Document:

<PAGE>   1
                                                                    Exhibit 10.5

                        FIRST AMENDMENT TO NI SOURCE INC.
                    NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN

     WHEREAS, NiSource Inc. (formerly NIPSCO Industries, Inc.) ("Company")
adopted the NIPSCO Industries, Inc. Nonemployee Director Stock Incentive Plan,
effective February 1, 1992, as last amended and restated effective February 1,
1998 ("Plan"); and

     WHEREAS, pursuant to Section 9.1 of the Plan, the Company deems it to be in
its best interest to amend the Plan as described below;

     NOW, THEREFORE, the Plan is hereby amended, effective April 1, 1999, as
follows:

     1.   The Plan is renamed the NiSource Inc. Nonemployee Director Stock
Incentive Plan;

     2.   The second sentence of Section 6.7 is amended to read as follows:

          Regardless of the vesting schedule set forth above, all Shares of
     Restricted Stock held by a Participant shall immediately become one hundred
     percent (100%) vested upon the first to occur of the following:

          (a)  The completion of the vesting schedule set forth above;

          (b)  The death of the Participant;
          (c)  The Disability of the Participant;
          (d)  The retirement of the Participant from service on the Board prior
               to death or Disability and after attaining the age of seventy
               (70) years; or
          (e)  The effective date of a Change in Control of the Company.

     3.   Section 6.8 is amended to read as follows:

          6.8 TERMINATION OF DIRECTORSHIP. In the event a Participant ceases to
     be a Director for any reason other than death, Disability or retirement (as
     defined in Section 6.7(d)), all Shares of Restricted Stock not vested as of
     the effective date of termination shall be forfeited and shall revert back
     to the Company (with no further vesting to occur). In the event a
     Participant ceases to be a Director by reason of death, Disability or
     retirement, all Shares of Restricted Stock granted under the Plan shall
     immediately vest one hundred percent (100%).

     4. The second sentence of Section 7.5 is amended to read as follows:

          Regardless of the vesting schedule set forth above, all Options held
     by a Participant shall immediately become one hundred percent (100%) vested
     upon the first to occur of the following:

<PAGE>   2

          (a)  The completion of the vesting schedule set forth above;
          (b)  The death of the Participant;
          (c)  The Disability of the Participant;
          (d)  The retirement of the Participant from service on the Board prior
               to death or Disability and after attaining the age of seventy
               (70) years; or
          (e)  The effective date of a Change in Control of the Company.

     5.   Section 7.6 of the Plan is amended to read as follows:

          7.6 TERMINATION OF DIRECTORSHIP. In the event a Participant ceases to
     be a Director for any reason other than death, Disability or retirement (as
     defined in Section 7.5(d)), all Options not vested as of the effective date
     of termination shall be forfeited and shall revert back to the Company
     (with no further vesting to occur). All Options which are vested as of such
     date shall remain exercisable for six (6) months following the date the
     Director's service on the Board terminates, or until their expiration date,
     whichever period is shorter.

          In the event a Participant dies, incurs a Disability or ceases service
     on the Board due to retirement, prior to termination of any of his Options
     without having fully exercised such Option, the Participant, or his legal
     representative, beneficiary, heir or legatee, shall have the right to
     exercise such unexercised Option during its term within a period of one
     year after the date of such termination due to death, Disability or
     retirement, or during such other period and subject to such terms as may be
     determined by the Board. Options which vest pursuant to a Change in Control
     shall remain exercisable throughout their entire term.

                                              NISOURCE INC.

                                              By: /s/ Mark D. Wyckoff
                                                 ----------------------------
                                              Mark D. Wyckoff
                                              Vice President, Human Resources<PAGE>   1

                                                                    EXHIBIT 10.6

                             NIPSCO INDUSTRIES, INC.

                            LONG-TERM INCENTIVE PLAN

               (AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)

<PAGE>   2

                             NIPSCO INDUSTRIES, INC.
                            LONG-TERM INCENTIVE PLAN

               (AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                           <C>
1.       Purpose.......................................................-1-

2.       Administration and Delegation.................................-1-

3.       Review and Approval...........................................-1-

4.       Shares Subject to Plan........................................-2-

5.       Participants..................................................-2-

6.       Awards Under the Plan.........................................-2-

7.       Section 162(m) Limitations....................................-2-

8.       Nonqualified Stock Options....................................-2-
         (a)      Option Price.........................................-3-
         (b)      Exercise at Option...................................-3-
         (c)      Payment for Shares...................................-3-
         (d)      Transferability......................................-3-
         (e)      Rights Upon Termination at Employment................-4-

