  set
forth in the Prospectus Supplement.

       The  Bonds  to  be  purchased  by  each   Underwriter   pursuant  to  the
Underwriting  Agreement,  in definitive form and registered in such names as the
Representatives may request upon at least forty-eight hours' prior notice to the
Company,   shall  be   delivered   by  or  on  behalf  of  the  Company  to  the
Representatives for the respective accounts of the several Underwriters, against
payment  therefor as specified  in the  Underwriting  Agreement  in  immediately
available  funds,  at the  office of  Mayer,  Brown & Platt,  190 South  LaSalle
Street, Chicago,  Illinois 60603 (except as hereinafter provided with respect to
delivery of such  Bonds),  at the time and date  specified  in the  Underwriting
Agreement  or at such other place and time and date as the  Representatives  and
the Company may agree upon in writing,  such time and date being  herein  called
the "Time of Delivery".  If specified by the Representatives in the Underwriting
Agreement,  delivery  of the Bonds will be made at the Time of  Delivery at such
place in New York,  New York as shall  have been so  specified  against  payment
therefor in Chicago as aforesaid.

       Section 4.  Covenants of the Company.  The Company  covenants with each
Underwriter that:


            (a) The Company  will  notify the  Representatives  immediately  and
       confirm  the notice in writing  (i) of the  receipt of any request by the
       Commission for any amendment or supplement to the Registration  Statement
       or  the  Prospectus  or  any  amendment  or  supplement  thereto  or  for
       additional information, and (ii) of the issuance by the Commission of any
       stop order suspending the effectiveness of the Registration  Statement or
       of the initiation or threatened  initiation of any  proceedings  for that
       purpose  or  of  the   suspension   or   threatened   suspension  of  the
       qualification of the Bonds for offering or sale in any jurisdiction.  The
       Company will make every reasonable  effort to prevent the issuance by the
       Commission  of any stop  order and,  if any such stop order  shall at any
       time be issued, to obtain the lifting thereof at the earliest moment.

            (b) The  Company  will not file any  amendment  to the  Registration
       Statement or any amendment or supplement to the  Prospectus  (including a
       prospectus  filed pursuant to Rule 424 and including  documents deemed to
       be incorporated  by reference into the  Prospectus)  without first having
       furnished  the  Representatives  with a copy of the proposed form thereof
       and given the  Representatives  a  reasonable  opportunity  to review and
       comment respecting the same and having given reasonable  consideration to
       any comments or objections made by the Representatives.

            (c) The Company will deliver to each of the Representatives, as soon
       as available, one signed copy of the Registration Statement as originally
       filed and of each amendment thereto,  including,  in each case, documents
       incorporated by reference into the Registration  Statement and one set of
       exhibits  thereto (other than exhibits  incorporated  by reference  which
       will be furnished  upon specific  request),  and will also deliver to the
       Representatives   a  reasonable   number  of  conformed   copies  of  the
       Registration  Statement as  originally  filed and of each  amendment  and
       post-effective  amendment thereto  including such incorporated  documents
       (without exhibits) for each of the Underwriters.

            (d) The Company will deliver to each  Underwriter  from time to time
       during the period when a prospectus is required to be delivered under the
       Act such number of copies of the Prospectus  (as amended or  supplemented
       and  including   incorporated   documents)  as  the  Representatives  may
       reasonably  request  for  the  purposes  contemplated  by the  Act or the
       Regulations;  provided,  however,  that the  delivery  of  copies  of the
       Prospectus  (as  amended  or  supplemented  and  including   incorporated
       documents)  more than  nine  months  after  the date of the  Underwriting
       Agreement  shall be at the  expense of the  Underwriter  requesting  such
       delivery.

            (e) During the period when a prospectus  is required to be delivered
       under the Act, the Company  will comply so far as it is able,  and at its
       own  expense  (for  a  period  not  to  exceed  nine  months),  with  all
       requirements imposed upon it by the Act, and by Sections 13 and 14 of the
       1934 Act, as now or hereafter  amended,  and by the Regulations,  as from
       time to time in force,  so far as necessary to permit the  continuance of
       sales of or dealing in the Bonds  during such period in  accordance  with
       the provisions hereof and of the Prospectus.

            (f) If any event shall  occur as a result of which it is  necessary,
       in the opinion of counsel for the Company and of  Underwriters'  counsel,
       to amend or supplement the Prospectus in order to make the Prospectus not
       misleading in the light of the  circumstances  existing at the time it is
       delivered  to a purchaser,  or if it is necessary to amend or  supplement
       the Prospectus to comply with law, the Company will forthwith prepare and
       furnish to the Underwriters,  without expense to them except as otherwise
       provided in  subsection  (d) of this  Section 4, a  reasonable  number of
       copies of an amendment or amendments or a supplement  or  supplements  to
       the Prospectus (in the form referred to in subsection (b) of this Section
       4) which will amend or  supplement  the  Prospectus so that as amended or
       supplemented it will not contain any untrue  statement of a material fact
       or omit to  state  any  material  fact  necessary  in  order  to make the
       statements therein not misleading,  or so that the Prospectus will comply
       with law. For the purposes of this  subsection,  the Company will furnish
       such information as the  Representatives may from time to time reasonably
       request.

