Document:

Exhibit 10.2 Production Payment Royalty Agreement

    
      

    

     

     

    

      EXHIBIT
        A

      TO

      ASSET
        PURCHASE AGREEMENT

      

      PRODUCTION
        PAYMENT ROYALTY AGREEMENT

      

      SHOOTARING
        CANYON MILL

      

      

      THIS
        PRODUCTION PAYMENT ROYALTY AGREEMENT (“Royalty Agreement”)
        is made
        and entered into effective _________, by and between Uranium
        One Utah, Inc.,
        a
        Delaware corporation (“Uranium
        One Utah”),
        the
        address of which is 390 Bay Street, Suite 1610 Toronto, ON M5H-2Y, CANADA
        and
U.S.
        Energy Corp.,
        a
        Wyoming corporation (“USE”),
        the
        address of which is 877 North 8th
        West,
        Riverton, WY 82501.

      

      Recitals

      

      A. Uranium
        One Utah acquired the Shootaring Canyon uranium mill located on State Highway
        276, forty-eight miles south of Hanksville, Utah (“Shootaring
        Canyon Mill”)
        pursuant to an Asset Purchase Agreement dated effective as of [___] by and
        among
        sxr Uranium One Inc, Uranium One Utah, Uranium One Ventures U.S.A. Inc. and
        Uranium One Exploration U.S.A. Inc., as buyers, and USE, Crested Corp., USECB
        Joint Venture (a joint venture between U.S. Energy Corp. and Crested Corp.),
        Plateau Resources Limited, Plateau Resources Limited, Inc. and U.S. Uranium
        Ltd., as sellers (“Purchase
        Agreement”).

      

      B. This
        Royalty Agreement is granted and delivered in furtherance of Uranium One
        Utah’s
        contractual obligations to USE under the Purchase Agreement. 

      

      Agreement

      

      NOW,
        THEREFORE, for good and valuable consideration, the receipt and sufficiency
        of
        which are hereby acknowledged, and intending to be legally bound, Uranium
        One
        Utah and USE agree as follows:

      

      1.0  Definitions.
        Unless
        otherwise defined, all capitalized terms shall have the following meanings.
        

      

      1.1  “ACH”
shall
        have the meaning set forth in Section 5.2.

      

      1.2  “Commercial
        Production”
shall
        occur when the Shootaring Canyon Mill has been operating at 60% or more of
        its
        design capacity of 750 short tons per day for sixty consecutive
        days.

      

      1.3  “Effective
        Date”
shall
        have the meaning set forth in the introductory paragraph.

      

      1.4  “Gross
        Value”
shall
        have the meaning set forth in Section 3.0.

      
        
          
          

        

        
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      1.5  “Initial
        Processing”
shall
        have the meaning set forth in Section 8.0.

      

      1.6  “Market
        Value of U308”
shall
        have the meaning set forth in Section 3.0.

      

      1.7  “Market
        Value of V205”
shall
        have the meaning set forth in Section 3.0.

      

      1.8  “Mill
        Fee”
shall
        have the meaning set forth in Section 4.0.

      

      1.9  “Notices”
shall
        have the meaning set forth in Section 13.5.

      

      1.10  “Other
        Mineral Products” shall
        mean all minerals mined or extracted primarily for values derived from their
        content of minerals other than for Products, in the form of ores, mine waters,
        leachates, pregnant liquors, pregnant slurries, concentrated slurries,
        precipitates, whether in dry or slurry state, concentrates, or products
        beneficiated, upgraded or refined further than concentrates, and whether
        occurring in intimate depositional relationship with uranium and recovered
        as
        secondary values during the mining, extraction, processing, or treatment
        of
        Products.

      

      1.11  “Products” shall
        mean (i) uranium concentrates in the form commonly known as “yellowcake” or
“U308
        concentrates”
        produced and processed either through an ion exchange or conventional processing
        and (ii) vanadium concentrates in the form commonly known as “black flake” or
V205
        produced
        and processed through vanadium extraction circuit, in any form, each produced
        and processed through the Shootaring Canyon Mill from metals, minerals, ores,
        mine waters, leachates, pregnant liquors and slurries, precipitates and
        concentrates in whatever form. 

      

      1.12  “Quarterly
        Statement”
shall
        have the meaning set forth in Section 5.1.

      

      1.13  “Royalty”
shall
        mean the Royalty as defined in Section 2.0.

      

      1.14  “Sale”
shall
        have the meaning set forth in Section 5.1.
        

      

      1.15  “Shootaring
        Canyon Mill”
shall
        have the meaning set forth in the Recitals.

      

      1.16  “Uranium
        One Utah”
shall
        mean Uranium One Utah Inc.

      

      1.17  “Uranium
        One Utah Parties”
shall
        mean Uranium One Utah, its direct and indirect parents and the direct and
        indirect subsidiaries of such parents.

      

      1.18  “USE”
shall
        mean U.S. Energy Corp.

      

      2.0  Grant
        of Production Payment Royalty.

      

      2.1  Production
        Payment Royalty.
        From
        and after Commercial Production, Uranium One Utah shall pay to USE a production
        payment royalty in the amount of five percent (5%) of (i) the Gross Value
        of the
        Products produced at and sold from the Shootaring Canyon Mill and (ii) any
        Mill
        Fee paid and received for Products produced from the Shootaring Canyon Mill,
        until such time as the total of all Uranium One Utah payments made pursuant
        to
        this 

      

      
        
          
          

        

        
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      Royalty
        Agreement to USE shall aggregate Twelve Million Five Hundred Thousand Dollars
        ($12,500,000) (“Royalty”).
        The
        Royalty shall automatically terminate at such time as Uranium One Utah has
        paid
        USE the sum of $12,500,000 in Royalty payments. The Royalty shall not apply
        to
        Other Mineral Products

      

      2.2  No
        Milling Obligation.
        Uranium
        One Utah may, but is not obligated to, beneficiate, mill, sort, concentrate,
        refine, smelt, or otherwise process and upgrade any ores, concentrates and
        other
        mineral products at the Shootaring Canyon Mill. Uranium One Utah shall have
        the
        sole and exclusive right to determine the timing and the manner of any
        production from or tolling and mill services provided by the Shootaring Canyon
        Mill.

      

      2.3  No
        Burden on Ores; No Royalty in Kind.
        The
        Royalty is a grant to a share of the proceeds of production from the Shootaring
        Canyon Mill. The Royalty is not intended, and nothing in this Royalty Agreement
        shall be interpreted, to grant to USE any legal or beneficial ownership rights
        to or a burden upon any ores, concentrates or products located or produced
        at
        the Shootaring Canyon Mill. USE shall have no right to take, or elect to
        take,
        the Royalty or value of the Royalty in kind by physical delivery of ores,
        concentrates or Products.

      

      3.0  Gross
        Value.

      

      3.1  Sale
        of Products.
        In the
        event Uranium One Utah sells Products, “Gross
        Value”
shall
        mean the actual proceeds of sale of such Products received by Uranium One
        Utah

      

      3.2  Disposal
        to Affiliate.
        In the
        event Uranium One Utah sells Products to a corporate affiliate, partner,
        or
        joint venturer; such Products shall be deemed to be disposed of without sale
        and
        Gross Value as hereinafter defined in this Section 3.2
        shall
        apply to such disposal without sale.