9.       Incentive Stock Options.......................................-4-
         (a)      Option Price.........................................-4-
         (b)      Exercise of Option...................................-5-
         (c)      Payment for Shares...................................-5-
         (d)      Transferability......................................-6-
         (e)      Rights Upon Termination of Employment................-6-

10.      Stock Appreciation Rights.....................................-6-
         (a)      Award................................................-6-
         (b)      Term.................................................-6-
         (c)      Payment..............................................-7-

11.      Performance Units.............................................-7-
         (a)      Performance Period...................................-7-
</TABLE>

<PAGE>   3

<TABLE>

<S>      <C>                                                           <C>
         (b)      Valuation of Units...................................-7-
         (c)      Performance Targets..................................-7-
         (d)      Adjustments..........................................-8-
         (e)      Payments of Units....................................-8-
         (f)      Termination of Employment............................-8-
         (g)      Other Terms..........................................-8-

12.      Restricted Stock Awards.......................................-8-
         (a)      Restriction Period...................................-8-
         (b)      Restrictions Upon Transfer...........................-9-
         (c)      Certificates.........................................-9-
         (d)      Lapse of Restrictions................................-9-
         (e)      Termination Prior to Lapse of Restrictions...........-9-

13.      Supplemental Cash Payments...................................-10-

14.      General Restrictions.........................................-10-

15.      Rights of a Shareholder......................................-10-

16.      Right to Terminate Employment................................-10-

17.      Withholding..................................................-10-

18.      Non-Assignability............................................-11-

19.      Non-Uniform Determinations...................................-11-

20.      Adjustments..................................................-11-

21.      Amendment or Termination.....................................-12-

22.      Effect on Other Plans........................................-12-

23.      Duration of the Plan.........................................-12-
</TABLE>

<PAGE>   4

                             NIPSCO INDUSTRIES, INC.
                            LONG-TERM INCENTIVE PLAN

               (AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)

         WHEREAS, NIPSCO Industries, Inc. (the "Company") adopted the NIPSCO
Industries, Inc. Long-Term Incentive Plan effective April 13, 1988, as last
amended and restated effective February 1, 1998; and

         WHEREAS, pursuant to Section 21 of the Plan, the Company wishes to
further amend the Plan in certain respects and restate it in a single document;

         NOW THEREFORE, the Plan is hereby amended and restated, effective April
14, 1999, as follows:

         1. PURPOSE. The purpose of the NIPSCO Industries, Inc., Long-Term
Incentive Plan (the "Plan") is to further the earnings of NIPSCO Industries,
Inc. (the "Company"), its subsidiaries and their subsidiaries. The Plan provides
long-term incentives to those officers and key executives who make substantial
contributions by their ability, loyalty, industry and invention. The Company
intends that the Plan will thereby facilitate securing, retaining, and
motivating management employees of high caliber and potential.

         2. ADMINISTRATION AND DELEGATION. The Plan shall be administered by the
Nominating and Compensation Committee ("Committee") of the Board of Directors of
the Company ("Board"). The Committee shall be composed of not fewer than two
members of the Board who are "nonemployee directors" of the Company within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("1934 Act"), and "outside directors" of the Company within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. Subject to the express provisions of the Plan, the
Committee may interpret the Plan, prescribe, amend and rescind rules and
regulations relating to it, determine the terms and provisions of awards to
officers and other key executive employees under the Plan (which need not be
identical), and make such other determinations as it deems necessary or
advisable for the administration of the Plan. The decisions of the Committee
under the Plan shall be conclusive and binding. No member of the Board or of the
Committee shall be liable for any action taken, or determination made, hereunder
in good faith. Service on the Committee shall constitute service as a director
of the Company so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of the Company, pursuant to its
by-laws.

         3. REVIEW AND APPROVAL. Specific performance goals and details for an
award program shall be promulgated by the Committee after consideration of the
recommendations of the chief executive officer and shall be submitted to the
Board for approval by the majority vote of directors who are not otherwise
employed as officers or employees.

                                       -1-

<PAGE>   5

         4. SHARES SUBJECT TO PLAN. Subject to the provisions of section 20, the
shares of common stock of the Company that may be issued, or may be the measure
of stock appreciation rights granted, under the Plan shall not exceed in the
aggregate 2,500,000 (5,000,000 after January 30, 1998) of the common shares
without par value of the Company ("Shares"). Such Shares may be authorized and
unissued Shares or treasury Shares. Except as otherwise provided herein, any
Shares subject to an option or right which for any reason expires or is
terminated, unexercised as to such Shares, shall again be available under the
Plan.