            (g) The Company will endeavor in good faith, in cooperation with the
       Underwriters,  to  qualify  the Bonds  for  offering  and sale  under the
       applicable  securities laws of such jurisdictions as the  Representatives
       may designate; provided, however, that the Company shall not be obligated
       to file any  general  consent  to  service  or to  qualify  as a  foreign
       corporation or as a dealer in securities in any  jurisdiction in which it
       is not so qualified. In each jurisdiction where any of the Bonds shall be
       qualified  as above  provided,  the  Company  will  make  and  file  such
       statements and reports in each year as are or may be reasonably  required
       by the laws thereof.

            (h) The  Company  will  make  generally  available  to its  security
       holders  as soon as  practicable,  but not later  than 75 days  after the
       close of the period  covered  thereby,  an  earnings  statement  (in form
       complying  with  the  provisions  of  Section  11(a)  of the  Act and the
       Regulations  thereunder  (including,  at the option of the Company,  Rule
       158),  which need not be  certified  by  independent  public  accountants
       unless required by the Act or the  Regulations),  covering a twelve-month
       period beginning on the first day of the calendar  quarter  following the
       Time of Delivery.

            (i) The Company  agrees that it will not publicly  offer or sell any
       intermediate  or  long-term  debt  between  the date of the  Underwriting
       Agreement and Time of Delivery  without the prior written  consent of the
       Representatives.

       Section  5.  Payment  of  Expenses.  The  Company  will pay all  expenses
incident to the performance of its obligations under the Underwriting Agreement,
including  (i) the  printing  and  filing  by the  Company  of the  registration
statement and the printing of the  Underwriting  Agreement,  any Agreement Among
Underwriters,   any  Selling  Agreement,  the  Supplemental  Indenture  and  the
Underwriters'  Questionnaire,  (ii) the authorization,  issuance and delivery of
the Bonds to the  Underwriters,  including  the  printing  and  engraving of the
Bonds,  and all taxes,  if any,  upon the  issuance and sale of the Bonds to the
Underwriters,  (iii) the qualification of the Bonds under the securities laws of
the various jurisdictions in accordance with the provisions of subsection (g) of
Section 4, including  filing fees and fees and  disbursements  of  Underwriters'
counsel  in  connection  with  such  qualification  and in  connection  with the
preparation  of the Blue Sky Survey (such fees of  Underwriters'  counsel not to
exceed  $5,000 in the  aggregate),  (iv) any fees charged by  securities  rating
services for rating the Bonds,  (v) the fees and expenses of the Trustee and its
counsel in connection with the Bonds and the  Supplemental  Indenture,  (vi) the
printing  and  delivery  to  the  Underwriters  and  dealers  in  quantities  as
hereinbefore  stated of copies of the registration  statement and all amendments
thereto, of any preliminary  prospectuses and amended preliminary  prospectuses,
of the Registration  Statement and any amendments thereto, and of the Prospectus
and any  amendments or supplements  thereto,  and (vii) the cost of printing and
delivery to the Underwriters of copies of the Blue Sky Survey.

       If this Agreement is terminated by the Representatives in accordance with
the  provisions  of Section 6 or Section  10(b),  or is prevented by the Company
from becoming  effective in accordance with the provisions of Section 10(a), the
Company shall  reimburse  the  Underwriters  severally  for their  out-of-pocket
expenses,  including the reasonable  fees and  disbursements  of counsel for the
Underwriters incurred in connection with the offering.

       Section  6.  Conditions  of   Underwriters'   Obligations.   The  several
obligations  of the  Underwriters  hereunder  are subject to the accuracy of and
compliance  with  the  representations  and  warranties  of the  Company  herein
contained, to the performance by the Company of its obligations hereunder and to
the following further conditions:

            (a)  At  the  Time  of  Delivery  no  stop  order   suspending   the
       effectiveness of the Registration  Statement shall have been issued under
       the  Act  or  proceedings   therefor   initiated  or  threatened  by  the
       Commission.

            (b) At  the  Time  of  Delivery  the  Representatives  shall  have
       received:

                  (1) The favorable  opinion,  dated as of the Time of Delivery,
            of Mayer,  Brown & Platt,  counsel for the Company (or, with respect
            to the matters in subdivision (vi) below,  other counsel  reasonably
            satisfactory   to  the   Underwriters),   in  form   and   substance
            satisfactory to counsel for the Underwriters, to the effect that:

                        (i) the Company is a corporation in good standing,  duly
                  organized and validly  existing under the laws of the State of
                  Illinois  and has due  corporate  authority  to  carry  on the
                  business  in which it is engaged  and to own and  operate  the
                  properties used by it in such business;

                        (ii) the  Indenture is in due and proper form,  has been
                  duly and validly authorized by the necessary  corporate action
                  and  by  orders  duly   entered  by  the   Illinois   Commerce
                  Commission; no authorization,  approval, consent,  certificate
                  or order of any other state commission or regulatory authority
                  or of any  federal  commission  or  regulatory  authority  not
                  already  obtained is required in respect of the  execution and
                  delivery of the Indenture; and the Indenture has been duly and
                  validly  executed and delivered and is a valid and enforceable
                  instrument in accordance with its terms, except as enforcement
                  of provisions of the Indenture may be limited by bankruptcy or
                  other laws of general application affecting the enforcement of
                  creditors' rights and by general equity principles;