      

      (a)  In
        the
        event of disposal without sale of any Products, “Gross
        Value”
shall
        mean the Market Value of U308
        or the
        Market Value of V205
        (as
        hereinafter defined in this Section 3.2(a))
        multiplied by the amount stated in pounds of uranium oxide (U308
        ) or
        vanadium (V205)
        contained in the particular Products so disposed of without sale. For purposes
        of this Royalty Agreement, (A) “Market
        Value of U308”
shall
        mean the average “UxU308
        Price”
as
        quoted in U.S dollars in the Ux
        Weekly
        for the
        calendar month immediately preceding the month of such disposal without sale
        and
        (B) “Market
        Value of V205”
shall
        mean the average “V205
        Price”
as
        quoted in U.S dollars in the Ryan’s
        Notes
        for the
        calendar month immediately preceding the month of such disposal without sale.
        In
        the event that such prices or quotations, or their substantial equivalent,
        are
        not published therein or such publication ceases or is suspended, then
“Market
        Value of U308”
and
        the
“Market
        Value of V205”
shall
        mean the price or quotation for yellowcake or vanadium for immediate delivery
        as
        reported in such other publication or source as is generally recognized in
        the
        mining industry as reflecting the price or quotation at which yellowcake
        is
        being offered for sale and purchase.

      

      (b)  In
        the
        absence of any such publication referenced in Section 3.2(a)
        above,
“Market
        Value of U308”
or
        the
“Market
        Value of V205”
shall
        be the mean of the domestic prices or quotations at which yellowcake or
        vanadium, as the case may be, is or was being offered for sale and purchase
        for
        immediate and forward delivery from the uranium mill, 

      

      
        
          
          

        

        
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      vanadium
        mill or processing facility nearest the Shootaring Canyon Mill or, in the
        event
        such prices or quotations are unavailable from said uranium mill or processing
        facility, the “Market
        Value of U308”
and
        the
“Market
        Value of V205”
shall
        be determined by such other means as may establish such prices or quotations
        at
        the mean of the domestic prices or quotations at which yellowcake or vanadium
        is
        being offered for sale and purchase for immediate and forward
        delivery.

      

      3.3  Hedging
        Profits and Losses Not Included in Gross Value.
        

      Notwithstanding
        any other provision of this Royalty Agreement, Uranium One Utah and USE intend
        and agree that for purposes of determination of the Royalty due hereunder,
        Gross
        Value shall mean the proceeds received by Uranium One Utah from the sale
        and
        delivery of Product, including delivery made pursuant to a forward sales
        contract; but shall not include any profits, losses or transaction costs
        for any
        futures trading or commodity options trading or any other price hedging,
        price
        protection, derivative or speculative arrangements which may involve the
        possible delivery of Products produced from the Shootaring Canyon
        Mill.

      

      4.0  Mill
        Fee.
        In the
        event Uranium One Utah processes and produces any Product at the Shootaring
        Canyon Mill pursuant to a custom milling contract, tolling agreement or form
        of
        service contract whereby a fee is paid for mill services, “Mill
        Fee”
shall
        mean the actual cash mill fee or toll charge received by Uranium One Utah
        for
        the custom milling or tolling arrangement. Mill Fee shall exclude any sales,
        excise, personal property or value-added tax, or any other tax imposed, levied
        or assess by law on the milling or tolling services that are recoupable by
        or
        payable to a governmental entity. 

      

      5.0  Manner
        of Payment.

      

      5.1  Royalty
        Payments.
        Royalties shall accrue at the time of sale of Products from the Shootaring
        Canyon Mill or receipt by Uranium One Utah of a Mill Fee, and in the amount
        as
        provided in Section 3.0
        above.
        For purposes of this Section 5.1,
        “sale”
means
        the date on which Uranium One Utah receives payment for the sale of Products.
        Royalty payments shall become due and payable quarterly on the fifteenth
        day of
        the month following the last day of the calendar quarter in which the same
        accrue. Royalty payments shall be by Uranium One Utah's check, ACH or wire
        transfer, and shall be accompanied by a settlement sheet showing the quantities
        and grades of Products produced at the Shootaring Canyon Mill for sale or
        processing, proceeds of sale, costs, and other pertinent information in
        sufficient detail to explain the calculation of the Royalty payment
        (“Quarterly
        Statement”).

      

      5.2  Depository
        Bank.
        Upon
        written request of Uranium One Utah, USE shall designate a bank to act as
        USE's
        agent to receive from Uranium One Utah all payments payable under the terms
        hereof, and all such payments may be made by paying or tendering the same
        to
        USE, or to the bank for USE's credit, which bank shall continue as the
        depository for all Royalty payments hereunder regardless of changes of ownership
        of the Shootaring Canyon Mill, or rights to receive payments hereunder, subject
        only to the subsequent provisions in this Section 5.2.
        All
        charges of such depository bank shall be for USE's account. A single payment
        or
        tender to said depository bank shall be made by (i) mailing or by delivering
        a
        check, (ii) electronic exchange of funds between accounts held at U.S. financial
        institutions through the Automated Clearing House network (“ACH”),
        or
        (iii) wire transfer, and such a payment shall effectively and for all purposes
        

      

      
        
          
          

        

        
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      whatsoever
        constitute full payment of the amount thereof to USE to the same extent as
        if
        made directly. In the event USE fails to name said bank upon the request
        of
        Uranium One Utah, or in the event such bank (or any successor bank) should
        fail,
        liquidate or be succeeded by another bank, or for any reason fail or refuse
        to
        accept royalties, or should USE desire to designate another depository bank,
        then Uranium One Utah shall not be held in default for failure to make payment
        or tender of payments until thirty (30) days after said persons shall deliver
        to
        Uranium One Utah a proper, recordable instrument naming a bank as agent to
        receive such payments or tenders.

      

      5.3  Objections
        to Payments.
        All
        Royalty payments shall be considered final and in full satisfaction of all
        obligations of Uranium One Utah with respect thereto unless USE gives Uranium
        One Utah written notice describing and setting forth a specific objection
        to the
        calculation thereof within ninety (90) days after receipt by USE of the
        Quarterly Statement herein provided for. If USE objects to a particular
        Quarterly Statement as herein provided, USE shall, for a period of thirty
        (30)
        days after USE's receipt of notice of such objection, have the right to have
        Uranium One Utah's accounts and records relating to calculation of the Quarterly
        Statement in question audited by a certified public accountant acceptable
        to USE
        and to Uranium One Utah and subject to mutually acceptable confidentiality
        protection. Uranium One Utah shall account for any deficits or excess in
        the
        payment made to USE pursuant to the Quarterly Statement in question which
        may be
        confirmed by such an audit by adjusting the next Quarterly Statement following
        completion of such audit to account for such deficits or excess. If the
        variation between the amount of a particular Royalty payment made to USE
        hereunder as calculated by the audit provided for herein exceeds five percent
        (5%), Uranium One Utah shall pay all costs of such audit. If such variation
        is
        five percent (5%) or less, USE shall pay all costs of such audit. For the
        purpose of determining the amount of royalties payable hereunder, all figures,
        accounts, and records used in connection with the calculation of royalties
        shall
        be determined in accordance with generally accepted accounting principles
        and
        from accounts maintained by Uranium One Utah in connection with its operations
        at the Shootaring Canyon Mill. Failure on the part of USE to make claim on
        Uranium One Utah for adjustment in such 90-day period shall establish the
        correctness of the particular Quarterly Statement and preclude the filing
        of
        exceptions to such Quarterly Statement or making of claims for adjustment
        to
        such Quarterly Statement, and in the absence of fraud, USE expressly waives
        any
        claim or cause of action with respect to such Quarterly Statement.