         5. PARTICIPANTS. Persons eligible to participate shall be limited to
those officers and other key executive employees who are in positions in which
their decisions, actions and counsel significantly impact upon profitability.
Directors who are not otherwise officers or employees shall not be eligible to
participate in the Plan.

         6. AWARDS UNDER THE PLAN. Awards under the Plan may be in the form of
stock options (both options designed to satisfy statutory requirements necessary
to receive favorable tax treatment pursuant to any future legislation and
options not designed to so qualify under any such future legislation), incentive
stock options, stock appreciation rights, performance units, and restricted
Shares or such combinations of the above as the Committee may in its discretion
deem appropriate.

         7. SECTION 162(m) LIMITATIONS. Subject to Section 20 of the Plan, the
maximum number of stock options and stock appreciation rights granted to any
person who qualifies as an executive officer named from time to time in the
summary compensation table in the Company's annual meeting proxy statement and
who is employed by the Company on the last day of the taxable year (the "SCT
Executives") shall be 350,000 during the term of the Plan.

         8. NONQUALIFIED STOCK OPTIONS. Options shall be evidenced by stock
option agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:

                  (a) OPTION PRICE. The purchase price per Share deliverable
         upon the exercise of an option shall not be less than 100% of the fair
         market value of the Share on the day the option is granted, as
         determined by the Committee. For purposes of the Plan, fair market
         value shall be the average of the high and low prices on the New York
         Stock Exchange Composite Transactions on the date of the grant.

                  (b) EXERCISE AT OPTION. Each stock option agreement shall
         state the period or periods of time within which the option may be
         exercised by the optionee, in whole or in part, which shall be such
         period or periods of time as may be determined by the Committee,
         provided that the option period shall not commence earlier than six
         months after the date of the grant of the option nor end later than ten
         years after the date of the grant of the option. The Committee shall
         have the power to permit in its discretion an acceleration of the
         previously determined exercise terms, within the terms of the Plan,
         under such circumstances and upon such terms and conditions as it deems
         appropriate.

                                       -2-

<PAGE>   6

                  (c) PAYMENT FOR SHARES. Except as otherwise provided in the
         Plan or in any stock option agreement, the optionee shall pay the
         purchase price of the Shares upon the exercise of any option (i) in
         cash, (ii) in cash received from a broker-dealer to whom the optionee
         has submitted an exercise notice consisting of a fully endorsed option
         (however in the case of an optionee subject to Section 16 of the 1934
         Act, this payment option shall only be available to the extent such
         payment procedures comply with Regulation T issued by the Federal
         Reserve Board), (iii) by delivering Shares having an aggregate fair
         market value on the date of exercise equal to the option exercise
         price, (iv) by directing the Company to withhold such number of Shares
         otherwise issuable upon exercise of such option having an aggregate
         fair market value on the date of exercise equal to the option exercise
         price, (v) by such other medium of payment as the Committee, in its
         discretion, shall authorize at the time of grant, or (vi) by any
         combination of (i), (ii), (iii), (iv) and (v). In the case of an
         election pursuant to (i) or (ii) above, cash shall mean cash or check
         issued by a federally insured bank or savings and loan association, and
         made payable to NIPSCO Industries, Inc. In the case of payment pursuant
         to (ii), (iii) or (iv) above, the optionee's election must be made on
         or prior to the date of exercise and shall be irrevocable. In lieu of a
         separate election governing each exercise of an option, an optionee may
         file a blanket election with the Committee which shall govern all
         future exercises of options until revoked by the optionee. The Company
         shall issue, in the name of the optionee, stock certificates
         representing the total number of Shares issuable pursuant to the
         exercise of any option as soon as reasonably practicable after such
         exercise, provided that any Shares purchased by an optionee through a
         broker-dealer pursuant to clause (ii) above, shall be delivered to such
         broker-dealer in accordance with 12 C.F.R. ss. 220.3(e)(4), or other
         applicable provision of law.