                        (iii) the Bonds are in due and  proper  form;  the issue
                  and sale of the Bonds by the  Company in  accordance  with the
                  terms of the Underwriting Agreement have been duly and validly
                  authorized by the necessary corporate action and by order duly
                  entered by the Illinois Commerce Commission; no authorization,
                  approval,  consent,  certificate  or order of any other  state
                  commission   or   regulatory   authority  or  of  any  federal
                  commission  or regulatory  authority  not already  obtained is
                  required  in  respect  of such  issue  and sale  (except  such
                  consents,   approvals,   authorizations,    registrations   or
                  qualifications  as may be required  under state  securities or
                  Blue Sky laws in connection with the purchase and distribution
                  of the Bonds by the  Underwriters);  the Bonds  have been duly
                  executed and delivered to the Underwriters  against payment of
                  the  agreed   consideration   therefor   and,   assuming   due
                  authentication  thereof by the Trustee,  constitute  valid and
                  enforceable  obligations  of the  Company in  accordance  with
                  their terms,  secured by the lien of and, with like  exception
                  as noted in the foregoing  subdivision  (ii),  entitled to the
                  benefits provided by the Indenture,  and the registered owners
                  of the Bonds will be entitled to the payment of principal  and
                  interest,  and  premium  in case  of  redemption,  as  therein
                  provided;  the Bonds  and the  Indenture  conform  as to legal
                  matters  in  all  material   respects   with  the   statements
                  concerning  them made in the  Prospectus,  and such statements
                  accurately set forth the matters  respecting the Bonds and the
                  Indenture required to be set forth in the Prospectus;

                        (iv) The  Registration  Statement is effective under the
                  Act and the Indenture has been duly qualified  under the Trust
                  Indenture  Act,  and to the  best  of the  knowledge  of  said
                  counsel  no  proceedings  for a  stop  order  are  pending  or
                  threatened under Section 8(d) of the Act;

                        (v)  the  execution  and  delivery  of the  Underwriting
                  Agreement  by the  Company  has been  duly  authorized  by the
                  necessary corporate action, and the Underwriting Agreement has
                  been duly executed and delivered by the Company;

                        (vi) the  Company has good and  sufficient  title to all
                  property  described  or  referred  to  in  the  Indenture  and
                  purported to be conveyed  thereby  (except  property  released
                  from the lien of the Indenture in connection  with the sale or
                  other  disposition  thereof),  subject only to the lien of the
                  Indenture  and to  permitted  liens as  defined  therein;  the
                  Indenture has been duly filed for  recordation  in such manner
                  and in such  places  as is  required  by law in  order to give
                  constructive  notice of,  establish,  preserve and protect the
                  lien of the  Indenture;  the  Indenture  constitutes  a valid,
                  direct first mortgage lien,  subject only to permitted  liens,
                  on substantially all property of the Company,  except property
                  expressly  excepted  by  the  terms  of  the  Indenture;   the
                  Indenture  will, when recorded or registered by the Company in
                  accordance with its covenants under the Indenture,  constitute
                  a valid,  direct  first  mortgage  lien on all property of the
                  character  of that now  subject  to the lien of the  Indenture
                  hereafter  acquired by the Company,  subject only to permitted
                  liens  and to  liens,  if  any,  existing  or  placed  on such
                  after-acquired   property  at  the  time  of  the  acquisition
                  thereof;

                        (vii) the issue and sale of the Bonds and the compliance
                  by the Company with all of the  provisions  of the Bonds,  the
                  Indenture  and the  Underwriting  Agreement  will not conflict
                  with  or  result  in a  breach  or  violation  of  any  of the
                  provisions of, or constitute (disregarding any grace or notice
                  period)  a  default  under,  any  indenture,   mortgage,  loan
                  agreement,   contract,  note,  lease  or  other  agreement  or
                  instrument,  known to such counsel,  to which the Company is a
                  party or by which the  Company is bound or to which any of the
                  property  or assets  of the  Company  is  subject  (with  such
                  exceptions  as  are  in  the  aggregate  not  material  to the
                  business or financial condition of the Company or the validity
                  of the Bonds), nor will such action result in any violation of
                  the  provisions of the Charter or By-Laws of the Company,  or,
                  to the best of their knowledge, any statute or any order, rule
                  or  regulation  applicable  to the  Company  of any  court  or
                  governmental  agency  or body  having  jurisdiction  over  the
                  Company  or any  of  its  properties  (except  such  consents,
                  approvals, authorizations,  registrations or qualifications as
                  may be  required  under state  securities  or Blue Sky laws in
                  connection with the purchase and  distribution of the Bonds by
                  the Underwriters);

                        (viii)  at the time the  registration  statement  became
                  effective,   the   registration   statement  and  the  related
                  prospectus  (other than the financial  statements  and notices
                  thereto  and   supporting   schedules   and  other   financial
                  information  included therein,  as to which no opinion need be
                  rendered)  complied as to form in all material  respects  with
                  the  requirements  of the Act and the Trust  Indenture Act and
                  the Regulations;

                        (ix) with minor exceptions, and subject to noncompliance
                  with  certain   procedural  and  other   requirements  in  the
                  procurement  and  granting  of gas  franchises  in a number of
                  smaller  municipalities  formerly served by  Mid-Illinois  Gas
                  Company,   the  Company  holds  franchises  from  all  of  the
                  incorporated  cities and villages  included in the communities
                  in  which  the  Company  renders  gas  service;   all  of  the
                  franchises so held by the Company are valid and subsisting and
                  authorize it to engage in the business  conducted by it in the
                  respective   municipalities  granting  such  franchises;   the
                  Company  also holds  certificates  of public  convenience  and
                  necessity issued by the Illinois  Commerce  Commission,  which
                  are valid and subsisting and constitute due  authorization  by
                  such  commission  for  the  conduct  by  the  Company  of  its
                  operations in all areas served;