      

      6.0  Commingling
        of Ores.
        Uranium
        One Utah shall have the right of mixing or commingling, either underground,
        at
        the surface, or at the Shootaring Canyon Mill, any ores, mine waters, leachates,
        pregnant liquors, pregnant slurries, or other products or compounds containing
        minerals mined or extracted from any sources or mining properties with any
        similar substances derived from other sources, lands or properties; provided
        that Uranium One Utah shall weigh and sample such ores, products or compounds
        in
        accordance with sound mining and metallurgical practice for moisture and
        metal
        content before the same are so mixed or commingled. In computing the Royalty,
        ownership of the Product shall be allocated between Uranium One Party ore
        and
        other ore on the basis of the metal content and weight of the concentrate
        from
        each ore.

      

      7.0  Sampling,
        Assay, and Analysis.
        Any
        determination of weight, volume, moisture content, amenability, or pay metal
        content, and any sampling and analysis shall be made in 

      

      
        
          
          

        

        
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      accordance
        with sound mining and metallurgical practices and standard sampling and analysis
        procedures prevailing in the uranium mining and milling industry. USE shall
        have
        the right to have a representative present at the time samples are taken.
        USE
        shall be furnished at USE's request with a portion of all samples taken for
        analysis of ore, leachates, pregnant liquors, or pregnant slurries or other
        compounds or products owned by Uranium One Parties processed at the Shootaring
        Canyon Mill. Split samples shall by retained by Uranium One Utah for later
        analysis by an independent referee selected by mutual agreement of the parties
        and, in the event of a dispute concerning Uranium One Utah's assay of samples,
        Royalty payments shall be based on the assay results determined by the
        independent referee. All statements or reports wherein Uranium One Utah's
        assay
        of samples are set forth shall be conclusively presumed to be true and correct,
        unless, within sixty (60) days
        after such statements or reports are delivered to USE, USE makes written
        objection thereto and demands an assay by the independent referee; and unless
        such objection and demand is made within such sixty-day period, Uranium One
        Utah
        shall have no duty to preserve the split samples after the end of such sixty-day
        period. The cost of the independent referee shall be paid by the party whose
        assay shows the greatest variance from that of the independent
        referee.

      

      8.0  Waste
        Rock, Spoil and Tailings.
        Except
        for the Royalty payable on products provided here, USE
        shall
        have no rights, title or interest in all residue or tailings remaining after
        Initial Processing (defined below) and minerals from the Shootaring Canyon
        Mill,
        or any subsequent processing of ores, such or other products or compounds
        of
        minerals. “Initial
        Processing”
shall
        mean all processing of ores, mine waters, leachates, pregnant liquors, pregnant
        slurries, or other products or compounds of mineral prior to the time any
        residue thereof shall be first deposited in a tailings containment facility.
        Uranium One Utah shall not be liable for mineral values lost in mining or
        processing pursuant to sound mining and metallurgical engineering practices.
        The
        Royalty shall be payable only on Products. All waste rock, spoil, tailings,
        or
        other mine wastes and residue shall be the sole property of the Uranium One
        Utah. Uranium One Utah shall have the sole right to dump, deposit, sell,
        dispose
        of, or reprocess such waste rock, spoil, tailings, or other mine wastes and
        residues.

      

      9.0  Lesser
        Interest; Third Party Claims.

      

      9.1  Lesser
        Interest.
        The
        Royalty
        is based upon ownership by Uranium One Utah Parties of the full, 100% undivided
        beneficial interest in the ores, mine waters, leachates, pregnant liquors,
        pregnant slurries, or other products or compounds of minerals for processing
        at
        the Shootaring Canyon Mill or in the Products. In the event the Uranium One
        Utah
        Parties own less than the full, 100% undivided beneficial interest in such
        ores,
        mine waters, leachates, pregnant liquors, pregnant slurries, or other products
        or compounds of minerals for processing at the Shootaring Canyon Mill or
        in the
        Products, the Royalty hereunder shall be applied to only that beneficial
        interest of the Uranium One Utah Parties. (As an example, and for illustrative
        purposes only, ore processed at the Shootaring Canyon Mill which is produced
        from properties owned by a joint venture between Uranium One Utah and a third
        party subject to a joint venture agreement that allocates 50% equitable
        ownership to each of the venture parties, shall be deemed to be beneficially
        owned 50% by Uranium One Utah and the Royalty applicable to all Products
        produced from the joint venture ore shall be applied only to the 50%
        beneficially-owned by the Uranium One Utah Parties, which equals a Royalty
        of 5%
        on 50% of the Value of the Products).

      
        
          
          

        

        
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      9.2  Third
        Party Claims.
        If any
        person or entity not a party asserts a claim of ownership in Products or
        a claim
        to a share in any mine ores, minerals, waters, leachates, pregnant liquors,
        pregnant slurries, or other products or compounds of minerals, or a claim
        for
        money on account of production of minerals, Uranium One Utah at its sole
        discretion after written notice to USE, may suspend its obligation to pay
        the
        Royalty, and in lieu thereof may deposit in an interest-bearing account payments
        equivalent to the Royalty which may otherwise become due USE. Such deposit
        or
        deposits shall remain in such interest-bearing account until the claim or
        controversy is resolved or settled by final court decision, by arbitration,
        negotiation, or otherwise.

      

      10.0  Pooling
        or Unitization.
        Uranium
        One Utah shall have the right to pool and combine acreage from any mining
        properties with other property at any time and from time to time as a recurring
        right, either before or after production, for exploratory, developmental
        or
        operating purposes for the purpose of conducting in situ solution mining
        .
        Uranium One Utah, or a designated operator for Uranium One Utah, shall have
        the
        sole discretion to determine the location, size and shape of any drilling
        pattern. It shall be conclusively presumed that the minerals which are produced
        from any such pooled acreage are homogeneous and are produced uniformly within
        the boundaries of such drilling pattern, both as to quantity and
        quality.

      

      11.0  Access
        to Shootaring Canyon Mill.
        Subject
        to the confidentiality provisions of this Royalty Agreement and all health
        and
        safety requirement imposed by Uranium One Utah, which shall be enforced at
        Uranium One Utah’s sole discretion, USE and its representatives shall, at their
        sole risk and expense, upon reasonable advance notice to and prior approval
        from
        Uranium One Utah have access to operations conducted by or on behalf of Uranium
        One Utah at the Shootaring Canyon Mill for the purposes of viewing or inspecting
        the same, provided that USE and its representatives shall indemnify Uranium
        One
        Utah for any claims, losses or damages that arise out of or result from USE’s
        presence or activities at the Shootaring Canyon Mill.