                  (d) TRANSFERABILITY. Each stock option agreement shall provide
         that the option subject thereto is not transferable by the optionee
         otherwise than by will or the laws of descent or distribution.
         Notwithstanding the preceding sentence, an optionee, at any time prior
         to his death, may assign all or any portion of the option to (i) his
         spouse or lineal descendant, (ii) the trustee of a trust for the
         primary benefit of his spouse or lineal descendant, or (iii) a
         tax-exempt organization as described in Section 501(c)(3) of the
         Internal Revenue Code of 1986, as amended. In such event the spouse,
         lineal descendant, trustee or tax-exempt organization will be entitled
         to all of the rights of the optionee with respect to the assigned
         portion of such option, and such portion of the option will continue to
         be subject to all of the terms, conditions and restrictions applicable
         to the option as set forth herein, and in the related stock option
         agreement, immediately prior to the effective date of the assignment.
         Any such assignment will be permitted only if (i) the optionee does not
         receive any consideration therefor, and (ii) the assignment is
         expressly approved by the Committee or its delegate. Any such
         assignment shall be evidenced by an appropriate written document
         executed by the optionee, and a copy thereof shall be delivered to the
         Committee or its delegate on or prior to the effective date of the
         assignment. This paragraph shall apply to all nonqualified stock
         options granted under the Plan at any time.

                                       -3-

<PAGE>   7

                  (e) RIGHTS UPON TERMINATION AT EMPLOYMENT. In the event that
         an optionee ceases to be an employee for any reason other than death,
         disability or retirement, the optionee shall have the right to exercise
         the option during its term within a period of thirty days after such
         termination to the extent that the option was exercisable at the date
         of such termination of employment, or during such other period and
         subject to such terms as may be determined by the Committee. In the
         event that an optionee dies, retires, or becomes disabled prior to
         termination of his option without having fully exercised his option,
         the optionee or his successor shall have the right to exercise the
         option during its term within a period of twelve months after the date
         of such termination due to death, disability or retirement, to the
         extent that the option was exercisable at the date of termination due
         to death, disability or retirement, or during such other period and
         subject to such terms as may be determined by the Committee. For
         purposes of the Plan, the term "disability" shall mean the inability of
         an individual to engage in any substantial gainful activity by reason
         of any medically determinable physical or mental impairment which is
         expected to result in death or which has lasted or can be expected to
         last for a continuous period of not less than twelve (12) months. The
         Committee, in its sole discretion, shall determine the date of any
         disability. For purposes of the Plan, the term "retirement" shall mean
         retirement as defined in the Company's pension plan.

         9. INCENTIVE STOCK OPTIONS. Incentive stock options shall be evidenced
by stock option agreements in such form and not inconsistent with the Plan as
the Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:

                  (a) OPTION PRICE. The purchase price per Share of stock
         deliverable upon the exercise of an option shall not be less than 100%
         of the fair market value (as defined in subsection 8(a)) of the stock
         on the day the option is granted, as determined by the Committee except
         as provided in Section 9(b).

                  (b) EXERCISE OF OPTION. Each stock option agreement shall
         state the period or periods of time within which the option may be
         exercised by the optionee, in whole or in part, which shall be such
         period or periods of time as may be determined by the Committee,
         provided that the option period shall not commence earlier than six
         months after the date of the grant of the option nor end later than ten
         years after the date of the grant of the option. The aggregate fair
         market value (determined with respect to each incentive stock option at
         the time of grant) of the Shares with respect to which incentive stock
         options are exercisable for the first time by an individual during any
         calendar year (under all incentive stock option plans of the Company
         and its parent and subsidiary corporations) shall not exceed $100,000.
         If the aggregate fair market value (determined at the time of grant) of
         the Shares subject to an option, which first becomes exercisable in any
         calendar year exceeds the limitation of this Section 9(b), so much of
         the option that does not exceed the applicable dollar limit shall be an
         incentive stock option and the remainder shall be a nonqualified stock
         option; but in all other respects, the original option agreement shall
         remain in full force and effect. As used in this Section 9, the words
         "parent" and "subsidiary" shall have the meanings given to them

                                       -4-

<PAGE>   8

         in Section 425(e) and 425(f) of the Internal Revenue Code of 1986, as
         amended. Notwithstanding anything herein to the contrary, if an
         incentive stock option is granted to an individual who owns stock
         possessing more than ten percent (10%) of the total combined voting
         power of all classes of stock of the Company or of its parent or
         subsidiary corporations, within the meaning of Section 422(b)(6) of the
         Internal Revenue Code of 1986, as amended, (i) the purchase price of
         each Share subject to the incentive stock option shall be not less than
         one hundred ten percent (110%) of the fair market value of the Shares
         on the date the incentive stock option is granted, and (ii) the
         incentive stock option shall expire and all rights to purchase Shares
         thereunder shall cease no later than the fifth anniversary of the date
         the incentive stock option was granted.