                        (x) to the  best of  their  knowledge  and  information,
                  there   are  no   contracts,   indentures,   mortgages,   loan
                  agreements,  notes, leases or other instruments of a character
                  required to be  described  in the  Registration  Statement  or
                  Prospectus  or to be filed  as  exhibits  to the  Registration
                  Statement  other  than  those  described  therein  or filed or
                  incorporated   by  reference  as  exhibits   thereto  and  the
                  descriptions thereof or reference thereto are correct; and

                        (xi) except as disclosed in the Prospectus, there are no
                  material pending or threatened legal proceedings,  considering
                  the Company and the subsidiaries as a single enterprise, known
                  to said counsel,  to which the Company or any  subsidiary is a
                  party or of which property of the Company or any subsidiary is
                  the subject,  and to the best of the knowledge of said counsel
                  there are no such  proceedings  contemplated  by  governmental
                  authorities.

            Such   counsel   shall   further   state  that,   based  upon  their
            participation in the preparation of the  Registration  Statement and
            the Prospectus,  and any amendment or supplement  thereto,  and upon
            their review and  discussions of the contents  thereof,  but without
            independent check or verification  except as specified,  nothing has
            come to their  attention  that has caused  them to believe  that the
            Registration Statement,  at the time it became effective,  contained
            an  untrue  statement  of a  material  fact or  omitted  to  state a
            material fact required to be stated therein or necessary to make the
            statements  therein not misleading or that the  Prospectus,  and any
            amendment  or  supplement  thereto,  at the  date  the  Registration
            Statement  became  effective,  the date of this  Agreement or at the
            Time of Delivery,  contained an untrue  statement of a material fact
            or omitted to state a material  fact  necessary in order to make the
            statements  therein,  in light of the circumstances under which they
            were made, not misleading.

                  (2) The favorable opinion of Wildman,  Harrold, Allen & Dixon,
            counsel for the  Underwriters,  with respect to the incorporation of
            the  Company,  the  validity  of the  Bonds and the  Indenture,  the
            Registration Statement,  the Prospectus and other related matters as
            the  Representatives  may  reasonably  request;  provided  that  any
            opinion  requested  with respect to the  jurisdiction  of regulatory
            authorities  (other  than  the  Illinois  Commerce  Commission,  the
            Securities and Exchange  Commission and state securities or Blue Sky
            authorities)  and the  matters in  subdivisions  (vi) and (ix) above
            will rely upon the opinion of Mayer, Brown & Platt.

            (c) At the effective date of the  Registration  Statement and at the
       Time of Delivery the  Representatives  shall have  received a letter from
       Arthur  Andersen  LLP,  dated  the  effective  date or Time of  Delivery,
       respectively,  in form and substance satisfactory to the Representatives,
       advising that (i) they are independent public accountants with respect to
       the Company and its  subsidiaries as required by the Act and the 1934 Act
       and the  applicable  Regulations,  (ii) in  their  opinion,  the  audited
       consolidated   financial   statements  and  any  supplemental   financial
       information   and   schedules  of  the  Company   examined  by  them  and
       incorporated  by reference in the  Registration  Statement and Prospectus
       comply as to form in all material respects with the applicable accounting
       requirements  of the Act,  the 1934 Act and the  applicable  Regulations,
       (iii) on the basis of a reading of the latest available unaudited interim
       consolidated  financial  statements prepared by the Company, a reading of
       the minutes of meetings of the shareholder and the board of directors and
       executive  committee  of the Company and its  subsidiaries,  consultation
       with officers of the Company  responsible  for  financial and  accounting
       matters  and  other  specified  procedures,  nothing  has  come to  their
       attention  which  caused them to believe that (A) the  unaudited  interim
       condensed  consolidated  financial statements included or incorporated by
       reference  in the  Prospectus  do not  comply as to form in all  material
       respects with the applicable accounting requirements of the Act, the 1934
       Act  and  the  applicable  Regulations  or  are  not in  conformity  with
       generally accepted accounting principles applied on a basis substantially
       consistent with that of the audited financial statements  incorporated as
       aforesaid, (B) the unaudited income statement data and balance sheet data
       (other than such data for the periods  referred to in (A) above) included
       or  incorporated  by  reference in the  Prospectus  do not agree with the
       corresponding  items in the  audited  or  unaudited,  as the case may be,
       financial  statements  from  which  such  data were  derived  or were not
       determined  on  a  basis  substantially   consistent  with  that  of  the
       corresponding  amounts  included  in the audited  consolidated  financial
       statements of the Company incorporated in the Registration  Statement and
       Prospectus,  or (C) at a specified  date within five business days of the
       date of such letter with respect to (1) below, and during the period from
       the date of the  latest  audited  consolidated  financial  statements  or
       unaudited interim condensed  consolidated  financial  statements,  as the
       case may be,  incorporated  in the  Prospectus  to the date of the latest
       available unaudited interim  consolidated  financial  statements (if any)
       prepared  by the  Company  with  respect  to  (2)  below,  except  in all
       instances as set forth in or  contemplated  by the  Prospectus  or as set
       forth in such  letter:  (1) there was any  increase  in the  consolidated
       long-term debt of the Company and its subsidiaries,  as compared with the
       amounts set forth in the latest balance sheet included or incorporated by
       reference  in  the  Prospectus,  or  (2)  there  were  any  decreases  in
       consolidated  operating  income  or  net  income  as  compared  with  the
       corresponding  period in the preceding  year;  and (iv) they have carried
       out specified  procedures  performed for the purpose of comparing certain
       financial  information  and  percentages  (which is limited to  financial
       information  derived  from  general  accounting  records of the  Company)
       specified  by the  Representatives  and  appearing  in  the  Registration
       Statement or in schedules or exhibits to the Registration Statement or in
       the  Prospectus  or  in  documents   incorporated  by  reference  in  the
       Prospectus  with  indicated  amounts  in  the  financial   statements  or
       accounting  records of the Company and  (excluding any questions of legal
       interpretation  and, in the case of the letter  delivered  at the Time of
       Delivery,  any  exceptions  disclosed  in  the  letter  delivered  at the
       Effective  Date) have found such  information  and  percentages  to be in
       agreement with the relevant  accounting and financial  information of the
       Company  referred to in such letter in the  description of the procedures
       performed  by  them.  If  such  letter  discloses  any  material  adverse
       decreases  or  increases,  as the case may be, in the items  specified in
       item (iii) (C) above  which are not set forth in or  contemplated  by the
       Prospectus  which,  in the  judgment  of the  Representatives,  makes  it
       impracticable  or inadvisable to proceed with the public  offering or the
       delivery of the Bonds on the terms and in the manner  contemplated by the
       Prospectus,  this  Agreement  and  all  obligations  of the  Underwriters
       hereunder  may be  cancelled  by the  Representatives  by  notifying  the
       Company  in the manner  and with the  effect  provided  below in the last
       sentence of this Section 6.