      

      12.0  Confidentiality.
        All
        information developed or acquired by USE under or pursuant to this Royalty
        Agreement relating to without limitation mineral discoveries, ore reserves,
        mining methods, plans and production schedules, terms of agreements, ownership
        interests and all other information relating to the ownership and operation
        of
        the Shootaring Canyon Mill, as a result of USE’s exercise of its rights
        hereunder, including its right to visit the Shootaring Canyon Mill or audit
        Uranium One Utah records relating to preparation of Quarterly Statements,
        shall
        be treated and kept as confidential and shall not be released or made public
        without Uranium One Utah’s express prior written consent, which consent may be
        withheld at Uranium One Utah’s sole discretion, provided, however, that nothing
        herein shall be construed to interfere with any responsibility of USE to
        make
        reasonable disclosures required under applicable securities or other laws.
        USE
        acknowledges and agrees that in the event of a breach of this covenant of
        confidentiality the remedy at law may be inadequate and, without limiting
        any
        other remedy available at law or equity, Uranium One Utah shall may enforce
        this
        covenant through injunction, specific performance or other form of equitable
        relief or money damages or any combination thereof. Uranium One Utah shall
        be
        entitled to recover the cost of enforcing this provision, including, without
        limitation, reasonable attorneys’ fees and court costs.

      

      13.0  General.

      
        
          
          

        

        
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      13.1  Applicable
        Law.
        This
        Royalty Agreement shall be governed by and interpreted in accordance with
        the
        laws of the State of Colorado without regard to the conflict of laws provisions
        thereof.

      

      13.2  Waiver.
        The
        failure of either Uranium One Utah or USE to insist on the strict performance
        of
        any provision of this Royalty Agreement or to exercise any right, power or
        remedy upon a breach hereof shall not constitute a waiver of any provision
        of
        this Royalty Agreement or limit Uranium One Utah’s or USE’s right thereafter to
        enforce any provision or exercise any right hereunder. A waiver of any provision
        of this Royalty Agreement shall not be effective unless in writing and signed
        by
        the party against whom it is to be enforced.

      

      13.3  Amendment.
        No
        modification or amendment of this Royalty Agreement shall be valid unless
        made
        in writing and duly executed by Uranium One Utah and USE.

      

      13.4  Severability.
        If any
        term or other provision of this Royalty Agreement is invalid, illegal or
        incapable of being enforced by any rule of law or public policy, all other
        conditions and provisions of this Royalty Agreement shall nevertheless remain
        in
        full force and effect so long as the economic and legal substance of the
        transactions contemplated hereby is not affected in any manner materially
        adverse to any party. Upon such determination that any term or other provision
        is invalid, illegal or incapable of being enforced, the parties hereto shall
        negotiate in good faith to modify this Royalty Agreement so as to effect
        the
        original intent of the parties as closely as possible in an acceptable manner
        to
        the end that transactions contemplated hereby are fulfilled to the extent
        possible.

      

      13.5  Notices.
        All
        notices and other required communications (“Notices”)
        to the
        parties to this Royalty Agreement shall be in writing, and shall be addressed
        respectively as follows:

      

      If
        to
        Uranium One Utah:

      

      Uranium
        One Utah Inc.

      Suite
        1610 - 390 Bay Street

      Toronto,
        Ontario M5H 2Y2

      Canada

      Attention:
        Jennifer Smith

      Facsimile:
        (416) 363-6806

      

      With
        a
        copy to:

      

      sxr
        Uranium One Inc.

      Block
        A,
        Empire Park

      55
        Empire
        Road

      Parktown

      South
        Africa

      Attention:
        Neal Froneman

      Facsimile:
        011 27 11 482-3604

      

      
        
          
          

        

        
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      With
        an
        informational copy to:

      

      Dorsey
        & Whitney LLP

      1420
        Fifth Avenue, Suite 3400

      Seattle,
        Washington 98101

      Attention:
        Christopher Doerksen

      Facsimile:
        (206) 903-8856

      

      If
        to US
        Energy: 

      

      U.S.
        Energy Corp.

      877
        N.
        8th
        W.

      Riverton,
        Wyoming

      USA
        82501

      Attention:
        Mark J. Larsen

      Facsimile:
        (307) 857-3050

      

      With
        an
        informational copy to:

      

      U.S.
        Energy Corp. 

      877
        N.
        8th
        W.

      Riverton
        WY 82501

      Attn:
        Steven R. Youngbauer 

      Facsimile
        No. 307) 857-3234

      

      With
        a
        copy to:

      

      Davis
        Graham & Stubbs LLP

      1550
        Seventeenth Street, Suite 500 Denver, CO 80202

      Attn:
        Scot W. Anderson 

      Facsimile
        No. (303) 893-1379

      

      All
        Notices shall be given (a) by personal delivery to the another party, (b)
        by
        electronic communication, with a confirmation sent by registered or certified
        mail, return receipt requested, or (c) by registered or certified mail, return
        receipt requested. Notices shall be effective and shall be deemed delivered
        on
        receipt if delivered during normal business hours, and, if not delivered
        during
        normal business hours, on the next business day following delivery. A party
        may
        change its address by Notice to the other parties. 

      

      13.6  Entire
        Agreement.
        This
        Royalty Agreement contains the entire understanding of Uranium One Utah and
        USE
        and supersedes all prior agreements and understandings between Uranium One
        Utah
        and USE relating to the subject matter hereof. 

      

      13.7  Assignment
        and Binding Effect. 

      

      (a)  The
        Royalty shall be assignable by USE. No change or division in the ownership
        of
        the Royalty or payment of proceeds attributable to the Royalty shall enlarge
        the
        obligations or diminish the rights of Uranium One Utah. USE covenants that
        any
        change in 

      

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      ownership
        shall be accomplished in such a manner that Uranium One Utah shall be required
        to make payments and to give notices to a single party or entity representing,
        and with the agency to act for, the owner or owners of the Royalty. Upon
        breach
        of this covenant, Uranium One Utah may retain all payments of Royalty otherwise
        due to USE, its successors and assigns, until the breach has been cured.
        No
        change or division in ownership shall be binding on Uranium One Utah until
        thirty (30) days after USE has given Uranium One Utah a certified copy of
        the
        recorded instrument evidencing the change or division together with an
        enforceable agreement among the royalty owners appointing a single party
        as
        agent with the authority to act for all owners.

      

      (b)  Uranium
        One Utah may assign all of its obligations and duties under this Royalty
        Agreement (i) upon transfer of fifty percent (50%) or greater of Uranium
        One
        Utah’s interest in the Shootaring Canyon Mill, or (ii) with the prior written
        consent of USE, which consent shall not be unreasonably withheld, and in
        each
        case upon a written assumption by the assignee of Uranium One Utah’s obligations
        and duties hereunder.

      

      (c)  This
        Royalty Agreement shall be binding upon and inure to the benefit of the
        respective successors and assigns of Uranium One Utah and USE.

      

      13.8  Further
        Assurances.
        Each
        party hereto shall take such actions and sign such documents reasonably
        requested by any other party hereto to enable such requesting party to enjoy
        the
        intended rights and benefits hereof.

      

      13.9  Third
        Parties.
        Nothing
        herein expressed or implied is intended or shall be construed to confer upon
        or
        give to any person or entity other than the parties and their successors
        or
        assigns, any rights or remedies under or by reason of this Royalty
        Agreement 

      

      13.10  Counterparts.
        This
        Royalty Agreement may be executed in two or more counterparts, each of which
        shall be considered one and the same agreement and shall become effective
        when
        counterparts have been signed by each of the parties and delivered to the
        other
        parties, it being understood that all parties need not sign the same
        counterpart.

      

      [REMAINDER
        OF PAGE INTENTIONALLY BLANK]

      

      
        
          
          

          
          

        

        
          10

          
            

          

        

        
          
          

          
          

        

      

      IN
        WITNESS WHEREOF, the parties hereto have executed this Royalty Agreement
        as of
        the Effective Date.

