Document:

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                                                                    EXHIBIT 10.8

                             NIPSCO INDUSTRIES, INC.
                          1994 LONG-TERM INCENTIVE PLAN

                AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999

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                             NIPSCO INDUSTRIES, INC.
                          1994 LONG-TERM INCENTIVE PLAN

                As Amended and Restated Effective April 14, 1999

TABLE OF CONTENTS
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                                                                Page
                                                                ----
1.   Purpose.................................................... -1-

2.   Administration............................................. -1-

3.   Common Shares Subject to the Plan.......................... -1-

4.   Participants............................................... -2-

5.   Awards Under the Plan...................................... -2-

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

7.   NonQualified Stock Options................................. -3-
     (a)    Option Price........................................ -3-
     (b)    Exercise of Option.................................. -3-
     (c)    Payment for Shares.................................. -3-
     (d)    Transferability..................................... -4-
     (e)    Rights Upon Termination of Employment............... -4-

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

9.   Stock Appreciation Rights.................................. -6-
     (a)    Awards.............................................. -6-
     (b)    Term................................................ -7-
     (c)    Payment............................................. -7-

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10.  Performance Units.......................................... -7-
     (a)    Performance Period.................................. -7-
     (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-

11.  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-

12.  Supplemental Cash Payments................................ -10-

13.  General Restrictions...................................... -10-

14.  Rights as a Shareholder................................... -10-

15.  Employment Right.......................................... -10-

16.  Tax--Withholding......................................... -10-

17.  Change in Control......................................... -11-

18.  Amendment or Termination.................................. -11-

19.  Effect on Other Plans..................................... -12-

20.  Duration of the Plan...................................... -12-

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                             NIPSCO INDUSTRIES, INC
                         1994 LONG-TERM INCENTIVE PLAN

               (AS AMENDED AND RESTATED EFFECTIVE APRIL 14, 1999)

         WHEREAS, NIPSCO Industries, Inc. (the "Company") adopted the NIPSCO
         Industries, Inc. 1994 Long-Term Incentive Plan effective April 13,
         1994, as last amended and restated effective February 1, 1998 ("Plan");
         and

         WHEREAS, pursuant to Section 18 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. 1994 Long-Term
Incentive Plan (the "Plan") is to further the earnings of NIPSCO Industries,
Inc. (the "Company") and its 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. 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, ("Code"), 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. COMMON SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section
3(b), the shares 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 (the "Common Shares"). Such shares may be authorized and

                                       -1-
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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.

(b) (i) Appropriate adjustments in the aggregate number of Common Shares
issuable pursuant to the Plan, the number of Common 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 Common
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 Common 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 Common Share then subject to the Plan, and for
each Common 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 Common 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 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.

4. PARTICIPANTS. Persons eligible to participate shall be limited to those
officers and other key executive employees of the Company and its subsidiaries
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.

5. 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 present or future legislation
and options not designed to so qualify), 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.

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6. SECTION 162(M) LIMITATIONS. Subject to Section 3(b) 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 25,000 (50,000 after January 30, 1998) options and stock
appreciation rights with respect to Common Shares per year and 250,000 (500,000
after January 30, 1998) options and stock appreciation rights with respect to
Common Shares during the term of the Plan. The maximum number of performance
units granted to any SCT Executive shall be 25,000 (50,000 after January 30,
1998) units per year, provided that no more than 25,000 (50,000 after January
30, 1998) units may be awarded in any three year period and that the maximum
number of units granted to any SCT Executive during the term of the Plan shall
be 75,000 (150,000 after January 30, 1998). The maximum number of restricted
stock awards granted to any SCT Executive shall be 25,000 (50,000 after January
30, 1998) Common Shares per year, provided that no more than 25,000 (50,000
after January 30, 1998) Shares of restricted stock may be awarded in any
three-year period and that the maximum number of Shares of restricted stock
granted to any SCT Executive during the term of the Plan shall be 75,000
(150,000 after January 30, 1998).

7. NON QUALIFIED 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 Common Share deliverable upon
the exercise of an option shall not be less than 100% of the fair market value
of a Common Share on the day the option is granted, as determined by the
Committee. Fair market value of Common Shares for purposes of the Plan shall be
the average of the high and low prices on the New York Stock Exchange Composite
Transactions on the date of the grant, or on any other applicable date.

         (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 exercise 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.

         (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
Common 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 Common Shares having an
aggregate fair market value on the date of exercise equal to the option

                                      -3-

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exercise price, (iv) by directing the Company to withhold such number of Common
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 Common Shares
issuable pursuant to the exercise of any option as soon as reasonably
practicable after such exercise, provided that any Common 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 Code. 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.

         (E) RIGHTS UPON TERMINATION OF 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 three years 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
disability as defined

                                      -4-
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in the Company's Long-Term Disability Plan. 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.

8. 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. Except as otherwise provided in Section 8(b), the
purchase price per share of stock deliverable upon the exercise of an incentive
stock option shall not be less than 100% of the fair market value of the Common
Shares on the day the option is granted, as determined by the Committee.

         (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 Common 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 Common
Shares subject to an option, which first becomes exercisable in any calendar
year exceeds the limitation of this Section 8(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 8, the words "parent" and "subsidiary" shall have the
meanings given to them in Section 424(e) and 424(f) of the Code. 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 Code,
(i) the purchase price of each Common Share subject to the incentive stock
option shall be not less than one hundred ten percent (110%) of the fair market
value of the Common Shares on the date the incentive stock option is granted,
and (ii) the incentive stock option shall expire, and all rights to purchase
Common 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
Common 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

                                       -5-
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Common 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 Common 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
Common Shares issuable pursuant to the exercise of any option as soon as
reasonably practicable after such exercise, provided that any Common 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 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 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 three years 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. Notwithstanding the foregoing, in accordance with Section 422 of
the Code, if an incentive stock option is exercised more than ninety days after
termination of employment, that portion of the option exercised after such date
shall automatically be a nonqualified stock option, but in all other respects,
the original option agreement shall remain in full force and effect.