            (d) At the Time of Delivery the Representatives  shall have received
       a certificate  of the Chairman,  President,  Vice President and principal
       financial  officer,  Vice President and principal  accounting  officer or
       Treasurer of the Company, dated as of the Time of Delivery, to the effect
       that  the  signer  of  such   certificate  has  carefully   examined  the
       Registration  Statement,  the  Prospectus and any amendment or supplement
       thereto and the Underwriting  Agreement and that, in his opinion,  at the
       time  the  Registration  Statement  became  effective,  the  Registration
       Statement did not contain an untrue  statement of a material fact or omit
       to state a material  fact  required to be stated  therein or necessary in
       order to make the statements  therein not misleading,  and at the date of
       the  Underwriting  Agreement  the  Prospectus  did not  contain an untrue
       statement of a material fact or omit to state a material fact required to
       be stated  therein or necessary in order to make the  statements  therein
       not  misleading,  and since the date of the  Underwriting  Agreement,  no
       event has occurred which should have been set forth in an amendment of or
       supplement to the Prospectus which has not been so set forth; and no stop
       order suspending the effectiveness of the Registration Statement has been
       issued and no proceedings  therefor have been instituted or threatened by
       the  Commission;  and to the further effect that all the  representations
       and warranties  contained in Section 2 hereof are true and correct,  with
       the  same  force  and  effect  as  though  expressly  made at the Time of
       Delivery.

            (e) At the Time of Delivery  the rating  assigned by any  nationally
       recognized securities rating agency to any debt securities of the Company
       as of the date of the Underwriting  Agreement shall not have been lowered
       since the date of the  Underwriting  Agreement  and no such agency  shall
       have publicly announced that it has placed any of such debt securities on
       what is commonly termed a "watch list" for possible downgrading.

            (f) At the Time of Delivery counsel for the Underwriters  shall have
       been  furnished  with such  documents and opinions as they may reasonably
       require  for the  purpose of  enabling  them to pass upon the sale of the
       Bonds as herein  contemplated  and  related  proceedings,  or in order to
       evidence the accuracy or  completeness of any of the  representations  or
       warranties,  or  the  fulfillment  of  any  of  the  conditions,   herein
       contained;  and all  proceedings  taken by the Company in connection with
       the sale of the Bonds as herein  contemplated  shall be  satisfactory  in
       form  and   substance  to  the   Representatives   and  counsel  for  the
       Underwriters.

       If any of the  conditions  specified in this Section  shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
and all  obligations  of the  Underwriters  hereunder  may be  cancelled  by the
Representatives  by notifying the Company of such  cancellation in writing or by
telecopy  at any  time  at or  prior  to the  Time  of  Delivery  and  any  such
cancellation  shall be without  liability of any party to any other party except
as otherwise provided in this Agreement.

       Section 7.  Condition of Company's  Obligations.  The  obligations of the
Company to sell and deliver the Bonds are subject to the  following  conditions:
that at the Time of Delivery no stop order  suspending the  effectiveness of the
Registration  Statement shall have been issued or proceedings therefor initiated
or threatened;  that the order of the Illinois Commerce Commission,  referred to
in Section 2(k), shall be in full force and effect  substantially in the form in
which such order shall  originally  have been  entered;  and that the  Indenture
shall be qualified under the Trust Indenture Act.