       

      URANIUM
        ONE UTAH INC.

      

      

      By:______________________________________________       

      Title:_____________________________________________       

      

      

      

      U.S.
        ENERGY CORP. 

      

      

      By:______________________________________________       

      Title:_____________________________________________       

      

       

      
 

      
        
          
          

        

        
          11SUPPLEMENTAL INDENTURE - 12/1/2006

    Nicor
      Gas
      Company

    Form
      10-K

    Exhibit
      4.11

    
 

    
      	 
	 
	
              When
                recorded return to:

            
	 
	
              Nicor
                Gas

            
	
              Attn:
                Dave Behrens

            
	
              1844
                Ferry Road

            
	
              Naperville,
                IL 60653-9600

            
	 
	 
	 	
              Space
                Above this Line Reserved for Recorder’s Use
                Only

            

    

    

     

    Supplemental
      Indenture

     

    MADE
      AS OF DECEMBER 1, 2006, TO BE EFFECTIVE DECEMBER 15, 2006

    ____________________

     

    NORTHERN
      ILLINOIS GAS COMPANY

     

    TO

     

    BNY
      MIDWEST TRUST COMPANY

     

    TRUSTEE
      UNDER INDENTURE DATED AS OF

     

    JANUARY
      1, 1954 

     

    AND
      

     

    SUPPLEMENTAL

     

    INDENTURES
      THERETO

     

    ____________________

     

    FIRST
      MORTGAGE BONDS

     

    5.85%
      SERIES DUE DECEMBER 15, 2036

     

    

    
      
        
          Prepared
            by Andrew Kling, Schiff Hardin LLP, 6600 Sears Tower, 233 S. Wacker Drive,
            Chicago, IL 60606

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    THIS
      SUPPLEMENTAL INDENTURE, made as of the 1st
      day of
      December, 2006 and effective the 15th day of December, 2006, between NORTHERN
      ILLINOIS GAS COMPANY, a corporation organized and existing under the laws of
      the
      State of Illinois (hereinafter called the “Company”),
      and
      BNY MIDWEST TRUST COMPANY, an Illinois trust company (hereinafter called the
      “Trustee”),
      as
      successor Trustee under an Indenture dated as of January 1, 1954, as
      supplemented by Supplemental Indentures dated, respectively, 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, February
      1, 1999, February 1, 2001, May 15, 2001, August 15, 2001, December 15, 2001
      and
      December 1, 2003, such Indenture dated as of January 1, 1954, as so
      supplemented, being hereinafter called the “Indenture.”

     

    WITNESSETH:

     

    WHEREAS,
      the Indenture provides for the issuance from time to time thereunder, in series,
      of bonds of the Company for the purposes and subject to the limitations therein
      specified; and

     

    WHEREAS,
      the Company desires, by this Supplemental Indenture, to create an additional
      series of bonds to be issuable under the Indenture, such bonds to be designated
      “First Mortgage Bonds, 5.85% Series due December 15, 2036” (hereinafter called
      the “bonds
      of this Series”),
      and
      the terms and provisions to be contained in the bonds of this Series or to
      be
      otherwise applicable thereto to be as set forth in this Supplemental Indenture;
      and

     

    WHEREAS,
      the forms, respectively, of the bonds of this Series, and the Trustee’s
      certificate to be endorsed on all bonds of this Series, are to be substantially
      as follows:

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (FORM
      OF
      FACE OF BOND)

     

    NO.
      RU-_____________                                                                                $________

     

     

    Ill.
      Commerce Commission No. 6395                                                                      CUSIP
      No.______

     

    NORTHERN
      ILLINOIS GAS COMPANY

     

    First
      Mortgage Bond, 5.85% Series due December 15, 2036

     

    NORTHERN
      ILLINOIS GAS COMPANY, an Illinois corporation (hereinafter called the
“Company”),
      for
      value received, hereby promises to pay to
                    
or registered assigns, the sum of
                         
Dollars, on the 15th day of December, 2036, and to pay to the registered owner
      hereof interest on said sum from the date hereof until said sum shall be paid,
      at the rate of five and eighty five hundredths per centum (5.85%) per annum,
      payable semi-annually on the first day of June and the first day of December
      in
      each year. Both the principal of and the interest on this bond shall be payable
      at the office or agency of the Company in the City of Chicago, State of
      Illinois, or, at the option of the registered owner, at the office or agency
      of
      the Company in the Borough of Manhattan, The City and State of New York, in
      any
      coin or currency of the United States of America which at the time of payment
      is
      legal tender for the payment of public and private debts. Any installment of
      interest on this bond may, at the Company’s option, be paid by mailing checks
      for such interest payable to or upon the written order of the person entitled
      thereto to the address of such person as it appears on the registration
      books.

     

    So
      long
      as there is no existing default in the payment of interest on this bond, the
      interest so payable on any interest payment date will be paid to the person
      in
      whose name this bond is registered on May 15 or November 15 (whether or not
      a
      business day), as the case may be, next preceding such interest payment date.
      If
      and to the extent that the Company shall default in the payment of interest
      due
      on such interest payment date, such defaulted interest shall be paid to the
      person in whose name this bond is registered on the record date fixed, in
      advance, by the Company for the payment of such defaulted
      interest.

     

    Additional
      provisions of this bond are set forth on the reverse hereof.

     

    This
      bond
      shall not be entitled to any security or benefit under the Indenture or be
      valid
      or become obligatory for any purpose unless and until it shall have been
      authenticated by the execution by the Trustee, or its successor in trust under
      the Indenture, of the certificate endorsed hereon.

     

    IN
      WITNESS WHEREOF, Northern Illinois Gas Company has caused this bond to be
      executed in its name by its Vice President, manually or by facsimile signature,
      and has caused its corporate seal to be impressed hereon or a facsimile thereof
      to be imprinted hereon and to be attested by its Assistant Secretary, manually
      or by facsimile signature.

     

    Dated:
      December 15, 2006

     

    -2-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      	 	
              NORTHERN
                ILLINOIS GAS COMPANY

               

              BY:                                                                                                     
                

                                                   
                Vice President

               

            
	
              ATTEST:

                                                                                                     
                

                                                    
                Assistant Secretary

            	 

    

    

     

    

     

    (FORM
      OF
      TRUSTEE’S CERTIFICATE OF AUTHENTICATION)

     

    This
      bond
      is one of the bonds of the series designated therein, referred to and described
      in the within-mentioned Supplemental Indenture dated as of December 1, 2006,
      effective December 15, 2006.

     

    BNY
      MIDWEST TRUST COMPANY,

       TRUSTEE

     

    BY:                                                                                           
       

                                            Authorized
      Officer

    
       

      -3-

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (FORM
      OF
      REVERSE SIDE OF BOND)

     

    This
      bond
      is one, of the series hereinafter specified, of the bonds issued and to be
      issued in series from time to time under and in accordance with and secured
      by
      an Indenture dated as of January 1, 1954, to BNY Midwest Trust Company, as
      Trustee, as supplemented by certain indentures supplemental thereto, executed
      and delivered to the Trustee; and this bond is one of a series of such bonds,
      designated “Northern Illinois Gas Company First Mortgage Bonds, 5.85% Series due
      December 15, 2036 (herein called “bonds
      of this Series”),
      the
      issuance of which is provided for by a Supplemental Indenture dated as of
      December 1, 2006, effective December 15, 2006 (hereinafter called the
“Supplemental
      Indenture”),
      executed and delivered by the Company to the Trustee. The term “Indenture”,
      as
      hereinafter used, means said Indenture dated as of January 1, 1954, and all
      indentures supplemental thereto (including, without limitation, the Supplemental
      Indenture) from time to time in effect. Reference is made to the Indenture
      for a
      description of the property mortgaged and pledged, the nature and extent of
      the
      security, the rights of the holders and registered owners of said bonds, of
      the
      Company and of the Trustee in respect of the security, and the terms and
      conditions governing the issuance and security of said bonds.