                  (c) PAYMENT FOR SHARES. Except as otherwise provided in the
         Plan or in any stock option agreement, the optionee shall pay the
         purchase price of the Shares upon the exercise of any option, (i) in
         cash, (ii) in cash received from a broker-dealer to whom the optionee
         has submitted an exercise notice consisting of a fully endorsed option
         (however in the case of an optionee subject to Section 16 of the 1934
         Act, this payment option shall only be available to the extent such
         payment procedures comply with Regulation T issued by the Federal
         Reserve Board), (iii) by delivering Shares having an aggregate fair
         market value on the date of exercise equal to the option exercise
         price, (iv) by directing the Company to withhold such number of Shares
         otherwise issuable upon exercise of such option having an aggregate
         fair market value on the date of exercise equal to the option exercise
         price, (v) by such other medium of payment as the Committee, in its
         discretion, shall authorize at the time of grant, or (vi) by any
         combination of (i), (ii), (iii), (iv) and (v). In the case of an
         election pursuant to (i) or (ii), cash shall mean cash or check issued
         by a federally insured bank or savings and loan association, and made
         payable to NIPSCO Industries, Inc. In the case of payment pursuant to
         (ii), (iii) or (iv) above, the optionee's election must be made on or
         prior to the date of exercise and shall be irrevocable. In lieu of a
         separate election governing each exercise of an option, an optionee may
         file a blanket election with the Committee which shall govern all
         future exercises of options until revoked by the optionee. The Company
         shall issue, in the name of the optionee, stock certificates
         representing the total number of Shares issuable pursuant to the
         exercise of any option as soon as reasonably practicable after such
         exercise, provided that any Shares purchased by an optionee through a
         broker-dealer pursuant to clause (ii) above, shall be delivered to such
         broker-dealer in accordance with 12 C.F.R. ss. 220.3(e)(4), or other
         applicable provision of law.

                  (d) TRANSFERABILITY. Each stock option agreement shall provide
         that it is not transferable by the optionee otherwise than by will or
         the laws of descent or distribution.

                  (e) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that
         an optionee ceases to be an employee for any reason, the optionee (or
         in the case of his death, his beneficiary or personal representative)
         shall have the right to exercise the option during the term within a
         period of ninety days (or in the case of termination of employment
         because of disability, within a period of one year) after such
         termination to the extent that the option was

                                       -5-

<PAGE>   9

         exercisable at the date of such termination of employment, or during
         such other period and subject to such terms as may be determined by the
         Committee.

The provisions of this section 9 shall be construed and applied, and (subject to
the limitations of Section 21) shall be amended from time to time so as to
comply with Section 422 of the Internal Revenue Code of 1986, as amended, or its
successors and regulations issued thereunder.

         10. STOCK APPRECIATION RIGHTS. Stock appreciation rights shall be
evidenced by stock appreciation right agreements in such form and not
inconsistent with the Plan as the Committee shall approve from time to time,
which agreements shall contain in substance the following terms and conditions:

                  (a) AWARD. A stock appreciation right shall entitle the
         grantee to receive upon exercise the excess of (i) the fair market
         value of a specified number of Shares at the time of exercise over (ii)
         a specified price which shall not be less than 100% of the fair market
         value of the Shares at the time the stock appreciation right was
         granted, or, if connected with a previously issued stock option, not
         less than 100% of the fair market value of the Shares at the time such
         option was granted. A stock appreciation right may be granted in
         connection with all or any portion of a previously or contemporaneously
         granted stock option or not in connection with a stock option.

                  (b) TERM. Stock appreciation rights shall be granted for a
         period of not less than one year nor more than ten years, and shall be
         exercisable in whole or in part, at such time or times and subject to
         such other terms and conditions as shall be prescribed by the Committee
         at the time of grant, subject to the following:

                           (i) No stock appreciation right shall be exercisable
                  in whole or in part, during the six month period starting with
                  the date of grant; and

                           (ii) Stock appreciation rights will be exercisable
                  only during a grantee's employment, except that in the
                  discretion of the Committee a stock appreciation right may be
                  made exercisable for up to thirty days after the grantee's
                  employment is terminated for any reason other than death,
                  disability or retirement. In the event that a grantee dies,
                  retires, or becomes disabled without having fully exercised
                  his stock appreciation rights, the grantee or his successor
                  shall have the right to exercise the stock appreciation rights
                  during their term within a period of twelve months after the
                  date of such termination due to death, disability or
                  retirement to the extent that the right was exercisable at the
                  date of such termination, or during such other period and
                  subject to such terms as may be determined by the Committee.

