-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ji+rnl4Wu4O+oMcP2ERBOe3ioZ9vR9ZTjx+1TpWejLe4dnwwJZ9PiS3WhjN+K5wP GIMhr7qFQvbC5iq6XCdeJA== 0000110104-96-000008.txt : 19960816 0000110104-96-000008.hdr.sgml : 19960816 ACCESSION NUMBER: 0000110104-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHERN ILLINOIS GAS CO /IL/ /NEW/ CENTRAL INDEX KEY: 0000110104 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 362863847 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07296 FILM NUMBER: 96613157 BUSINESS ADDRESS: STREET 1: 1844 FERRY RD STREET 2: PO BOX 190 CITY: AURORA STATE: IL ZIP: 605070190 BUSINESS PHONE: 7089838888 MAIL ADDRESS: STREET 1: PO BOX 190 CITY: AURORA STATE: IL ZIP: 605070190 FORMER COMPANY: FORMER CONFORMED NAME: NEW UTILITY INC DATE OF NAME CHANGE: 19760716 10-Q 1 SECOND QUARTER REPORT 1996 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1996 or [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-7296 NORTHERN ILLINOIS GAS COMPANY (Exact name of registrant as specified in its charter) Illinois 36-2863847 (State of incorporation) (I.R.S. Employer Identification No.) 1844 Ferry Road Naperville, Illinois 60563-9600 (Address of principal (Zip Code) executive offices) (630)983-8888 (Registrant's telephone number) Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with a reduced disclosure format. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Shares of common stock, par value $5, outstanding at July 31, 1996, were 15,232,414, all of which are owned by NICOR Inc. Northern Illinois Gas Page i Table of Contents Page Part I. Financial Information Item 1. Financial Statements (Unaudited) 1 Consolidated Statement of Income - Three, Six and Twelve Months Ended June 30, 1996 and 1995 2 Consolidated Statement of Cash Flows - Six and Twelve Months Ended June 30, 1996 and 1995 3 Consolidated Balance Sheet - June 30, 1996 and 1995, and December 31, 1995 4 Notes to the Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 1. Legal Proceedings 10 Item 6. Exhibits and Reports on Form 8-K 10 Signature 11 Exhibit Index 12 Selected terms: Ill.C.C. - Illinois Commerce Commission. Mcf, Bcf - Thousand cubic feet, billion cubic feet. Degree days - Number of degrees by which the daily mean temperature falls below 65 degrees Fahrenheit. Northern Illinois Gas Page 1 PART I - Financial Information Item 1. Financial Statements The following condensed unaudited financial statements of Northern Illinois Gas have been prepared by the company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. The condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the company's latest Annual Report on Form 10-K. The information furnished reflects, in the opinion of the company, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. Because of seasonal and other factors, the results for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. Northern Illinois Gas Page 2 Consolidated Statement of Income (Unaudited) (Millions)
Three months ended Six months ended Twelve months ended June 30 June 30 June 30 1996 1995 1996 1995 1996 1995 Operating revenues $ 284.7 $ 208.9 $ 937.2 $ 778.3 $1,471.6 $1,258.8 Operating expenses Cost of gas 157.0 106.0 596.4 481.1 902.5 748.6 Operating and maintenance 37.8 37.3 77.1 75.0 157.2 148.1 Depreciation 18.1 16.0 64.4 57.5 105.7 95.5 Taxes, other than income taxes 24.3 19.0 75.8 65.5 111.2 98.6 Income taxes 13.6 7.9 37.9 29.4 57.2 45.7 250.8 186.2 851.6 708.5 1,333.8 1,136.5 Operating income 33.9 22.7 85.6 69.8 137.8 122.3 Other income (expense) Interest income .1 2.0 .1 2.1 .4 2.6 Other, net .3 .3 .6 .6 1.1 2.2 Income taxes on other income (.1) (.9) (.2) (1.1) (.4) (1.8) .3 1.4 .5 1.6 1.1 3.0 Interest expense Interest on debt, net of amounts capitalized 9.6 8.9 20.1 19.4 38.7 39.1 Other 2.0 .1 2.4 .3 2.9 .1 11.6 9.0 22.5 19.7 41.6 39.2 Net income 22.6 15.1 63.6 51.7 97.3 86.1 Dividends on preferred stock .1 .2 .3 .2 .5 .5 Earnings applicable to common stock $ 22.5 $ 14.9 $ 63.3 $ 51.5 $ 96.8 $ 85.6 Northern Illinois Gas is a wholly owned subsidiary of NICOR Inc. Earnings and dividends per share information is therefore omitted. The accompanying notes are an integral part of this statement.
Northern Illinois Gas Page 3 Consolidated Statement of Cash Flows (Unaudited) (Millions)
Six months ended Twelve months ended June 30 June 30 1996 1995 1996 1995 Operating activities Net income $ 63.6 $ 51.7 $ 97.3 $ 86.1 Adjustments to reconcile net income to net cash flow provided from operating activities: Depreciation 64.4 57.5 105.7 95.5 Deferred income tax expense (benefit) (1.5) 2.6 .9 1.0 Change in working capital items and other: Accounts receivable, less allowances 95.2 115.8 (61.2) 20.7 Gas in storage 42.8 58.3 (8.5) (10.3) Deferred/accrued gas costs (24.5) 54.9 (53.5) 27.4 Accounts payable (64.6) (26.0) 11.7 26.2 Temporary LIFO liquidation 12.0 30.7 (18.7) (19.4) Gas refunds due customers (20.1) 43.3 (41.5) 42.4 Other 10.8 2.8 8.4 (12.9) Net cash flow provided from operating activities 178.1 391.6 40.6 256.7 Investing activities Capital expenditures (42.5) (60.2) (134.5) (165.6) Other - .2 .1 .8 Net cash flow used for investing activities (42.5) (60.0) (134.4) (164.8) Financing activities Net proceeds from issuing long-term debt - - 49.5 99.1 Disbursements to retire long-term debt (50.0) - (100.0) (50.0) Short-term borrowings (repayments), net (42.3) (188.2) 109.3 - Dividends paid (42.7) (37.0) (77.1) (76.6) Other (.6) (.5) (.6) (.2) Net cash flow used for financing activities (135.6) (225.7) (18.9) (27.7) Net increase (decrease) in cash and cash equivalents - 105.9 (112.7) 64.2 Cash and cash equivalents, beginning of period - 6.8 112.7 48.5 Cash and cash equivalents, end of period $ - $ 112.7 $ - $ 112.7 The accompanying notes are an integral part of this statement.