     

    With
      the
      consent of the Company and to the extent permitted by and as provided in the
      Indenture, modifications or alterations of the Indenture or of any supplemental
      indenture and of the rights and obligations of the Company and of the holders
      and registered owners of the bonds may be made, and compliance with any
      provision of the Indenture or of any supplemental indenture may be waived,
      by
      the affirmative vote of the holders and registered owners of not less than
      sixty-six and two-thirds per centum (66 2/3%) in principal amount of the bonds
      then outstanding under the Indenture, and by the affirmative vote of the holders
      and registered owners of not less than sixty-six and two-thirds per centum
      (66
      2/3%) in principal amount of the bonds of any series then outstanding under
      the
      Indenture and affected by such modification or alteration, in case one or more
      but less than all of the series of bonds then outstanding under the Indenture
      are so affected, but in any case excluding bonds disqualified from voting by
      reason of the Company’s interest therein as provided in the Indenture; subject,
      however, to the condition, among other conditions stated in the Indenture,
      that
      no such modification or alteration shall be made which, among other things,
      will
      permit the extension of the time or times of payment of the principal
      of or the interest or the premium, if any, on this bond, or the reduction in
      the
      principal amount hereof or in the rate of interest or the amount of any premium
      hereon, or any other modification in the terms of payment of such principal,
      interest or premium, which terms of payment are unconditional, or, otherwise
      than as permitted by the Indenture, the creation of any lien ranking prior
      to or
      on a parity with the lien of the Indenture with respect to any of the mortgaged
      property, all as more fully provided in the Indenture.

     

    The
      bonds
      of this Series may be called for redemption by the Company, as a whole at any
      time or in part from time to time, at a redemption price equal to 100% of the
      principal amount of the bonds of this Series to be redeemed plus accrued and
      unpaid interest on the principal amount being redeemed to the date of redemption
      and the Make-Whole Amount (as defined in the Supplemental Indenture) applicable
      thereto.

    
       

      -4-

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Notice
      of
      each redemption shall be mailed to all registered owners not less than thirty
      nor more than forty-five days before the redemption date.

     

    In
      case
      of certain completed defaults specified in the Indenture, the principal of
      this
      bond may be declared or may become due and payable in the manner and with the
      effect provided in the Indenture.

     

    No
      recourse shall be had for the payment of the principal of or the interest or
      the
      premium, if any, on this bond, or for any claim based hereon, or otherwise
      in
      respect hereof or of the Indenture, to or against any incorporator, stockholder,
      officer or director, past, present or future, of the Company or of any
      predecessor or successor corporation, either directly or through the Company
      or
      such predecessor or successor corporation, under any constitution or statute
      or
      rule of law, or by the enforcement of any assessment or penalty, or otherwise,
      all such liability of incorporators, stockholders, directors and officers being
      waived and released by the registered owner hereof by the acceptance of this
      bond and being likewise waived and released by the terms of the Indenture,
      all
      as more fully provided therein.

     

    This
      bond
      is transferable by the registered owner hereof, in person or by duly authorized
      attorney, at the office or agency of the Company in the City of Chicago, State
      of Illinois, or, at the option of registered owner, at the office or agency
      of
      the Company in the Borough of Manhattan, The City and State of New York, upon
      surrender and cancellation of this bond; and thereupon a new registered bond
      or
      bonds without coupons of the same aggregate principal amount and series will,
      upon the payment of any transfer tax or taxes payable, be issued to the
      transferee in exchange herefor. The Company shall not be required to exchange
      or
      transfer this bond if this bond or a portion hereof has been selected for
      redemption.

     

    The
      security represented by this certificate has not been registered under the
      Securities Act of 1933, as amended (the “Securities
      Act”),
      or
      qualified under any state securities laws and may not be transferred, sold
      or
      otherwise disposed of except while a registration statement is in effect or
      pursuant to an available exemption from registration under the Securities Act
      and applicable state securities laws.

     

    (END
      OF
      BOND FORM)

     

    and

     

    WHEREAS,
      all acts and things necessary to make this Supplemental Indenture, when duly
      executed and delivered, a valid, binding and legal instrument in accordance
      with
      its terms, and for the purposes herein expressed, have been done and performed,
      and the execution and delivery of this Supplemental Indenture have in all
      respects been duly authorized;

     

    NOW,
      THEREFORE, in consideration of the premises and of the sum of one dollar paid
      by
      the Trustee to the Company, and for other good and valuable consideration,
      the
      receipt of which is hereby acknowledged, for the purpose of securing the due
      and
      punctual payment of the principal of and the interest and premium, if any,
      on
      all bonds which shall be issued under the Indenture, and for the purpose of
      securing the faithful performance and observance of all the covenants and
      conditions set forth in the Indenture and in all indentures supplemental
      thereto, the Company by these presents does grant, bargain, sell, transfer,
      assign, pledge, mortgage, warrant

    
       

      -5-

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        
and
        convey unto BNY Midwest Trust Company, as Trustee, and its successor or
        successors in the trust hereby created, all property, real and personal (other
        than property expressly excepted from the lien and operation of the Indenture),
        which, at the actual date of execution and delivery of this Supplemental
        Indenture, is solely used or held for use in the operation by the Company
        of its
        gas utility system and in the conduct of its gas utility business and all
        property, real and personal, used or useful in the gas utility business (other
        than property expressly excepted from the lien and operation of the Indenture)
        acquired by the Company after the actual date of execution and delivery of
        this
        Supplemental Indenture or (subject to the provisions of Section 16.03 of
        the
        Indenture) by any successor corporation after such execution and delivery,
        and
        it is further agreed by and between the Company and the Trustee as
        follows:

    

     

    ARTICLE
      I.  

     

    BONDS
      OF
      THIS SERIES

     

    Section
      1.  The
      bonds
      of this Series shall, as hereinbefore recited, be designated as the Company’s
“First Mortgage Bonds, 5.85% Series due December 15, 2036”. The bonds of this
      Series which may be issued and outstanding shall not exceed $50,000,000 in
      aggregate principal amount, exclusive of bonds of such series authenticated
      and
      delivered pursuant to Section 4.12 of the Indenture.

     

    Section
      2.  The
      bonds
      of this Series shall be registered bonds without coupons, and the form of such
      bonds, and of the Trustee’s certificate of authentication to be endorsed on all
      bonds of this Series, shall be substantially as hereinbefore recited,
      respectively.

     

    Section
      3.  The
      bonds
      of this Series shall be issued in the denomination of $1,000,000 each and in
      such integral multiple or multiples thereof as shall be determined and
      authorized by the Board of Directors of the Company or by any officer of the
      Company authorized by the Board of Directors to make such determination, the
      authorization of the denomination of any bond to be conclusively evidenced
      by
      the execution thereof on behalf of the Company. The bonds of this Series shall
      be numbered RU-1 and consecutively upwards, or in such other appropriate manner
      as shall be determined and authorized by the Board of Directors of the
      Company.