                           The Committee shall have the power to permit in its
                  discretion an acceleration of previously determined exercise
                  terms, within the terms of the Plan,

                                       -6-

<PAGE>   10

                  under such circumstances and upon such terms and conditions as
                  it deems appropriate.

                  (c) PAYMENT. Upon exercise of a stock appreciation right,
         payment shall be made in cash, in the form of Shares at fair market
         value, or in a combination thereof, as the Committee may determine.

         11. PERFORMANCE UNITS. Performance Units ("Units") shall be evidenced
by performance unit agreements in such form and not inconsistent with the Plan
as the Committee shall approve from time to time, which agreements shall contain
in substance the following terms and conditions:

                  (a) PERFORMANCE PERIOD. At the time of award, the Committee
         shall establish with respect to each Unit award a performance period of
         not less than two, nor more than five years.

                  (b) VALUATION OF UNITS. At the time of award, the Committee
         shall establish with respect to each such award a value for each Unit
         which shall not thereafter change, or which may vary thereafter
         determinable from criteria specified by the Committee at the time of
         award.

                  (c) PERFORMANCE TARGETS. At the time of award, the Committee
         shall establish maximum and minimum performance targets to be achieved
         with respect to each award during the performance period. The
         participant shall be entitled to payment with respect to all Units
         awarded if the maximum target is achieved during the performance
         period, but shall be entitled to payment with respect to a portion of
         the Units awarded according to the level of achievement of performance
         targets, as specified by the Committee, for performance during the
         performance period which meets or exceeds the minimum target but fails
         to meet the maximum target.

                  The performance targets established shall relate to corporate,
         division, or unit performance and may be established in terms of (i)
         changes in stock price, gross revenue, pre-tax operating income, or
         earnings per share; or (ii) ratios of stock price, earnings, or pre-
         tax operating income relative to shareholder's equity, earnings, total
         assets, or to assets employed; or (iii) a comparison of any of the
         preceding measures to similar measures for competitors. Multiple
         targets may be used and may have the same or different weighting, and
         they may relate to absolute performance or relative performance as
         measured against other institutions or divisions or units thereof.

                  (d) ADJUSTMENTS. At any time prior to payment of the Units,
         the Committee may adjust previously established performance targets and
         other terms and conditions, including the corporation's, or division's
         or unit's financial performance for Plan purposes, to reflect major
         unforeseen events such as changes in laws, regulations or accounting
         practices,

                                       -7-

<PAGE>   11

         mergers, acquisitions or divestitures or extraordinary, unusual or
         non-recurring items or events.

                  (e) PAYMENTS OF UNITS. Following the conclusion of each
         performance period, the Committee shall determine the extent to which
         performance targets have been attained for such period as well as the
         other terms and conditions established by the Committee. The Committee
         shall determine what, if any, payment is due on the Units. Payment
         shall be made in cash, in the form of Shares at fair market value, or a
         combination thereof, as the Committee may determine.

                  (f) TERMINATION OF EMPLOYMENT. In the event that a participant
         holding a Unit award ceases to be an employee prior to the end of the
         applicable performance period by reason of death, disability or
         retirement, his Units, to the extent earned under the applicable
         performance targets, shall be payable at the end of the performance
         period in proportion to the active service of the participant during
         the performance period, as determined by the Committee. Upon any other
         termination of employment, participation shall terminate forthwith and
         all outstanding Units held by the participant shall be canceled.

                  (g) OTHER TERMS. The Unit agreements shall contain such other
         terms and provisions and conditions not inconsistent with the Plan as
         shall be determined by the Committee.

         12. RESTRICTED STOCK AWARDS. Restricted Stock Awards under the Plan
shall be in the form of Shares of the Company, restricted as to transfer and
subject to forfeiture, and shall be evidenced by restricted stock agreements in
such form and not inconsistent with the Plan as the Committee shall approve from
time to time, which agreements shall contain in substance the following terms
and conditions:

                  (a) RESTRICTION PERIOD. Shares awarded pursuant to the Plan
         shall be subject to such terms, conditions, and restrictions, including
         without limitation: prohibitions against transfer, substantial risks of
         forfeiture, attainment of performance objectives and repurchase by the
         Company or right of first refusal, and for such period or periods as
         shall be determined by the Committee at the time of grant. The
         Committee shall have the power to permit in its discretion, an
         acceleration of the expiration of the applicable restriction period
         with respect to any part or all of the Shares awarded to a participant.