Northern Illinois Gas Page 4 Consolidated Balance Sheet (Unaudited) (Millions)
June 30 December 31 June 30 Assets 1996 1995 1995 Gas distribution plant, at cost $ 2,889.0 $ 2,851.8 $ 2,766.5 Less accumulated depreciation 1,243.1 1,182.2 1,143.1 1,645.9 1,669.6 1,623.4 Other property and investments, net of accumulated depletion of $34.4 8.5 8.4 8.1 Current assets Cash and cash equivalents - Affiliates - - 64.6 - Other - - 48.1 Accounts receivable, less allowances of $7.4, $4.7 and $6.1, respectively 147.6 242.8 86.4 Deferred gas costs 33.2 8.7 - Gas in storage, at last-in, first-out (LIFO) cost 20.2 63.0 11.7 Other 23.9 25.1 23.9 224.9 339.6 234.7 Other assets 66.7 69.1 54.5 $ 1,946.0 $ 2,086.7 $ 1,920.7 Capitalization and Liabilities Capitalization Long-term debt $ 421.4 $ 446.2 $ 446.6 Preferred stock Redeemable 8.6 9.1 9.1 Nonredeemable 1.4 1.4 1.4 Common equity Common stock 76.2 76.2 76.2 Paid-in capital 107.9 107.9 107.9 Retained earnings 512.3 516.0 499.5 1,127.8 1,156.8 1,140.7 Current liabilities Long-term obligations due within one year 25.5 50.5 50.5 Short-term borrowings 109.3 151.6 - Accounts payable 216.4 281.0 204.7 Accrued interest 38.9 37.4 37.7 Temporary LIFO liquidation 12.0 - 30.7 Gas refunds due customers 4.1 24.2 45.6 Accrued gas costs - - 20.3 Other 43.5 14.2 33.4 449.7 558.9 422.9 Deferred credits and other liabilities Deferred income taxes 173.1 172.8 166.6 Regulatory income tax liability 85.1 86.5 88.6 Unamortized investment tax credits 49.8 50.8 51.7 Other 60.5 60.9 50.2 368.5 371.0 357.1 $ 1,946.0 $ 2,086.7 $ 1,920.7 The accompanying notes are an integral part of this statement.
Northern Illinois Gas Page 5 Notes To The Consolidated Financial Statements (Unaudited) ACCOUNTING POLICIES Depreciation. Depreciation is calculated using a straight-line method for the calendar year. For interim periods, depreciation is allocated based on gas deliveries. In April 1996, the composite depreciation rate increased to 4.1 percent from 3.7 percent. Gas in Storage. Gas in storage injections and withdrawals are valued using the last-in, first-out (LIFO) method on a calendar-year basis. For interim periods, the difference between current replacement cost and the LIFO cost for quantities of gas temporarily withdrawn from storage is recorded in cost of gas as a temporary LIFO liquidation. CASH FLOW INFORMATION Income taxes paid, net of refunds, and interest paid, net of amounts capitalized, for the periods ended June 30 were (millions): Six months Twelve months 1996 1995 1996 1995 Income taxes paid $32.9 $20.9 $57.0 $57.0 Interest paid 20.7 19.2 39.7 38.1 REGULATORY MATTERS Rate Proceeding. On April 3, 1996, the Ill.C.C. granted Northern Illinois Gas a $33.7 million general rate increase, of which $12 million relates to the change in the company's composite depreciation rate noted above. The order, effective April 11, 1996, allows the company a rate of return on original-cost rate base of 9.67 percent, which reflects an 11.13 percent cost of common equity. The new rate structure will allow Northern Illinois Gas to recover a larger proportion of its fixed costs during warmer months. The overall result is that the company's earnings will be less sensitive to the effects of weather and the seasonal variations in quarterly earnings will be reduced. In May 1996, the Ill.C.C. denied requests for rehearing filed by several parties including Northern Illinois Gas. The company and other parties have subsequently appealed the Ill.C.C.'s order to the Third District Appellate Court of Illinois. LONG-TERM DEBT On August 13, 1996, the company issued $75 million of 6.45% First Mortgage Bonds due in 2001. The net proceeds of the sale replenished general corporate funds which were used for the March 1996 maturity of $50 million of 4-1/2% First Mortgage Bonds and the completion of the Elgin-Volo pipeline project. Northern Illinois Gas Page 6 Notes To The Consolidated Financial Statements (Unaudited) (Concluded) CONTINGENCIES The company is involved in legal or administrative proceedings before various courts and agencies with respect to rates, taxes and other matters. Until the early 1950s, manufactured gas facilities were operated in the Northern Illinois Gas service territory. Manufactured gas is now known to have created various by-products that may still be present at these sites. Current environmental laws may require cleanup of these former manufactured gas plant sites. The company has identified up to 40 properties in its service territory believed to be the location of such sites. Of these 40 properties, Northern Illinois Gas currently owns 15 and formerly owned or leased 13. The remaining properties were never owned or leased by the company. Information has been presented to the Illinois Environmental Protection Agency regarding preliminary reviews of the company's currently owned and formerly owned or leased properties. More detailed investigations are either currently in progress or planned at many of these sites. At certain sites, the current owners are seeking to allocate cleanup costs to former owners or lessees, including Northern Illinois Gas. The results of continued testing and analysis should determine to what extent remediation is necessary and may provide a basis for estimating any additional future costs which, based on industry experience, could be significant. Costs are currently being recovered pursuant to Ill.C.C. authorization. On December 20, 1995, Northern Illinois Gas filed suit against certain insurance carriers in the Circuit Court of Cook County. This suit seeks to declare the insurance carriers liable under policies in effect primarily between the years 1954 and 1985 for costs incurred or to be incurred for environmental cleanup of former manufactured gas plant sites. Presently, management cannot predict the timing or outcome of this lawsuit. Any recoveries from such litigation or other sources will be flowed back to the company's customers. Although unable to determine the outcome of these contingencies, management believes that appropriate accruals have been recorded. Final disposition of these matters is not expected to have a material impact on the company's financial condition or results of operations. Northern Illinois Gas Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Management's Discussion and Analysis section of the Northern Illinois Gas 1995 Annual Report on Form 10-K. RESULTS OF OPERATIONS Net income for the three-, six- and twelve-month periods ended June 30, 1996, rose $7.5 million to $22.6 million, $11.9 million to $63.6 million and $11.2 million to $97.3 million, respectively, from the corresponding 1995 periods. For the three-month period, the increase was due primarily to the impact of a 2.8 percent general rate increase along with rate design changes which shift some revenues from cold-weather months to warm-weather months. For the six- and twelve-month periods, the increase was due primarily to the positive impact of higher deliveries. The April 1996 rate case result also contributed to the improvements. Operating revenues increased $75.8 million, $158.9 million and $212.8 million for the three-, six- and twelve-month periods, respectively, due primarily to increased deliveries and higher natural gas costs which are passed through to sales customers. Increased deliveries were attributable to the positive impact of colder weather and demand growth. Margin, defined as operating revenues less cost of gas and revenue taxes, is shown in the following table for the periods ended June 30. Margin increased in each period due primarily to higher deliveries and the impact of the general rate increase. Margin per Mcf delivered for the three-month period rose sharply as a result of the general rate increase along with rate design changes which shift some revenues from cold-weather months to warm- weather months. Three months Six months Twelve months 1996 1995 1996 1995 1996 1995 Margin (Millions) $106.8 $ 87.2 $275.7 $241.9 $476.1 $429.8 Margin per Mcf delivered 1.13 1.00 .85 .83 .85 .87 Operating and maintenance expense increased $9.1 million for the twelve- month period due primarily to higher administrative and general costs. Depreciation expense increased in each period due primarily to the change in the plant composite depreciation rate and plant additions. For further information on the change in the plant composite depreciation rate, see Accounting Policies on page 5. Interest income decreased in each period due to lower investment levels. Interest expense increased in each period due primarily to higher interest on income tax adjustments. The effective income tax rate rose to 37.2 percent from 35.5 percent for the twelve-month period due primarily to less excess deferred taxes turning around. Northern Illinois Gas Page 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) FINANCIAL CONDITION Net cash flow from operating activities decreased $213.5 million and $216.1 million for the six- and twelve-month periods, respectively, due to the timing of gas cost recoveries, the impact of a 1995 gas pipeline refund and a return to normal levels of customer advance payments. Net cash flow from operations may fluctuate widely from one interim period to another due to the seasonal nature of Northern Illinois Gas' business. The company generally relies on short-term financing to meet temporary working capital needs. The company maintains short-term credit agreements with major domestic and foreign banks. At June 30, 1996, these agreements, which serve as backup for the issuance of commercial paper, totaled $250 million, and the company had $109.3 million of commercial paper outstanding. At June 30, 1996, the unused lines of credit under these credit agreements were $140.7 million. On August 13, 1996, the company issued $75 million of 6.45% First Mortgage Bonds due in 2001. The net proceeds of the sale replenished general corporate funds which were used for the March 1996 maturity of $50 million of 4-1/2% First Mortgage Bonds and the completion of the Elgin-Volo pipeline project. RATE PROCEEDING On April 3, 1996, the Ill.C.C. granted Northern Illinois Gas a $33.7 million, 2.8 percent general rate increase effective April 11, 1996. For further information, see Regulatory Matters on page 5. Northern Illinois Gas Page 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Concluded) OPERATING STATISTICS Changes in weather can materially affect operating results. Operating revenues, deliveries, weather statistics and other data are presented below.