     

    All
      bonds
      of this Series shall be dated December 15, 2006 except that each bond issued
      on
      or after the first payment of interest thereon shall be dated as of the date
      of
      the interest payment date thereof to which interest shall have been paid on
      the
      bonds of such series next preceding the date of issue, unless issued on an
      interest payment date to which interest shall have been so paid, in which event
      such bonds shall be dated as of the date of issue; provided, however, that
      bonds
      issued on or after November 15 and before the next succeeding December 1 or
      on
      or after May 15 and before the next succeeding June 1 shall be dated the next
      succeeding interest payment date if interest shall have been paid to such date.
      All bonds of this Series shall mature December 15, 2036 and shall bear interest
      at the rate of 5.85% per annum until the principal thereof shall be paid. Such
      interest shall be calculated on the basis of a 360-day year consisting of twelve
      30-day months and shall be payable semi-annually on the first day of June and
      the first day of December in each year, beginning June 1, 2007. So long as
      there
      is no existing default in the payment of interest on the bonds of this Series,
      such interest shall be

    
       

      -6-

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        
payable
        to the person in whose name each such bond is registered on the November
        15 or
        May 15 (whether or not business day), as the case may be, next preceding
        the
        respective interest payment dates; provided, however, if and to the extent
        that
        the Company shall default in the payment of interest due on such interest
        payment date, such defaulted interest shall be paid to the person in whose
        name
        each such bond is registered on the record date fixed, in advance, by the
        Company for the payment of such defaulted interest.
        Interest
        will accrue on overdue interest installments at the rate of 5.85% per annum.
        

    

     

    The
      principal of and interest and premium, if any, on the bonds of this Series
      shall
      be payable in any coin or currency of the United States of America which at
      the
      time of payment is legal tender for the payment of public and private debts,
      and
      shall be payable at the office or agency of the Company in the City of Chicago,
      State of Illinois, or, at the option of the registered owner, at the office
      or
      agency of the Company in the Borough of Manhattan, The City and State of New
      York. Any installment of interest on the bonds may, at the Company’s option, be
      paid by mailing checks for such interest payable to or upon the written order
      of
      the person entitled thereto to the address of such person as it appears on
      the
      registration books. The bonds of this Series shall be registrable, transferable
      and exchangeable in the manner provided in Sections 4.08 and 4.09 of the
      Indenture, at either of such offices or agencies.

     

    Section
      4. The
      bonds
      of this Series, upon the mailing of notice and in the manner provided in Section
      7.01 of the Indenture (except that no published notice shall be required for
      the
      bonds of this Series) and with the effect provided in Section 7.02 thereof,
      shall be redeemable at the option of the Company, as a whole at any time or
      in
      part from time to time, at a redemption price equal to 100% of the principal
      amount of the bonds of this Series to be redeemed plus accrued and unpaid
      interest of the principal amount being redeemed to the date of redemption plus
      the Make-Whole Amount applicable thereto. “Make-Whole
      Amount”
      means,
      with respect to any bond of this Series, an amount equal to the excess, if
      any,
      of the Discounted Value of the Remaining Scheduled Payments with respect to
      the
      Called Principal of such bond of this Series over the amount of such Called
      Principal, provided
      that the
      Make-Whole Amount may in no event be less than zero. For the purposes of
      determining the Make-Whole Amount, the following terms have the following
      meanings:

     

    “Called
      Principal”
      means,
      with respect to any bond of this Series, the principal of such bond of this
      Series that is to be redeemed.

     

    “Discounted
      Value”
      means,
      with respect to the Called Principal of any bond of this Series, the amount
      obtained by discounting all Remaining Scheduled Payments with respect to such
      Called Principal from their respective scheduled due dates to the Settlement
      Date with respect to such Called Principal, in accordance with accepted
      financial practice and at a discount factor (applied on the same periodic basis
      as that on which interest on the bond of this Series is payable) equal to the
      Reinvestment Yield with respect to such Called Principal.

     

    “Reinvestment
      Yield”
      means,
      with respect to the Called Principal of any bond of this Series, .50% over
      the
      yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New
      York City time) on the second Business Day preceding the Settlement Date with
      respect to such Called Principal, on the display designated as “Page PX1” (or
      such other display as may replace Page PX1) on Bloomberg Financial Markets
      (“Bloomberg”)
      or, if
      Page PX1 (or its

    
       

      -7-

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        
successor
        screen on Bloomberg) is unavailable, the Telerate Access Service screen which
        corresponds most closely to Page PX1 for the most recently issued actively
        traded U.S. Treasury securities having a maturity equal to the Remaining
        Average
        Life of such Called Principal as of such Settlement Date, or (ii) if
        such yields are not reported as of such time or the yields reported as of
        such
        time are not ascertainable (including by way of interpolation), the Treasury
        Constant Maturity Series Yields reported, for the latest day for which such
        yields have been so reported as of the second Business Day preceding the
        Settlement Date with respect to such Called Principal, in Federal Reserve
        Statistical Release H.15 (519) (or any comparable successor publication)
        for
        actively traded U.S. Treasury securities having a constant maturity equal
        to the
        Remaining Average Life of such Called Principal as of such Settlement Date.
        Such
        implied yield will be determined, if necessary, by (a) converting U.S.
        Treasury bill quotations to bond equivalent yields in accordance with accepted
        financial practice and (b) interpolating linearly between (1) the
        actively traded U.S. Treasury security with the maturity closest to and greater
        than such Remaining Average Life and (2) the actively traded U.S. Treasury
        security with the maturity closest to and less than such Remaining Average
        Life.
        The Reinvestment Yield shall be rounded to the number of decimal places as
        appears in the interest rate of the applicable bond of this
        Series.

    

     

    “Remaining
      Average Life”
      means,
      with respect to any Called Principal, the number of years (calculated to the
      nearest one-twelfth year) obtained by dividing (i) such Called Principal
      into (ii) the sum of the products obtained by multiplying (a) the
      principal component of each Remaining Scheduled Payment with respect to such
      Called Principal by (b) the number of years (calculated to the nearest
      one-twelfth year) that will elapse between the Settlement Date with respect
      to
      such Called Principal and the scheduled due date of such Remaining Scheduled
      Payment.

     

    “Remaining
      Scheduled Payments”
      means,
      with respect to the Called Principal of any bond of this Series, all payments
      of
      such Called Principal and interest thereon that would be due after the
      Settlement Date with respect to such Called Principal if no payment of such
      Called Principal were made prior to its scheduled due date, provided
      that if
      such Settlement Date is not a date on which interest payments are due to be
      made
      under the terms of the bond of this Series, then the amount of the next
      succeeding scheduled interest payment will be reduced by the amount of interest
      accrued to such Settlement Date and required to be paid on such Settlement
      Date
      pursuant to the terms of this Supplemental Indenture.

     

    “Settlement
      Date”
      means,
      with respect to the Called Principal of any bond of this Series, the date on
      which such Called Principal is to be redeemed.

     

    Section
      5.  No
      sinking fund is to be provided for the bonds of this Series.

     

    ARTICLE
      II.  