                  (b) RESTRICTIONS UPON TRANSFER. Shares awarded, and the right
         to vote such Shares and to receive dividends thereon, may not be sold,
         assigned, transferred, exchanged, pledged, hypothecated, or otherwise
         encumbered, except as herein provided, during the restriction period
         applicable to such Shares. Subject to the foregoing, and except as
         otherwise provided in the Plan, the participant shall have all the
         other rights of a shareholder including, but not limited to, the right
         to receive dividends and the right to vote such Shares.

                                       -8-

<PAGE>   12

         The performance objectives established by the Committee shall relate to
         corporate, division or unit performance, and may be established in
         terms of (i) changes in stock price, gross revenue, pre-tax operating
         income, or earnings per share; or (ii) ratios of stock price, earnings,
         or pre-tax operating income relative to shareholder's equity, earnings,
         total assets, or to assets employed; or (iii) a comparison of any of
         the preceding measures to similar measures for competitors. Multiple
         objectives may be used and may have the same or different weighting,
         and they may relate to absolute performance or relative performance as
         measured against other institutions or divisions or units thereof.

                  (c) CERTIFICATES. Each certificate issued in respect of Shares
         awarded to a participant shall be deposited with the Company, or its
         designee, and shall bear the following legend:

         "This certificate and the shares represented hereby are subject to the
         terms and conditions (including forfeiture and restrictions against
         transfer) contained in the NIPSCO Industries, Inc. Long-Term Incentive
         Plan and an Agreement entered into by the registered owner. Release
         from such terms and conditions shall obtain only in accordance with the
         provisions of the Plan and Agreement, a copy of each of which is on
         file in the office of the Secretary of said Company."

                  (d) LAPSE OF RESTRICTIONS. The Agreement shall specify the
         terms and conditions upon which any restrictions upon Shares awarded
         under the Plan shall lapse, as determined by the Committee. Upon the
         lapse of such restrictions, Shares, free of the foregoing restrictive
         legend, shall be issued to the participant or his legal representative.

                  (e) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS. In the event
         of a participant's termination of employment, other than due to death
         or retirement, prior to the lapse of restrictions applicable to any
         Shares awarded to such participant, all Shares as to which there still
         remains unlapsed restrictions shall be forfeited by such participant
         without payment of any consideration to the participant, and neither
         the participant nor any successors, heirs, assigns, or personal
         representatives of such participant shall thereafter have any further
         rights or interest in such Shares or certificates.

         13. SUPPLEMENTAL CASH PAYMENTS. Subject to the Company's discretion,
stock option, incentive stock option, stock appreciation right, performance unit
or restricted stock agreements may provide for the payment of a supplemental
cash payment to a participant promptly after the exercise of an option or stock
appreciation right, or, at the time of payment of a performance unit or at the
end of a restriction period of a restricted stock award. Supplemental cash
payments shall be subject to such terms and conditions as shall be provided by
the Committee at the time of grant, provided that in no event shall the amount
of each payment exceed:

                                       -9-

<PAGE>   13

                  (a) In the case of an option, the excess of the fair market
         value of a Share on the date of exercise over the option price
         multiplied by the number of Shares for which such option is exercised,
         or

                  (b) In the case of a stock appreciation right, performance
         unit or restricted stock award, the value of the Shares and other
         consideration issued in payment of such award.

         14. GENERAL RESTRICTIONS. Each award under the Plan shall be subject to
the requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Shares subject or related thereto
upon any securities exchange or under any state or federal law, or (ii) the
consent or approval of any government regulatory body, or (iii) an agreement by
the recipient of an award with respect to the disposition of Shares, is
necessary or desirable as a condition of, or in connection with, the granting of
such award or the issue or purchase of Shares thereunder, such award may not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained, free of any conditions not acceptable to the Committee.

         15. RIGHTS OF A SHAREHOLDER. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for Shares are issued to him.

         16. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in employment or affect any right which his employer may
have to terminate the employment of such participant.

         17. WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer Shares to a participant under the Plan, the Company shall have the
right to require the participant to remit to the Company an amount sufficient to
satisfy all federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for such Shares. If such
certificates have been delivered prior to the time a withholding obligation
arises, the Company shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy all federal, state or local
withholding tax requirements at the time such obligation arises and to withhold
from other amounts payable to the participant, as compensation or otherwise, as
necessary. Whenever payments under the Plan are to be made to a participant in
cash, such payment shall be net of any amount sufficient to satisfy all federal,
state and local withholding tax requirements. In lieu of requiring a participant
to make a payment to the Company in an amount related to the withholding tax
requirement, the Committee may, in its discretion, provide that at the
participant's election, the tax withholding obligation shall be satisfied by the
Company's withholding a portion of the Shares otherwise distributable to the
participant, such Shares being valued at the fair market value at the date of
exercise, or by the participant's delivering to the Company a portion of the
Shares previously delivered by the Company, such Shares being valued at their
fair market value as of the date of delivery of such Shares by the participant
to the Company. For this purpose, the amount of required withholding shall be a
specified rate not less than the statutory minimum federal,