Three months ended Six months ended Twelve months ended June 30 June 30 June 30 1996 1995 1996 1995 1996 1995 Operating revenues (Millions): Sales Residential $ 181.7 $ 131.7 $ 599.2 $ 499.5 $ 949.5 $ 812.2 Commercial 45.9 31.9 163.3 132.6 248.6 213.7 Industrial 7.4 4.7 30.5 23.0 43.3 35.7 235.0 168.3 793.0 655.1 1,241.4 1,061.6 Transportation Commercial 10.6 8.6 31.0 27.8 53.4 45.5 Industrial 11.7 13.5 29.6 32.5 59.7 56.5 22.3 22.1 60.6 60.3 113.1 102.0 Revenue taxes and other 27.4 18.5 83.6 62.9 117.1 95.2 $ 284.7 $ 208.9 $ 937.2 $ 778.3 $1,471.6 $1,258.8 Deliveries (Bcf): Sales Residential 35.8 33.1 150.8 133.1 249.2 210.1 Commercial 9.2 8.3 41.1 35.3 65.1 55.9 Industrial 1.6 1.4 8.3 6.6 12.2 10.1 46.6 42.8 200.2 175.0 326.5 276.1 Transportation Commercial 11.3 9.2 45.2 34.4 74.8 56.5 Industrial 36.7 35.3 78.8 83.2 161.2 159.3 48.0 44.5 124.0 117.6 236.0 215.8 94.6 87.3 324.2 292.6 562.5 491.9 Gas cost per Mcf sold $ 3.29 $ 2.35 $ 2.91 $ 2.66 $ 2.68 $ 2.63 Weather statistics: Degree days 801 726 4,004 3,692 6,423 5,535 Percent colder (warmer) than normal 16.4 5.8 4.1 (4.3) 5.2 (9.8) Customers at end of period (Thousands): Sales Residential 1,668.3 1,638.7 Commercial 140.5 140.6 Industrial 11.5 11.5 1,820.3 1,790.8 Transportation Commercial 17.8 16.1 Industrial 2.6 2.4 20.4 18.5 1,840.7 1,809.3
Northern Illinois Gas Page 10 PART II - Other Information Item 1. Legal Proceedings For information concerning legal proceedings, see Regulatory Matters and Contingencies in Notes to the Consolidated Financial Statements beginning on page 5, which are incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K (a) See Exhibit Index on page 12 filed herewith. (b) The company did not file a report on Form 8-K during the second quarter of 1996. Northern Illinois Gas Page 11 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Northern Illinois Gas Company Date August 14, 1996 By DAVID L. CYRANOSKI David L. Cyranoski Senior Vice President, Secretary and Controller Northern Illinois Gas Page 12 Exhibit Index Exhibit Number Description of Document 1.01 Underwriting Agreement, dated August 6, 1996, between the company and PaineWebber Incorporated. 4.01 Supplemental Indenture, dated May 10, 1996, of the company to Harris Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954. 4.02 Supplemental Indenture, dated August 1, 1996, of the company to Harris Trust and Savings Bank, Trustee, under Indenture dated as of January 1, 1954. 12.01 Computation of Consolidated Ratio of Earnings to Fixed Charges. 27.01 Financial Data Schedule. EX-1.01 2 UNDERWRITING AGREEMENT NORTHERN ILLINOIS GAS COMPANY FORM 10-Q EXHIBIT 1.01 NORTHERN ILLINOIS GAS COMPANY $75,000,000 FIRST MORTGAGE BONDS 6.45% SERIES DUE AUGUST 1, 2001 UNDERWRITING AGREEMENT PaineWebber Incorporated 1285 Avenue of the Americas New York, New York 10019 August 6, 1996 Dear Sirs: Northern Illinois 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 the Underwriter named in Schedule I hereto (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, the principal amount of Bonds set forth opposite the name of such Underwriter in Schedule I hereto 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): 6.45% (such rate to be a multiple of .001%) Maturity date of the Bonds: August 1, 2001 Price to be paid to the Company for the Bonds: 99.224% of the principal amount of the Bonds (not less than 99%) plus accrued interest from date of Supplemental Indenture to the date of delivery of the Bonds. Initial public offering price of the Bonds: The Underwriter proposes to offer the Bonds from time to time for sale in one or more negotiated transactions, or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. 1 Place for delivery of Bonds: The Depository Trust Company 55 Water Street New York, NY 10004 Date and time of Time of Delivery: August 13, 1996 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: Any redemption provisions will be as set forth on Schedule II hereto. No sinking fund will be provided. Address for notices per Section 12 of the General Terms and Conditions of Underwriting Agreement: PaineWebber Incorporated 1285 Avenue of the Americas 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 Vice President The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. PaineWebber Incorporated By Title 2 SCHEDULE I Name of Underwriter Principal Amount of Bonds PaineWebber Incorporated $75,000,000 SCHEDULE II Redemption. The Bonds may not be called for redemption by the Company prior to August 1, 2000. On August 1, 2000 and thereafter until maturity on August 1, 2001, the Bonds may be redeemed at the Company's option, on not less than 30 nor more than 45 days notice, as a whole at any time, or in part from time to time, at 100% of the principal amount thereof plus accrued and unpaid interest to the date fixed for redemption. 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 $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 Harris Trust and Savings Bank, 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 and May 10, 1996 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. 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 April 18, 1994 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. 2 (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, 1995 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. 3 (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. 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. 4 (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 and to arrange for the determination of the legality of the Bonds for purchase by institutional investors; 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 5 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 Agree- ment, 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 and any Legal Investment Memorandum (such fees of Underwriters' counsel not to exceed $6,500 in the aggregate), (iv) any fees charges 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 and any Legal Investment Memorandum. 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, 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 6 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 7 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 notes 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 8 (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 amounts set forth in ''Summary Information-Consolidated Financial Information'' and any other 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 and 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 9 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 requir- ed 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 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 10 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 expense 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 11 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) 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 12 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 or 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 Donald W. Lohrentz, Vice President and Treasurer. Section 13. Parties. The Underwriting Agreement shall insure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in the 13 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. 14 EX-4.01 3 SUPPLEMENTAL INDENTURE DATED MAY 10, 1996 NORTHERN ILLINOIS GAS COMPANY FORM 10-Q EXHIBIT 4.01 Supplemental Indenture DATED MAY 10, 1996 NORTHERN ILLINOIS GAS COMPANY TO HARRIS TRUST AND SAVINGS BANK (successor to BANK OF AMERICA ILLINOIS) TRUSTEE UNDER INDENTURE DATED AS OF JANUARY 1, 1954 AND SUPPLEMENTAL INDENTURES THERETO AMENDMENTS TO ARTICLES I, IV, VI, X, XVII and XIX This instrument was prepared by Richard J. Lannon, 1844 Ferry Road, Naperville, Illinois 60563-9600. This Supplemental Indenture, dated the tenth day of May, 1996, between Northern Illinois Gas Company, a corporation organized and existing under the laws of the State of Illinois (hereinafter called the ''Company''), and Harris Trust and Savings Bank, an Illinois banking corporation (hereinafter called the ''Trustee''), as 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 and October 15, 1995, such Indenture dated as of January 1, 1954, as so supplemented, being hereinafter called the ''Indenture.'' Witnesseth: Whereas, the Trustee has become fully vested with all estates, authority, rights, trusts, powers, duties and obligations of Bank of America Illinois under the Indenture pursuant to that certain Instrument of Resignation, Appointment and Acceptance dated as of January 26, 1996, attached hereto as Exhibit A, and Section 17.07 of the Indenture; and Whereas, the Company desires to amend the Indenture and has requested that the Trustee join it in the execution and delivery of this Supplemental Indenture in order to amend the Indenture as set forth herein; and Whereas, this Supplemental Indenture is being entered into pursuant to Section 20.01(d) of the Indenture which provides that supplemental indentures may be entered into by the Company and the Trustee to modify any of the provisions of the Indenture for the purpose of relieving the Company from any of the obligations, conditions or restrictions contained therein, subject to the provisions of Section 