       Section 8.  Indemnification.  (a) The Company  agrees to indemnify  and
hold  harmless  each  Underwriter  and each  person,  if any, who controls any
Underwriter within the meaning of the Act or the 1934 Act, as follows:

            (i) against any and all loss, liability,  claim, damage and expense,
       whatsoever,  arising  out of  any  untrue  statement  or  alleged  untrue
       statement of a material fact contained in the  registration  statement as
       it became effective,  or in any amendment thereto, or in the Registration
       Statement (or any amendment thereto), or the omission or alleged omission
       therefrom of a material fact  required to be stated  therein or necessary
       to make the  statements  therein  not  misleading,  or arising out of any
       untrue statement or alleged untrue statement of a material fact contained
       in any  preliminary  prospectus  or the  Prospectus  (or any amendment or
       supplement  thereto) or the omission or alleged  omission  therefrom of a
       material fact necessary in order to make the statements therein, in light
       of the circumstances  under which they were made, not misleading,  unless
       such untrue  statement  or omission or such alleged  untrue  statement or
       omission  was  made in  reliance  upon  and in  conformity  with  written
       information respecting the Underwriters furnished to the Company by or on
       behalf of any Underwriter through the  Representatives  expressly for use
       in  the  Registration   Statement  (or  any  amendment  thereto)  or  the
       Prospectus (or any amendment or supplement thereto);

            (ii) against any and all loss, liability,  claim, damage and expense
       whatsoever  to the extent of the  aggregate  amount paid in settlement of
       any litigation, commenced or threatened, or of any claim whatsoever based
       upon any such untrue  statement  or omission or any such  alleged  untrue
       statement or omission,  if such  settlement  is effected with the written
       consent of the Company; and

            (iii) against any and all expenses whatsoever reasonably incurred in
       investigating,  preparing or defending against any litigation,  commenced
       or  threatened,  or any  claim  whatsoever  based  upon any  such  untrue
       statement or omission,  or any such alleged untrue statement or omission,
       to the extent that any such  expense is not paid under (i) or (ii) above,
       and, in the case of (i) above,  unless such untrue  statement or omission
       or such alleged  untrue  statement or omission was made in reliance  upon
       and in conformity with written  information  respecting the  Underwriters
       furnished to the Company by or on behalf of any  Underwriter  through the
       Representatives  expressly for use in the Registration  Statement (or any
       amendment  thereto) or the  Prospectus  (or any  amendment or  supplement
       thereto),  or, in the case of (ii) above,  provided  such  settlement  is
       effected with the written consent of the Company.

       This indemnity  agreement is subject to the condition that, insofar as it
relates to any untrue statement,  alleged untrue statement,  omission or alleged
omission made in a preliminary  prospectus or preliminary prospectus supplement,
but eliminated or remedied in the Prospectus, such indemnity agreement shall not
inure to the benefit of any Underwriter from whom the person asserting any loss,
liability, claim or damage purchases the Bonds which are the subject thereof (or
to the benefit of any person who controls such  Underwriter) if such Underwriter
fails to send or give a copy of the Prospectus (excluding documents incorporated
by reference) to such person prior to or together with written  confirmation  of
the sale of such  Bonds to such  person  and the  delivery  thereof  would  have
constituted a defense to the claim by such person.

       In no case shall the  Company be liable  under this  indemnity  agreement
with respect to any claim made against any  Underwriter or any such  controlling
person  unless the  Company  shall be  notified  in writing of the nature of the
claim within a reasonable  time after the assertion  thereof,  but failure to so
notify the  Company  shall not relieve it from any  liability  which it may have
otherwise  than on account of this  indemnity  agreement.  The Company  shall be
entitled to participate at its own expense in the defense,  or, if it so elects,
within a reasonable time after receipt of such notice,  to assume the defense of
any suit  brought to enforce any such  claim,  but if it so elects to assume the
defense, such defense shall be conducted by counsel chosen by it and approved by
the Underwriter or Underwriters or controlling  person or persons,  defendant or
defendants  in any suit so brought,  which  approval  shall not be  unreasonably
withheld. In the event that the Company elects to assume the defense of any such
suit and retains such counsel,  the  Underwriter or  Underwriters or controlling
person or persons, defendant or defendants in the suit shall thereafter bear the
fees and expenses of any additional  counsel retained by them. In the event that
the parties to any such action  (including  impleaded  parties) include both the
Company and one or more  Underwriters and any such  Underwriter  shall have been
advised by counsel chosen by it and  satisfactory  to the Company that there may
be one or more  legal  defenses  available  to it which  are  different  from or
additional  to those  available to the Company,  the Company  shall not have the
right to assume the  defense of such  action on behalf of such  Underwriter  and
will reimburse such  Underwriter and any person  controlling such Underwriter as
aforesaid for the reasonable fees and expenses of any counsel  retained by them,
it being  understood  that the  Company  shall not, in  connection  with any one
action or  separate  but  similar  or related  actions in the same  jurisdiction
arising out of the same general allegations or circumstances,  be liable for the
reasonable  fees and expense of more than one separate firm of attorneys for all
such  Underwriters  and controlling  persons,  which firm shall be designated in
writing by the Representatives. The Company agrees to notify the Representatives
within a reasonable  time of the  assertion of any claim  against it, any of its
officers or directors or any person who controls the Company  within the meaning
of the Act or the 1934 Act, in connection with the sale of the Bonds.

       (b) Each  Underwriter  severally  agrees that it will  indemnify and hold
harmless the  Company,  its  directors,  and each of its officers who signed the
Registration  Statement and each person, if any, who controls the Company within
the  meaning  of the Act or the 1934 Act,  to the same  extent as the  indemnity
contained in subsection (a) of this Section, but only with respect to statements
or omissions made in the registration  statement as it became  effective,  or in
any  amendment  thereto,  or in the  Registration  Statement  (or any  amendment
thereto) or the Prospectus (or any amendment or supplement  thereto) in reliance
upon and in conformity  with written  information  respecting  the  Underwriters
furnished  to the  Company  by or on  behalf  of such  Underwriter  through  the
Representatives  expressly  for  use  in  the  Registration  Statement  (or  any
amendment  thereto) or the Prospectus (or any amendment or supplement  thereto).
In case any  action  shall be  brought  against  the  Company  or any  person so
indemnified  based on the Registration  Statement (or any amendment  thereto) or
the Prospectus (or any amendment or supplement  thereto) and in respect of which
indemnity may be sought against any Underwriter, such Underwriter shall have the
rights and duties  given to the  Company,  and the  Company  and each  person so
indemnified shall have the rights and duties given to the  Underwriters,  by the
provisions of subsection (a) of this Section.