                                      -10-

<PAGE>   14

state and local (if any) withholding rate, and not greater than the maximum
federal, state and local (if any) marginal tax rate applicable to the
participant and to the particular transaction. Notwithstanding any provision of
the Plan to the contrary, a participant's election pursuant to the preceding
sentences (a) must be made on or prior to the date as of which income is
realized by the recipient in connection with the particular transaction, and (b)
must be irrevocable. In lieu of a separate election on each effective date of
each transaction, a participant may file a blanket election with the Committee
which shall govern all future transactions until revoked by the participant.

         18. NON-ASSIGNABILITY. No award under the Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or except as set forth in subsection 8(d). During the life of
the recipient, such award shall be exercisable only by such person or by such
person's guardian or legal representative.

         19. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
the Plan (including, without limitation determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards and the agreements evidencing same, and the establishment of values
and performance targets) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan,
whether or not such persons are similarly situated.

         20. ADJUSTMENTS. (i) Appropriate adjustments in the aggregate number of
Shares issuable pursuant to the Plan, the number of Shares subject to each
outstanding award granted under the Plan, the option price with respect to
options and connected stock appreciation rights, the specified price of stock
appreciation rights not connected to options, and the value for Units, shall be
made to give effect to any increase or decrease in the number of issued Shares
resulting from a subdivision or consolidation of Shares, whether through
recapitalization, stock split, reverse stock split, spin-off, spin-out or other
distribution of assets to stockholders, stock distributions or combinations of
Shares, payment of stock dividends, other increase or decrease in the number of
such Shares outstanding effected without receipt of consideration by the
Company, or any other occurrence for which the Committee determines an
adjustment is appropriate.

         (ii) In the event of any merger, consolidation or reorganization of the
Company with any other corporation or corporations, or an acquisition by the
Company of the stock or assets of any other corporation or corporations, there
shall be substituted on an equitable basis, as determined by the Committee in
its sole discretion, for each Share then subject to the Plan, and for each Share
then subject to an award granted under the Plan, the number and kind of shares
of stock, other securities, cash or other property to which the holders of
Shares of the Company are entitled pursuant to such transaction.

         (iii) Without limiting the generality of the foregoing provisions of
this paragraph, any such adjustment shall be deemed to have prevented any
dilution or enlargement of a participant's rights, if such participant receives
in any such adjustment, rights that are substantially similar (after taking into
account the fact that the participant has not paid the applicable option price)
to the rights the

                                      -11-

<PAGE>   15

participant would have received had he exercised his outstanding award and
become a shareholder of the Company immediately prior to the event giving rise
to such adjustment. Adjustments under this paragraph shall be made by the
Committee, whose decision as to the amount and timing of any such adjustment
shall be conclusive and binding on all persons.

         21. AMENDMENT OR TERMINATION. The Board or the Committee may at any
time terminate, suspend or amend the Plan without the authorization of
stockholders to the extent allowed by law, including without limitation any
rules issued by the Securities and Exchange Commission under Section 16 of the
1934 Act, insofar as shareholder approval thereof is required in order for the
Plan to continue to satisfy the requirements of Rule 16b-3 under the 1934 Act.
No termination, suspension or amendment of the Plan shall adversely affect any
right acquired by any participant under an award granted before the date of such
termination, suspension or amendment, unless such participant shall consent; but
it shall be conclusively presumed that any adjustment for changes in
capitalization as provided for herein does not adversely affect any such right.
Any member of the Board who is an officer or employee of the Company shall be
without a vote on any proposed amendment to the Plan, or on any other matter
which might affect that member's individual interest under the Plan.

         22. EFFECT ON OTHER PLANS. Unless otherwise specifically provided,
participation in the Plan shall not preclude an employee's eligibility to
participate in any other benefit or incentive plan and any awards made pursuant
to the Plan shall not be considered as compensation in determining the benefits
provided under any other plan.

         23. DURATION OF THE PLAN. The Plan shall remain in effect until all
awards under the Plan have been satisfied by the issuance of Shares or the
payment of cash, but no award shall be granted more than ten years after the
date the Plan is approved by the shareholders, which shall be its effective date
of adoption.

                                      -12-

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