19.07 of the Indenture relating to approval of such modification by a vote of bondholders; 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 2 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 considerations, the receipt of which is hereby acknowledged, it is agreed by and between the Company and the Trustee as follows: ARTICLE ONE Modifications of Indenture Section 1. The definition of ''Board of Directors'' in Section 1.09 of the Indenture is hereby deleted in its entirety and replaced by the following: The term ''Board of Directors'' shall mean either the Board of Directors of the Company or any duly authorized committee of the Board of Directors. Section 2. The definition of ''authorized newspaper'' in Section 1.31 of the Indenture is hereby deleted in its entirety and replaced by the following: The term ''authorized newspaper'', when used in connection with the name of a particular city, shall mean a newspaper printed in the English language, of general circulation in such city and customarily published at least once in each of five days (except in case of legal holidays) in each calendar week. Section 3. The definition of ''office of the Trustee'' in Section 1.32 of the Indenture is hereby deleted in its entirety and replaced by the following: The term ''office of the Trustee'' shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. Section 4. Article IV of the Indenture is hereby amended by adding a new Section 4.17 to read as follows: Section 4.17. All determinations and authorizations required or permitted by this Article IV to be made by the Board of Directors may be made by any duly authorized officer or officers of the Company if a resolution permitting such officer or officers to make such determinations or authorizations in lieu of the Board of Directors is delivered to the Trustee. Any determination or authorization made by such officer or officers pursuant to 3 such resolution shall be evidenced by a written instrument signed by such officer or officers and delivered to the Trustee. Section 5. Section 6.04 of the Indenture is hereby deleted in its entirety and replaced by the following: Upon application by the Company to the Trustee for the authentication and delivery of bonds under the provisions of Section 6.05, 6.06 or 6.07, the Company shall deliver to the Trustee the following: (a) a resolution authorizing the execution and issuance of and requesting the Trustee to authenticate and deliver bonds, specifying the principal amount and series thereof, and any other matters with respect thereto required or permitted by this Indenture or a resolution permitting one or more officers of the Company to authorize the execution and issuance of bonds together with a written instrument signed by such officer or officers requesting the Trustee to authenticate and deliver bonds; (b) if an interim certificate is not filed in connection with the particular application for the authentication and delivery of bonds, an officers' certificate stating that to the knowledge of the signers the Company is not in default under any of the provisions of this Indenture, and that all conditions precedent provided for in this Indenture relating to the authentication and delivery of the bonds applied for have been complied with; (c) an opinion of counsel stating, in the signer's opinion, (1) that the issuance of such bonds has been duly authorized by the necessary corporate action and by any and all governmental authorities the consent of which is required for the legal issuance of such bonds, and specifying any officially authenticated orders or other documents by which such consent is or may be evidenced, or that no such consent is required; (2) that, since the date of the last previous opinion of counsel filed with the Trustee pursuant to the provisions of this Article VI, or since the actual date of execution and delivery of this Indenture in the case of the first such opinion filed under this Article VI, none of the mortgaged property has become subject to any lien or encumbrance prior to the lien of this Indenture as security for the additional bonds then applied for, except (i) permitted liens and (ii) prior liens on property, including additions thereto, acquired by the Company after January 31, 1954; and (3) if an interim certificate is not filed in connection with the particular application for the authentication and delivery of bonds, that all conditions precedent provided for in this Indenture relating to the authentication and delivery of the bonds applied for have been complied with; 4 (d) the officially authenticated orders or other documents, if any, specified in such opinion of counsel; and (e) in case such bonds constitute the initial issue of bonds of a particular series, a supplemental indenture of the character referred to in Section 4.02. Section 6. Section 10.03 of the Indenture is hereby deleted in its entirety and replaced by the following: Unless the Company is in default under any of the provisions of this Indenture, the Company may, if deemed desirable in the conduct of its gas utility business, sell or otherwise dispose of at any time, under and subject to the provisions of this Section 10.03, any part of the mortgaged property, and the Trustee shall from time to time release from the lien hereof any part of the mortgaged property so sold or otherwise disposed of, or contracted to be so sold or otherwise disposed of, upon receipt by the Trustee of the following: (a) a resolution requesting such release and stating that such release is, in the opinion of the Board of Directors, desirable in the conduct of the gas utility business of the Company (provided that no such resolution need be furnished if the fair value of the property to be released, as stated in the engineer's certificate specified under (f) of this Section 10.03, is not more than $300,000); (b) an officers' certificate stating: (1) that the property to be released has been sold or otherwise disposed of or contracted to be sold or otherwise disposed of, such property to be described in reasonable detail; (2) the amount of the consideration received or to be received for the property to be released which shall be the sum of (i) the amount of any cash received or to be received, (ii) the principal amount of any purchase money obligations received or to be received, (iii) the principal amount of any obligations assumed or to be assumed by the purchaser, (iv) the fair value, as stated in an independent appraiser's certificate, of any securities, other than purchase money obligations, received or to be received, and (v) the fair value, as stated in an independent engineer's certificate, of any property, other than securities, received or to be received, after deducting from such sum, at the election of the Company, the fair value, as stated in an independent engineer's certificate, of any property excepted from the lien of this Indenture and sold or otherwise disposed of or contracted to be sold or otherwise disposed of in the same transaction but not for a separate consideration; and 5 (3) that to the knowledge of the signers the Company is not in default under any of the provisions of this Indenture, and that all conditions precedent provided for in this Indenture relating to such release have been complied with; (c) in case the determination of the amount of the consideration received or to be received for the property to be released shall require the stating of the fair value of securities received or to be received, an independent appraiser's certificate stating, in the signer's opinion, the fair value, as of a date within sixty days of the date of such application, of such securities; (d) in case the determination of the amount of the consideration received or to be received for the property to be released shall require the stating of the fair value of property, other than securities, received or to be received, an independent engineer's certificate stating, in the signer's opinion, the fair value, as of a date within sixty days of the date of such application, of such property; (e) in case the determination of the amount of the consideration received or to be received for the property to be released shall require the stating of the fair value of property excepted from the lien of this Indenture and sold or otherwise disposed of or contracted to be sold or otherwise disposed of in the same transaction but not for a separate consideration, an independent engineer's certificate stating, in the signer's opinion, the fair value, as of a date within sixty days of the date of such application, of such excepted property; (f) an engineer's certificate stating, in the signer's opinion, the fair value, as of a date within sixty days of the date of such application, of the property to be released, which fair value, as stated in such certificate, shall not be less than the amount of the consideration received or to be received for the property to be released, and that such release will not impair the security under this Indenture in contravention of the provisions hereof; (g) in case the fair value of the property to be released, as shown by the engineer's certificate specified under (f) of this Section 10.03, is 1% or more of the aggregate