     

    MISCELLANEOUS
      PROVISIONS

     

    Section
      1.  This
      Supplemental Indenture is executed by the Company and the Trustee pursuant
      to
      provisions of Section 4.02 of the Indenture and the terms and conditions hereof
      shall be deemed to be a part of the terms and conditions of the Indenture for
      any and all purposes. The

    
       

      -8-

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        
Indenture,
        as heretofore supplemented and as supplemented by this Supplemental Indenture,
        is in all respects ratified and confirmed.

    

     

    Section
      2.  This
      Supplemental Indenture shall bind and, subject to the provisions of Article
      XVI
      of the Indenture, inure to the benefit of the respective successors and assigns
      of the parties hereto.

     

    Section
      3.  Although
      this Supplemental Indenture is made as of December 1, 2006, effective December
      15, 2006, it shall be effective only from and after the actual time of its
      execution and delivery by the Company and the Trustee on the date indicated
      by
      their respective acknowledgements hereto.

     

    Section
      4.  This
      Supplemental Indenture may be simultaneously executed in any number of
      counterparts, and all such counterparts executed and delivered, each as an
      original, shall constitute but one and the same instrument.

     

    

     

    * * *

     

    

     

    Signature
      Page Follows

     

    
       

      -9-

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, Northern Illinois Gas Company has caused this Supplemental
      Indenture to be executed in its name by its President, a Vice President, or
      Treasurer, and its corporate seal to be hereunto affixed and attested by its
      Assistant Secretary, and BNY Midwest Trust Company, as Trustee under the
      Indenture, has caused this Supplemental Indenture to be executed in its name
      by
      one of its Assistant Vice Presidents, and its seal to be hereunto affixed and
      attested by one of its Assistant Secretaries, all as of the day and year first
      above written.

     

    
      	
              NORTHERN
                ILLINOIS GAS COMPANY

               

              BY: /s/
                GERALD P.
                O'CONNOR                     
                

              Gerald
                P. O’Connor

              Vice
                President Finance and Treasurer

               

            	 
	 	
              ATTEST:

               

              BY:
                /s/ NEIL J.
                MALONEY                                          
                 

                    
                Neil J. Maloney

                     Assistant
                General Counsel and Assistant  

                     Secretary

               

            
	
              BNY
                MIDWEST TRUST COMPANY,

               as
                Trustee

               

              BY:
                /s/ L
                GARCIA                            
                          
                

              Name:
                L. Garcia

              Title:
                Assistant Vice President

               

            	 
	 	
              ATTEST:

               

              BY:
                /s/
                D.G. DONOVAN                          
                                
                 

              Name:
                D. G. DONOVAN

              Title:
                ASSISTANT SECRETARY

               

            

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    STATE
      OF
      ILLINOIS  } SS:

    COUNTY
      OF
      DUPAGE }

     

    I,
      Dawn M. Opon, a Notary Public in the State aforesaid, DO HEREBY CERTIFY
      that Gerald P. O’Connor, Vice President Finance and Treasurer of Northern
      Illinois Gas Company, an Illinois corporation, one of the parties described
      in
      and which executed the foregoing instrument, and Neil J. Maloney, Assistant
      General Counsel and Assistant Secretary of said corporation, who are both
      personally known to me to be the same persons whose names are subscribed to
      the
      foregoing instrument as such Vice President Finance and Treasurer and Assistant
      General Counsel and Assistant Secretary, respectively, and who are both
      personally known to me to be the Vice President Finance and Treasurer and
      Assistant General Counsel and Assistant Secretary, respectively, of said
      corporation, appeared before me this day in person and severally acknowledged
      that they signed, sealed, executed and delivered said instrument as their free
      and voluntary act as such Vice President Finance and Treasurer and Assistant
      General Counsel and Assistant Secretary, respectively, of said corporation,
      and
      as the free and voluntary act of said corporation, for the uses and purposes
      therein set forth.

     

    GIVEN
      under my hand and notarial seal this 1st day of December, 2006
      A.D.

     

    
      	 	                      /s/
              DAWN M.
              OPON                         
	 	
              Notary
                Public

            

    

    

    My
      Commission expires March 31st, 2010.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
STATE
      OF
      ILLINOIS } SS:

    COUNTY
      OF
      COOK }

     

    I,
A.
      Hernandez, a Notary Public in and for the said County, in the State
      aforesaid, DO HEREBY CERTIFY that L. Garcia, Assistant Vice President of
      BNY Midwest Trust Company, an Illinois trust company, one of the parties
      described in and which executed the foregoing instrument, and D.G.
      Donovan, an Assistant Secretary of said trust company, who are both
      personally known to me to be the same persons whose names are subscribed to
      the
      foregoing instrument as such Assistant Vice President and Assistant Secretary,
      respectively, and who are both personally known to me to be an Assistant Vice
      President and an Assistant Secretary, respectively, of said trust company,
      appeared before me this day in person and severally acknowledged that they
      signed, sealed, executed and delivered said instrument as their free and
      voluntary act as such Assistant Vice President and Assistant Secretary,
      respectively, of said trust company, and as the free and voluntary act of said
      trust company, for the uses and purposes therein set forth.

     

    GIVEN
      under my hand and notarial seal this 5th day of December, 2006 A.D.

     

    
      	 	                        /s/
              A.
              HERNANDEZ              
                       
	 	
              Notary
                Public

            

    

    

    My
      Commission expires July 8, 2010.

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    RECORDING
      DATA

     

    This
      Supplemental Indenture was recorded on December 8, 11 and 13, 2006, in the
      office of the Recorder of Deeds in certain counties in the State of Illinois,
      as
      follows:

     

    
      	
              County

               

            	
              Document
                No.

               

            
	
              Cook

            	
              0634231132

            
	
              Adams

            	
              200207661

            
	
              Boone

            	
              2006R13647

            
	
              Bureau

            	
              2006-R07190

            
	
              Carroll

            	
              2006R-5189

            
	
              Champaign

            	
              2006R33801

            
	
              DeKalb

            	
              2006-022746

            
	
              DeWitt

            	
              217551

            
	
              DuPage

            	
              R2006-235746

            
	
              Ford

            	
              237644

            
	
              Grundy

            	
              472045

            
	
              Hancock

            	
              2006-3829

            
	
              Henderson

            	
              163193

            
	
              Henry

            	
              20-0610664

            
	
              Iroquois

            	
              06R5743

            
	
              JoDaviess

            	
              332228

            
	
              Kane

            	
              2006K133305

            
	
              Kankakee

            	
              2006030672

            
	
              Kendall

            	
              200600039633

            
	
              Lake

            	
              2006-00019905

            
	
              LaSalle

            	
              2006-30915

            
	
              Lee

            	
              2006008204

            
	
              Livingston

            	
              576019

            
	
              McHenry

            	
              2006R0089834

            
	
              McLean

            	
              2006-00034217

            
	
              Mercer

            	
              354534

            
	
              Ogle

            	
              0612757

            
	
              Piatt

            	
              327574

            
	
              Pike

            	
              06-4002

            
	
              Rock
                Island

            	
              2006-29338

            
	
              Stephenson

            	
              20060081732

            
	
              Tazewell

            	
              200600028016

            
	
              Vermilion

            	
              06-15773

            
	
              Whiteside

            	
              10283-2006

            
	
              Will

            	
              2006R203956

            
	
              Winnebago

            	
              0673599

            
	
              Woodford

            	
              608607

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