       (c) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified  party under  subsection (a) or (b)
above,  then each  indemnifying  party  shall  contribute  to the amount paid or
payable by such indemnified party as a result of the losses,  claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative  benefits  received by the Company on the
one hand and the  Underwriters  on the other from the offering of the Securities
and also the relative fault of the Company on the one hand and the  Underwriters
on the other in connection  with the  statements or omissions  which resulted in
such  losses,  claims,  damages  or  liabilities  as well as any other  relevant
equitable  considerations.  The relative  fault shall be determined by reference
to,  among other  things,  whether the untrue or alleged  untrue  statement of a
material  fact,  or the  omission or alleged  omission to state a material  fact
relates to  information  supplied  by the  Company or the  Underwriters  and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent  such untrue  statement  or  omission.  The amount paid by an
indemnified  party as a result of the  losses,  claims,  damages or  liabilities
referred  to in the first  sentence  of this  subsection  (c) shall be deemed to
include any legal or other  expenses  reasonably  incurred  by such  indemnified
party in connection with investigating or defending any action or claim which is
the subject of this  subsection  (c).  Notwithstanding  the  provisions  of this
subsection  (c), no  Underwriter  shall be required to contribute  any amount in
excess  of the  amount  by  which  the  total  price  at  which  the  Securities
underwritten  by it and  distributed  to the public  were  offered to the public
exceeds the amount of any damages  which such  Underwriter  has  otherwise  been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.  No person guilty of fraudulent  misrepresentation  (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution  from
any  person  who  was  not  guilty  of such  fraudulent  misrepresentation.  The
Underwriters'  obligations  in this  subsection (c) to contribute are several in
proportion to their respective underwriting obligations and not joint.

       (d) The  obligations  of the  Company  under  this  Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and  conditions,  to each  person,  if any, who controls any
Underwriter  within the meaning of the Act or the 1934 Act; and the  obligations
of the  Underwriters  under this Section 8 shall be in addition to any liability
which the respective  Underwriters may otherwise have and shall extend, upon the
same terms and  conditions,  to each  officer and director of the Company and to
each person,  if any, who controls the Company  within the meaning of the Act or
the 1934 Act.

       Section  9.   Representations,   Warranties  and  Agreements  to  Survive
Delivery.  All  representations,  warranties  and  agreements  contained  in the
Underwriting  Agreement  and/or  contained  in  certificates  of officers of the
Company submitted pursuant hereto,  shall remain operative and in full force and
effect,  regardless of any investigation made by or on behalf of any Underwriter
or any controlling person of any Underwriter, or by or on behalf of the Company,
and shall survive payment for and delivery of the Bonds.

       Section 10. Effective Date of the Underwriting  Agreement and Termination
Thereof.  (a) The  Underwriting  Agreement shall become effective at the time of
the initial public offering by the Underwriters of any of the Bonds. The time of
the initial  public  offering  shall mean 12:00 noon, New York City time, on the
first full business day after the Underwriting  Agreement is executed or at such
time as the Representatives may authorize the sale of the Bonds to the public by
the Underwriters or other securities  dealers,  whichever shall first occur. The
Representatives  or the  Company may prevent  the  Underwriting  Agreement  from
becoming effective without liability of any party to any other party,  except as
otherwise provided in the Underwriting Agreement, by giving the notice indicated
below  in this  Section  prior  to the time  the  Underwriting  Agreement  would
otherwise become effective as herein provided.

       (b)  The   Representatives   shall  have  the  right  to  terminate   the
Underwriting  Agreement by giving the notice  indicated below in this Section at
any time at or  prior to the Time of  Delivery  if (i) the  Company  shall  have
sustained  since the  respective  dates as of which  information is given in the
Prospectus  any  material  loss or  interference  with its  business  from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor  dispute or court or  governmental  action,  order or decree;  or (ii)
since the  respective  dates as of which  information is given in the Prospectus
there  shall have been any  material  increase  in the  long-term  debt,  or any
material  adverse change,  or any development  involving a prospective  material
adverse  change,  in or  affecting  the general  business  affairs,  management,
financial position,  results of operations, or business prospects of the Company
and its subsidiaries  considered as one enterprise,  otherwise than as set forth
or  contemplated  in the  Prospectus,  the  effect  of  which,  in any such case
described in clause (i) or (ii), in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Bonds on the terms and in the manner  contemplated in the Prospectus;  or
(iii) there  shall have  occurred  the  outbreak or  escalation  of  hostilities
involving in a  significant  way the armed forces of the United  States,  or the
declaration  by the  United  States,  on or after  the date of the  Underwriting
Agreement,  of a national  emergency  or war,  or there  shall  have  occurred a
general  suspension  or  limitation  of trading in securities on the New York or
American Stock Exchanges,  or the establishment of minimum prices on either such
Exchange,  or a general  moratorium on commercial banking activities in New York
is declared by either federal or New York state authorities, the effect of which
in the judgment of the Representatives  makes it impracticable or inadvisable to
proceed  with the public  offering or the delivery of the Bonds on the terms and
in the manner contemplated in the Prospectus.  If the  Representatives  shall so
terminate  the  Underwriting  Agreement,   such  termination  shall  be  without
liability of any party to any other party  except as  otherwise  provided in the
Underwriting Agreement.