principal amount of the bonds outstanding at the time of such application, an independent engineer's certificate stating, in the signer's opinion, the fair value, as of a date within sixty days of the date of such application, of the property to be released, which fair value, as stated in such certificate, shall not be less than the amount of the consideration received or to be received for the property to be released, and that such release will not impair the security under this Indenture in contravention of the provisions hereof; 6 (h) cash in an amount, subject to reduction as permitted under Section 10.04, equal to the fair value of the property to be released as stated in the engineer's certificate specified under (f) of this Section 10.03, or as stated in the independent engineer's certificate, if any, filed pursuant to (g) of this Section 10.03 if such fair value as stated in such independent engineer's certificate shall be greater than such fair value as stated in such engineer's certificate; and (i) an opinion of counsel stating, in the signer's opinion, that all conditions precedent provided for in this Indenture relating to such release have been complied with. All cash deposited with the Trustee pursuant to the provisions of this Section 10.03 shall be held by the Trustee as a part of the mortgaged property, and shall be paid over, withdrawn, used or applied in the manner, to the extent, for the purposes and subject to the conditions set forth in Section 11.03. Section 7. Section 17.05 of the Indenture is hereby deleted in its entirety and replaced by the following: If the Trustee shall at any time cease to be a bank or trust company in good standing organized and doing business under the laws of the United States or of any State, and having a combined capital and surplus of not less than $5,000,000, which is authorized under the laws of the jurisdiction of incorporation to exercise corporate trust powers and is subject to supervision or examination by Federal or State authority, then the Trustee shall resign within thirty days thereafter, such resignation to become effective upon the appointment of a successor Trustee and such successor's acceptance of such appointment. If the Trustee publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, the combined capital and surplus of the Trustee shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If the Trustee shall fail or refuse to resign within such period, or if the Trustee has or shall acquire any conflicting interest of the character specified in Section 17.04 and shall fail or refuse either to eliminate such conflicting interest or to resign within the period in Section 17.04 provided in respect of such resignation, then (a) the Trustee shall, within ten days after the expiration of such period, transmit notice of such failure or refusal to the bondholders in the manner and to the extent provided under Section 17.10(c); and (b) any bondholder who has been the bona fide holder of a bond for at least six months may, subject to the provisions of Section 13.20, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor, if the Trustee fails, after written 7 request therefor by such bondholder, to comply with the provisions of Section 17.04. Section 8. Section 17.06 of the Indenture is hereby deleted in its entirety and replaced by the following: The Trustee and any successor to the Trustee may resign and be discharged from the trust created by this Indenture by giving notice thereof in writing to the Company, specifying the date when such resignation shall take effect, and by giving notice thereof to the bondholders, in the manner and to the extent provided under Section 17.10(c), and, unless all bonds then outstanding are registered bonds without coupons, by publishing such notice at least once a week for three successive calendar weeks (the first such publication to be not less than thirty days nor more than sixty days prior to the effective date of such resignation) in one authorized newspaper in the City of Chicago, State of Illinois, and in one authorized newspaper in the Borough of Manhattan, The City of New York, State of New York. Subject to the provisions of Sections 17.04 and 17.05, such resignation shall take effect on the date specified in such notice unless previously a successor Trustee shall have been appointed as hereinafter provided, in which event such resignation shall take effect upon the appointment of such successor Trustee. The Trustee or any successor Trustee may be removed at any time by the holders of a majority in principal amount of the bonds at the time outstanding, upon payment to the Trustee so removed of all moneys then due to it hereunder, by an instrument or concurrent instruments in writing, signed in duplicate by such holders. One copy shall be filed with the Company and the other with the Trustee so removed. In case at any time the Trustee or any successor Trustee shall resign, be dissolved or be removed or otherwise shall become disqualified to act or incapable of acting, or in case control of the Trustee or of any successor Trustee, or of its officers shall be taken over by any public officer or officers, the Company, by an instrument in writing, executed by order of the Board of Directors, shall appoint a successor Trustee. Every successor Trustee shall be a bank or trust company in good standing organized and doing business under the laws of the United States or of any State, and (a) which shall be a corporation having a combined capital and surplus of not less than $5,000,000, (b) which shall be authorized under the laws of the jurisdiction of incorporation to exercise corporate trust powers, and (c) which shall be subject to supervision or examination by a Federal or State authority. If such successor Trustee publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, the combined capital and surplus of such successor 8 Trustee shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If in a proper case no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XVII within six months after a vacancy shall have occurred in the office of Trustee, the holder of any bond or the retiring Trustee may apply to any court, State or Federal, having jurisdiction to appoint a successor Trustee, and such court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee. Section 9. Section 17.07 of the Indenture is hereby deleted in its entirety and replaced by the following: Any successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor Trustee and also to the Company, an instrument in writing accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all the estates, authority, rights, trusts, powers, duties and obligations of its predecessor Trustee and be entitled to the immediate delivery by such predecessor Trustee of any part of the mortgaged property in the hands or under the control of such predecessor Trustee and all the estate, right, title and interest of such predecessor Trustee in the mortgaged property shall wholly cease and determine; but the Trustee ceasing to act shall nevertheless, on the written request of the Company or of the successor Trustee, execute, acknowledge and deliver an appropriate instrument in writing transferring to such successor Trustee upon the trusts herein expressed, all the estates, properties, rights, powers and trusts of the predecessor Trustee so ceasing to act (but may retain and reserve its lien upon the mortgaged property for its reasonable compensation and expenses, if any thereof remain unpaid), and shall duly assign, transfer and deliver all property and cash held by such Trustee to the successor Trustee, it being understood that all securities, cash and other pledged property the custody of which is given to the Trustee shall always be in its custody or in that of its proper successor in trust. Should any deed, conveyance or instrument in writing from the Company be required by the successor Trustee for more fully and certainly vesting in, and confirming to, such successor Trustee such estates, rights, powers and duties, any and all such deeds, conveyances and instruments in writing shall be executed, acknowledged and delivered by the Company to the successor Trustee upon the latter's request. The Company shall promptly give notice of the appointment of any successor Trustee to the bondholders in the manner and to the extent provided under Section 17.10(c) and, unless all bonds then outstanding are registered bonds without coupons, by publishing such notice at least once in each week for two successive calendar weeks in one authorized newspaper in the City of 9 Chicago, State of Illinois, and in one authorized newspaper in the Borough of Manhattan, The City of New York, State of New York. Section 10. Section 19.08 of the Indenture is hereby deleted in its entirety and replaced by the following: A record in duplicate of the proceedings of each meeting of bondholders shall be prepared by the permanent Secretary of the meeting and shall have attached thereto the original reports of the inspectors of votes, and an affidavit by a person having knowledge of the facts setting forth a copy of the notice or waiver of notice of the meeting and, in the case of any adjournment for more than fourteen days, a copy of the notice or waiver of notice of adjournment thereof, and showing that such notice or notices, unless waived, were given as hereinabove provided. Such record shall be signed and verified by the affidavits of the permanent Chairman and the permanent Secretary of the meeting, and by a duly authorized representative of the Trustee if such a representative shall have been present at the meeting, and one copy thereof shall be delivered to the Company and the other to the Trustee for preservation by the Trustee. Any record so signed and verified shall be proof of the matters therein stated until the contrary is proved, and the meeting to which such record relates shall be deemed conclusively to have been duly convened and held, and any resolution or proceeding stated in such record to have been adopted or taken shall be deemed conclusively to have been duly adopted or taken at such meeting. No resolution adopted at such meeting shall be binding unless the subject matter of such resolution is within the scope of the business stated in the notice, if any, of such meeting given pursuant to the provisions of Section 19.02, and unless and until such resolution shall have been approved by resolution of the Board of Directors. Such resolution, if adopted by the Board of Directors, shall be filed by the Company with the Trustee and from and after the date of such filing such resolution shall be deemed conclusively to be binding upon the Company, the Trustee and the bondholders; provided, however, that no such resolution adopted at a meeting of the bondholders and no such resolution of approval adopted by the Board of Directors shall in any manner be construed so as to change or modify any of the rights, immunities or obligations of the Trustee without its written assent thereto. Copies of any resolution, or of a summary thereof, adopted at such meeting of bondholders, if approved by resolution of the Board of Directors as above provided, shall be mailed by the Trustee to bondholders in the manner and to the extent provided under Section 17.10(c), and proof of such mailing by the affidavit of a person having knowledge of the facts shall be filed with the Trustee, and, unless all of the bonds then outstanding are registered bonds without coupons, a copy or summary of such resolution shall be published by the Company in one authorized newspaper in the City of Chicago, State of Illinois, and in one authorized newspaper in the Borough of Manhattan, The 10 City of New York, State of New York, at least once in each of two successive calendar weeks, the first publication to be not more than fifteen days after the approval of such resolution by the Board of Directors; provided, however, that the mailing of copies of such resolution or of such summary shall in no case be a condition precedent to the validity or effectiveness of such resolution, and neither failure to mail such copies nor any imperfection or defect therein shall affect the validity or effectiveness of such resolution. Section 11. Article XIX of the Indenture is hereby amended by adding a new Section 19.11 to read as follows: Section 19.11. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by bondholders (including any action required or permitted by the provisions of this Article XIX to be taken at a meeting of bondholders) may be given or taken without a meeting of bondholders if embodied in and evidenced by one or more written instruments of substantially similar tenor signed by such bondholders in person or by agent or proxy duly appointed in writing; and except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee. Subject to the provisions of Section 17.02, proof of the execution of any instrument by a bondholder or the agent or proxy for such bondholder shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. ARTICLE TWO Miscellaneous Provisions Section 1. This Supplemental Indenture is executed by the Company and the Trustee pursuant to provisions of Section 20.01 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 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. 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. 11 In Witness Whereof, Northern Illinois Gas Company has caused this Supplemental Indenture to be executed in its name by its President or a Vice President, and its corporate seal to be hereunto affixed and attested by its Secretary or its Assistant Secretary, and Harris Trust and Savings Bank, as Trustee under the Indenture, has caused this Supplemental Indenture to be executed in its name by a Vice President, and its seal to be hereunto affixed and attested by its Assistant Secretary, all as of the day and year first above written. Northern Illinois Gas Company By Vice President Attest: Assistant Secretary Harris Trust and Savings Bank, as Trustee By Vice President Attest: Assistant Secretary 12 State of Illinois} ss: County of DuPage} I, Beth A. Aussem, Notary Public in the State aforesaid, Do Hereby Certify that Richard J. Lannon, Vice President and Treasurer of Northern Illinois Gas Company, an Illinois corporation, one of the parties described in and which executed the foregoing instrument, and Alexander C. Allison, 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 and Assistant Secretary, respectively, and who are both personally known to me to be the Vice President and the 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 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 th day of June A.D. 1996. Notary Public My Commission expires March 23, 1999. 13 State of Illinois} ss: County of Cook} I, Kimberley Lange, a Notary Public in and for said County, in the State aforesaid, Do Hereby Certify that J. Bartolini, Vice President of Harris Trust & Savings, an Illinois banking corporation, one of the parties described in and which executed the foregoing instrument, and D. G. Donovan, Assistant Secretary of said banking 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 and Assistant Secretary, respectively, and who are both personally known to me to be a Vice President and an Assistant Secretary, respectively, of said banking 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 and Assistant Vice President, respectively, of said banking corporation, and as the free and voluntary act of said banking corporation, for the uses and purposes therein set forth. Given under my hand and notarial seal this th day of June A.D. 1996. Notary Public My Commission expires December 14, 1997. 14 RECORDING DATA This Supplemental Indenture was recorded , in the office of the Recorder of Deeds in certain counties in the State of Illinois, as follows: County Book Page Document No. Adams Boone Bureau Carroll Champaign Cook DeKalb DeWitt Microfilm DuPage Ford Grundy Hancock Henderson Henry Iroquois Jo Daviess Kane Kankakee Kendall Lake La Salle Lee Livingston McHenry McLean Microfilm Mercer Ogle Piatt Pike Rock Island Stephenson Tazewell Vermilion Whiteside Will Winnebago Woodford Exhibit A INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE This INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE (this "Instrument"), dated as of January 26, 1996 (the "Execution Date"), by and among Northern Illinois Gas Company, a corporation duly organized and existing under the laws of the State of Illinois (the "Company"), Bank of America Illinois, an Illinois state banking corporation (the "Resigning Trustee") and Harris Trust and Savings Bank, an Illinois state banking corporation (the "Successor Trustee"). WHEREAS, Commonwealth Edison Company and the Resigning Trustee (formerly known as Continental Illinois National Bank and Trust Company of Chicago) entered into an indenture, dated as of January 1, 1954, as amended and supplemented (the "Indenture") which Indenture was adopted by a predecessor of the Company pursuant to an Indenture of Adoption dated February 9, 1954; WHEREAS, the Indenture provides for the issuance from time to time thereunder, in series, of bonds of the Company for its lawful corporate purposes (the "Bonds"); and WHEREAS, the Resigning Trustee has been acting as Trustee, paying agent, registrar and transfer agent under the Indenture; and WHEREAS, Section 17.06 of the Indenture provides that the Trustee may resign and be discharged of the trust created by the Indenture by giving notice thereof in writing to the Company specifying the date when such resignation shall take effect, and by giving notice thereof to the bondholders, in accordance with Section 17.10(c) of the Indenture; and WHEREAS, the Resigning Trustee hereby notifies the Company in writing of its resignation to become effective as of February 26, 1996; and WHEREAS, Section 17.06 of the Indenture provides that in case the Trustee shall resign, the Company by an instrument in writing executed by order of the Board of Directors shall appoint a successor Trustee; and WHEREAS, Section 17.06 of the Indenture provides every successor Trustee shall be qualified under the provision of such Section; and WHEREAS, Section 17.07 of the Indenture provides that any successor Trustee appointed under the Indenture shall execute, acknowledge and deliver to its predecessor Trustee and also to the Company an instrument in writing accepting such appointment and thereupon such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all the estates, 1 authority, rights, trusts, powers, duties and obligations of the Resigning Trustee; and NOW, THEREFORE, pursuant to the Indenture and in consideration of the covenants herein contained, it is agreed as follows (words and phrases not otherwise defined in this Instrument shall have the meaning given thereto in the Indenture): THE RESIGNING TRUSTEE 1. Pursuant to the terms of the Indenture, the Resigning Trustee here- by notifies the Company that the Resigning Trustee is resigning as Trustee under the Indenture effective as of February 26, 1996 (the "Effective Date"). 