       (c) If the  Representatives  elect to prevent the Underwriting  Agreement
from becoming  effective or to terminate the Underwriting  Agreement as provided
in this  Section,  the  Company  and each other  Underwriter  shall be  notified
promptly by the Representatives,  by telephone or telegram, confirmed by letter.
If the  Company  elects to prevent  the  Underwriting  Agreement  from  becoming
effective as provided in this  Section,  the  Representatives  shall be notified
promptly by the Company by telephone or telegram, confirmed by letter.

       Section  11.  Default  of  Underwriters.  If  any  one  or  more  of  the
Underwriters  shall fail at the Time of Delivery to purchase the amount of Bonds
which it or they are obligated to purchase  hereunder (the  "Defaulted  Bonds"),
then the Representatives  shall have the right,  within 24 hours thereafter,  to
make  arrangements for one or more of the  non-defaulting  Underwriters,  or any
other  underwriters,  to purchase  all, but not less than all, of the  Defaulted
Bonds in such amounts as may be agreed upon and upon the terms herein set forth.
If, however,  during such 24 hours the Representatives  shall not have completed
such  arrangements  for the  purchase of all of the  Defaulted  Bonds,  then the
Company  shall be  entitled  to a  further  period of 24 hours  within  which to
procure another party of parties satisfactory to the Representatives to purchase
all of such  Defaulted  Bonds on such  terms.  If,  after  giving  effect to any
arrangements for the purchase of Defaulted Bonds by the  Representatives and the
Company as provided above, then:

            (a) if the  amount of  Defaulted  Bonds  does not  exceed 10% of the
       aggregate  principal  amount  of the  Bonds  being  sold  hereunder,  the
       non-defaulting  Underwriters shall be obligated to purchase severally the
       full amount thereof in the proportions that their respective underwriting
       obligations  hereunder  bear  to  the  underwriting  obligations  of  all
       non-defaulting Underwriters, or

            (b) if the amount of Defaulted  Bonds  exceeds 10% of the  aggregate
       principal  amount of the Bonds  being sold  hereunder,  the  Underwriting
       Agreement  shall  terminate  without  any  liability  on the  part of the
       Company or any non-defaulting Underwriter.

       The termination of the  Underwriting  Agreement  pursuant to this Section
shall  be  without  liability  on the  part  of  the  Company  or  any  of  said
non-defaulting  Underwriters,  except  for  the  respective  obligations  of the
Company and the  Underwriters  pursuant to Section 8 and except that the Company
shall be  obligated  to  reimburse  the  Underwriters  for  their  out-of-pocket
expenses  (including  reasonable  fees  and  disbursements  of  counsel  for the
Underwriters)  incurred in  connection  with the  offering  if the  Underwriting
Agreement could have been terminated by the Representatives  pursuant to Section
6 or 10(b).

       Nothing  herein  shall  relieve  any   Underwriter  so  defaulting   from
liability, if any, for such default.

       In the event of a default by any one or more Underwriters as set forth in
this Section,  either the Representatives or the Company shall have the right to
postpone the Time of Delivery for an  additional  period not exceeding 7 days in
order that any required changes in the Registration  Statement and Prospectus or
in any other documents or arrangements may be effected.

       Section 12.  Notices.  Except as otherwise  provided in the  Underwriting
Agreement,  all  communications  under the  Underwriting  Agreement  shall be in
writing,  and,  if sent to the  Underwriters,  shall  be  mailed,  delivered  or
telecopied and confirmed to the address of the Representatives,  as set forth in
the Underwriting Agreement (except that any notice to an Underwriter pursuant to
Section 8 hereof  shall be sent to it at its  address set forth in the copies of
the Underwriters'  Questionnaires  furnished to the Company), or, if sent to the
Company  shall be mailed or  telecopied  and  confirmed  to it at P.O.  Box 190,
Aurora, Illinois 60507-0190,  or delivered to it at 1844 Ferry Road, Naperville,
Illinois, for the attention of George M. Behrens, Vice President and Treasurer.

       Section  13.  Parties.  The  Underwriting  Agreement  shall  inure to the
benefit  of and be  binding  upon the  Underwriters  and the  Company  and their
respective  successors.  Nothing  expressed  or  mentioned  in the  Underwriting
Agreement  is  intended  or  shall be  construed  to give  any  person,  firm or
corporation,  other than the parties hereto and their respective  successors and
the controlling persons and the directors and officers referred to in Section 8,
any  legal or  equitable  right,  remedy  or claim  under or in  respect  of the
Underwriting  Agreement or any  provision  herein  contained;  the  Underwriting
Agreement and all  conditions  and  provisions  hereof being  intended to be and
being  for the sole and  exclusive  benefit  of the  parties  hereto  and  their
respective  successors and said controlling persons,  directors and officers and
for the benefit of no other  person,  firm or  corporation.  No purchaser of any
Bonds from any Underwriter shall be deemed to be a successor by reason merely of
such purchase.

       Section  14.  Choice  of  Law.  The  Underwriting  Agreement  shall  be
construed  in  accordance  with,  and  governed  by,  the laws of the State of
Illinois.


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