2. Effective as of the Effective Date, the Resigning Trustee hereby assigns, transfers, delivers and confirms to the Successor Trustee all of its estates, authority, rights, trusts, powers, duties and obligations of the Resigning Trustee under the Indenture. 3. The Resigning Trustee agrees to execute and deliver such further instruments and shall take such further actions as the Successor Trustee or the Company may reasonably request so as to more fully and certainly vest and confirm in the Successor Trustee all the estates, authority, rights, trusts, powers, duties and obligations hereby assigned, transferred, delivered and confirmed to the Successor Trustee, including without limitation, the execution and delivery of any instruments required to re-perfect all liens that it may have on the trust in the name of the Successory Trustee. 4. Promptly after the execution and delivery of this Instrument, the Resigning Trustee shall cause notice of its resignation, effected hereby to be given as is required purusant to Section 17.06 of the Indenture. 5. Promptly after the Effective Date, the Resigning Trustee shall provide the governing documents to the Successor Trustee. THE COMPANY 1. Effective as of the Effective Date, the Company hereby accepts the resignation of the Resigning Trustee and appoints the Successor Trustee as successor in trust under the Indenture and confirms to the Successor Trustee all of the estates, authority, rights, trusts, powers, duties and obligations of the Trustee under the Indenture. 2 2. The Company agrees to execute and deliver such further instruments and to take such further action as the Successor Trustee may reasonably request so as to more fully and certainly vest and confirm in the Successor Trustee all the estates, authority, rights, trusts, powers, duties and obligations hereby assigned, transferred, delivered and confirmed to the Successor Trustee. 3. The Company hereby represents and warrants that to the best knowledge of the Company there has been no notice of a completed default and no event which, after notice or lapse of time or both, would become a completed default under the terms of the Indenture, as of the Effective Date. 4. The Company agrees to give, or cause to be given, prompt notice of the appointment of the Successor Trustee to the bondholders in accordance with Section 17.07 of the Indenture. THE SUCCESSOR TRUSTEE 1. Effective as of the Effective Date, the Successor Trustee hereby accepts its appointment as successor Trustee under the Indenture and shall be vested with all the estates, authority, rights, trusts, powers, duties and obligations of the Trustee under the Indenture. 2. The Successor Trustee hereby represents that it is qualified and eligible under the provisions of Section 17.06 of the Indenture to be appoited successor Trustee and hereby accepts the appointment as Successor Trustee and agrees that upon the signing of this Instrument it shall become vested with all of the estates, authority, rights, trusts, powers, duties and obligations of the Resigning Trustee as Trustee with respect to all series of Bonds with like effect as if originally named as Trustee under the Indenture. 3. The Successor Trustee shall perform such functions as paying agent, registrar and transfer agent pursuant to the terms of the Indenture at its Corporate Trust Office in Chicago, Illinois, where notices and demands to or upon the Company in respect of the Bonds or the Indenture may be served, or the Bonds may be presented or surrendered for payment and where the Bonds may be surrendered for exchange or registration of transfer. 3 MISCELLANEOUS 1. (a) Notwithstanding the resignation of the Resigning Trustee as trustee under the Indenture, the Company shall remain obligated under the Indenture to compensate, reimburse and indemnify the Resigning Trustee in connection with its trusteeship under the Indenture prior to the date hereof pursuant to the terms of the Indenture. (b) The Resigning Trustee agrees to indemnify and save the Successor Trustee harmless against any and all costs, claims, liabilities, expenses, losses or damages whatsoever (including all reasonable fees, expenses and disbursements of counsel, auditors or other agents or expert(s), which the Successor Trustee may suffer or incur at any time or times as a result of the Successor Trustee's accepting the appointment and acting as successor trustee under the Indenture which may arise out of the Resigning Trustee's willful misconduct, bad faith or negligence during the term of its trusteeship, as determined on the basis of the provisions contained in the Indenture. (c) The Successor Trustee agrees to indemnify and save the Resigning Trustee harmless from and against any and all costs, claims, liabilities, expenses, losses or damages whatsoever (including all reasonable fees, expenses and disbursements and the reasonable fees, expenses and disburse- ments of counsel and agents), incurred by the Resigning Trustee which may arise out of the Successor Trustee's willful misconduct, bad faith or negligence during the term of its trusteeship as determined on the basis of the provisions contained in the Indenture. 2. The parties hereto agree that as of the Effective Date, all references to the Resigning Trustee as Trustee in the Indenture shall be deemed to refer to the Successor Trustee. After the Effective Date, all notices or payments which were required by the terms of the Indenture to be given or paid to the Resigning Trustee, as Trustee, shall be given or paid to: HARRIS TRUST AND SAVINGS BANK 311 West Monroe Street Attention: Indenture Trust Division Chicago, Illinois 60606 3. The resignation, appointment and acceptance effected hereby shall become effective as of the opening of business on the Effective Date. 4. This Instrument shall be governed by and construed in accordance with the laws governing the Indenture. 4 5. This Instrument may be executed in any number of counterparts, each of which shall be an original, but which counterparts shall together constitute but one and the same instrument. 6. Nothing contained in this Instrument shall in any way affect the obligations or rights of the Company, the Resigning Trustee or any holder of the Bonds under the Indenture. This Instrument shall be binding upon and inure to the benefit of the Company, the Resigning Trustee, the Successor Trustee and their respective successors and assigns. 7. The parties hereby agree that from and after the Effective Date, all fees payable by the Company to the Trustee under the Indenture shall hence- forth be invoiced by and paid to the Successor Trustee at such address and account as shall hereafter be provided by the Successor Trustee to the Company. 8. Each of the parties hereto hereby represents and warrants for itself that as of the date hereof and as of the Effective Date: a) it has the power and authority to execute and deliver this Instrument and to perform its obligations hereunder, and all such action has been duly and validly authorized by all necessary proceedings on its part; and b) this Instrument has been duly authorized, executed and delivered by it, and constitutes a legal, valid and binding agreement enforceable against it in accordance with its terms, except as the enforceability of this Instrument may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditor's rights or by general principles of equity limiting the availability of equitable remedies. IN WITNESS WHEREOF, the parties hereto have caused this Instrument to be duly executed and attested by their duly authorized officers, all as of the date and year first above written. NORTHERN ILLINOIS GAS COMPANY, as Company By: ________________________ Title: _____________________ Attest: _______________________ 5 BANK OF AMERICA ILLINOIS, as Resigning Trustee By: _______________________ Title: ____________________ Attest: _______________________ HARRIS TRUST AND SAVINGS BANK, as Successor Trustee By: _________________________ Title: ______________________ Attest: _______________________ NORTHERN.CAP 6 EX-4.02 4 SUPPLEMENTAL INDENTURE DATED AUGUST 1, 1996 NORTHERN ILLINOIS GAS COMPANY FORM 10-Q EXHIBIT 4.02 Supplemental Indenture DATED AUGUST 1, 1996 NORTHERN ILLINOIS GAS COMPANY TO HARRIS TRUST AND SAVINGS BANK TRUSTEE UNDER INDENTURE DATED AS OF JANUARY 1, 1954 AND SUPPLEMENTAL INDENTURES THERETO FIRST MORTGAGE BONDS 6.45% SERIES DUE AUGUST 1, 2001 This instrument was prepared by Donald W. Lohrentz, 1844 Ferry Road, Naperville, Illinois 60563-9600. Return to: Northern Illinois Gas Company Attn: Joe R. Johnson P.O. Box 190, Aurora, IL 60507-0190 This Supplemental Indenture, dated the first day of August, 1996, between Northern Illinois Gas Company, a corporation organized and existing under the laws of the State of Illinois (hereinafter called the ''Company''), and Harris Trust and Savings Bank, an Illinois banking corporation (hereinafter called the ''Trustee''), as 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 and May 10, 1996, 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, 6.45% Series due August 1, 2001'' (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 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 $ NORTHERN ILLINOIS GAS COMPANY First Mortgage Bond, 6.45% Series due August 1, 2001 2 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 first day of August, 2001, 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 six and forty-five hundredths per centum (6.45%) per annum, payable semiannually on the first day of February and the first day of August 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 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. 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 the January 15 or the July 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 Chairman, President, or a 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 3 attested by its Secretary or its Assistant Secretary, manually or by facsimile signature. Dated Northern Illinois Gas Company By President Attest: 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 August 1, 1996. Harris Trust and Savings Bank, Trustee By Authorized Officer (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 Harris Trust and Savings Bank, 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, 6.45% Series due August 1, 2001'' (herein called ''bonds of this Series''), the issuance of which is provided for by a Supplemental Indenture dated August 1, 1996 (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 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 4 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 (662/3%) 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 (662/3%) 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 on this bond, or the reduction in the principal amount hereof or in the rate of interest or any other modification in the terms of payment of such principal or interest, 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 not be called for redemption by the Company prior to August 1, 2000. On August 1, 2000 and thereafter until maturity on August 1, 2001, upon the notice hereinafter stated and in the manner and with the effect provided in the Indenture, the bonds of this Series are redeemable at the option of the Company, as a whole at any time or in part from time to time, at 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. 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. 5 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 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 the 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. (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; 6 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 considerations, 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 and convey unto Harris Trust and Savings Bank, 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, 6.45% Series due August 1, 2001.'' The bonds of this Series which may be issued and outstanding shall not exceed $75,000,000 in aggregate principal amount, exclusive of bonds of such series authenticated and delivered pursuant to the provisions of 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 each and in such multiple or multiples thereof as shall be determined 7 and authorized by the Board of Directors of the Company or by any officer or officers 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 August 1, 1996, 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 January 15 and before the next succeeding February 1 or on or after July 15 and before the next succeeding August 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 August 1, 2001, and shall bear interest at the rate of 6.45% 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 semiannually on the first day of February and the first day of August in each year. So long as there is no existing default in the payment of interest on the bonds of this Series, such interest shall be payable to the person in whose name each such bond is registered on the January 15 and July 15 (whether or not a 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. The principal of and interest 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 8 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 may not be called for redemption by the Company prior to August 1, 2000. On August 1, 2000 and thereafter until maturity on August 1, 2001, 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 100% of the principal amount thereof, plus accrued and unpaid interest to redemption date. 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 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 dated August 1, 1996, 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 acknowledgments hereto annexed. 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. 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 Secretary or its Assistant Secretary, and Harris Trust and Savings Bank, as Trustee under the Indenture, has caused this Supplemental Indenture to be executed in its name by one of its Vice Presidents, and its seal to be hereunto affixed and attested by its Assistant Secretary, all as of the day and year first above written. Northern Illinois Gas Company By Vice President and Treasurer Attest: Assistant Secretary Harris Trust and Savings Bank, as Trustee By Vice President Attest: Assistant Secretary 10 State of Illinois } } ss: County of DuPage } I, Beth A. Aussem, Notary Public in the State aforesaid, Do Hereby Certify that Donald W. Lohrentz, Vice President and Treasurer of Northern Illinois Gas Company, an Illinois corporation, one of the parties described in and which executed the foregoing instrument, and Alexander C. Allison, 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 and Assistant Secretary, respectively, and who are both personally known to me to be the Vice President and the 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 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 day of August A.D. 1996. Notary Public My Commission expires March 23, 1999. 11 State of Illinois } } ss: County of Cook } I, Kimberley Lange, a Notary Public in and for said County, in the State aforesaid, Do Hereby Certify that J. Bartolini, Vice President of Harris Trust and Savings Bank, an Illinois banking corporation, one of the parties described in and which executed the foregoing instrument, and D. G. Donovan, Assistant Secretary of said banking 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 and Assistant Secretary, respectively, and who are both personally known to me to be a Vice President and an Assistant Secretary, respectively, of said banking 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 and Assistant Secretary, respectively, of said banking corporation, and as the free and voluntary act of said banking corporation, for the uses and purposes therein set forth. Given under my hand and notarial seal this day of August A.D. 1996. Notary Public My Commission expires December 14, 1997. 12 RECORDING DATA This Supplemental Indenture was recorded on August 8 or 9, 1996, in the office of the Recorder of Deeds in certain counties in the State of Illinois, as follows: County Book Page Document No. Adams Boone Bureau Carroll Champaign Cook DeKalb DeWitt DuPage Ford Grundy Hancock Henderson Henry Iroquois Jo Daviess Kane Kankakee Kendall Lake La Salle Lee Livingston McHenry McLean Mercer Ogle Piatt Pike Rock Island Stephenson Tazewell Vermilion Whiteside Will Winnebago Woodford EX-12.01 5 CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES Northern Illinois Gas Company Form 10-Q Exhibit 12.01 NORTHERN ILLINOIS GAS COMPANY COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (Thousands)
Twelve Months Ended June 30 Year Ended December 31 1996 1995 1994 1993 1992 1991 Earnings available to cover fixed charges: Net income $ 97,314 $ 85,448 $ 93,078 $ 94,935 $ 91,239 $ 91,368 Add: Income taxes 57,619 49,881 50,958 52,890 49,578 47,664 Fixed charges 42,040 39,400 37,729 40,960 41,648 40,969 Allowance for funds used during construction (719) (911) (151) (64) (915) (700) Total $ 196,254 $ 173,818 $ 181,614 $ 188,721 $ 181,550 $ 179,301 Fixed charges: Interest on debt $ 38,743 $ 38,129 $ 36,726 $ 38,949 $ 39,773 $ 36,270 Other interest charges and amortization of debt discount, premium and expense, net 3,297 1,271 1,003 2,011 1,875 4,699 Total $ 42,040 $ 39,400 $ 37,729 $ 40,960 $ 41,648 $ 40,969 Ratio of earnings to fixed charges 4.67 4.41 4.81 4.61 4.36 4.38
EX-27.01 6 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1995 JUN-30-1996 PER-BOOK 1646 8 225 0 67 1946 76 108 512 696 9 1 421 0 0 109 25 1 0 0 684 1946 937 38 814 852 85 1 86 22 64 1 63 67 0 178 0 0 NORTHERN ILLINOIS GAS IS A WHOLLY OWNED SUBSIDIARY OF NICOR INC. EARNINGS PER SHARE INFORMATION IS THEREFORE OMITTED.
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