The provisions of this Section 8 shall be construed and applied, and (subject to
the limitations of section 20) shall be amended from time to time so as to
comply with Section 422 or its successors of the Code and regulations issued
thereunder.

9. 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:

                                       -6-
<PAGE>   10

         (A) AWARDS. 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 of the Company Common 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 Common 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 Common Shares at the time such option was granted. A stock
appreciation right may be granted in connection with all of 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. ln 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 three years 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, 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 Common Shares at fair market value, or in a
combination thereof, as the Committee may determine.

10. 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.

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<PAGE>   11

         (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 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 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, 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 Common Shares at fair market value, or in 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.

                                       -8-
<PAGE>   12

11.  RESTRICTED STOCK AWARDS.  Restricted Stock Awards under the Plan shall be
in the form of Common 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.  Restricted Common 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 Common Shares
         awarded to a participant.

         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.

         (B)     RESTRICTIONS UPON TRANSFER.  Common 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.

         (C)     CERTIFICATES.  Each certificate issued in respect of Common
         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. 1994
         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."

                                      -9-
<PAGE>   13

         (D)     LAPSE OF RESTRICTIONS.  A restricted stock agreement shall
         specify the terms and conditions upon which any restrictions upon
         Common Shares awarded under the Plan shall lapse, as determined by the
         Committee. Upon the lapse of such restrictions, Common 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,
         disability or retirement, prior to the lapse of restrictions applicable
         to any Common 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.

12.  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:

         (a)     In the case of an option, the excess of the fair market value
         of a Common Share on the date of exercise over the option price
         multiplied by the number of Common 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 Common Shares and other
         consideration issued in payment of such award.

13.  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 Common 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 Common Shares,
is necessary or desirable as a condition of, or in connection with, the granting
of such award or the issue or purchase of Common 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.

14.  RIGHTS AS 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 Common Shares are issued to
the recipient.

                                      -10-
<PAGE>   14

15.  EMPLOYMENT RIGHTS.  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.

16.  TAX--WITHHOLDING.  Whenever the Company proposes or is required to issue or
transfer Common 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 Common 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 Common Shares otherwise
distributable to the participant, such Common Shares being valued at their fair
market value at the date of exercise, or by the participant's delivering to the
Company a portion of the Common Shares previously delivered by the Company, such
Common Shares being valued at their fair market value as of the date of delivery
of such Common 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, 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.

17. CHANGE IN CONTROL. (a) Effect of Change in Control. Notwithstanding any of
the provisions of the Plan or any agreement evidencing awards granted hereunder,
upon a Change in Control of the Company (as defined in Section 17(b)) all
outstanding awards shall become fully exercisable and all restrictions thereon
shall terminate in order that participants may fully realize the benefits
thereunder. Further, the Committee, as constituted before such Change in
Control, is authorized, and has sole discretion, as to any award, either at the
time such award is granted hereunder or any time thereafter, to take any one or
more of the following actions: (i) provide for the exercise of any such award
for an amount of cash equal to the difference between the exercise price and the
then fair market value of the Common Shares covered thereby had such award been
currently exercisable; (ii) provide for the vesting or termination of the
restrictions on any such award; (iii) make such adjustment to any such award
then outstanding as the Committee deems appropriate to reflect such

                                      -11-
<PAGE>   15

Change in Control; and (iv) cause any such award then outstanding to be assumed,
by the acquiring or surviving corporation, after such Change in Control.

         (b)     Definition of Change in Control. A "Change in Control" of the
     Company shall be deemed to have occurred if any one of the occurrences of a
     "Change in Control" set forth in the Change in Control and Termination
     Agreements between the Company and certain executive officers thereof shall
     have been satisfied.

18.  AMENDMENT OR TERMINATION.  The Board or the Committee may at any time
terminate, suspend or amend the Plan without the authorization of shareholders
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. Subject to the
preceding sentence, the Plan as amended and restated effective April 14, 1999
shall apply to all awards at any time granted hereunder.

19.  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.

20.  DURATION OF THE PLAN.  The Plan shall remain in effect until all awards
under the Plan have been satisfied by the issuance of Common 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-<PAGE>   1

                                                                   EXHIBIT 10.16

                              NONEMPLOYEE DIRECTOR
                                RETIREMENT PLAN

                            NIPSCO Industries, Inc.

                                  January 1991

<PAGE>   2

                            NIPSCO INDUSTRIES, INC.
                      NONEMPLOYEE DIRECTOR RETIREMENT PLAN

     Section 1.  Purpose.  The purpose of the NIPSCO Industries, Inc.
Nonemployee Director Retirement Plan (the "Plan") is to assist the Company in
attracting and retaining individuals of superior talent, ability, and
achievement to serve on its Board of Directors.

     Section 2.  Definitions.  The following words and phrases shall have the
meanings set forth below unless a different meaning is required by the context:

     (a)  "Annual Retainer" means the amount paid by the Company to each
          Nonemployee Director as annual compensation for Service as a Director
          and as a member of any committee of the Board and as chairman of any
          such committee, which amount is exclusive of any Board or committee
          meeting fees, or remuneration under other plans, agreements, or
          policies.

     (b)  "Board" means the Board of Directors of the Company.

     (c)  "Change in Control" shall have the meaning ascribed to such term in
          the Company's Change in Control and Termination Agreements.

     (d)  "Committee" means the Nominating and Compensation Committee of the
          Board.

     (e)  "Company" means NIPSCO Industries, Inc., an Indiana corporation,
          including its subsidiaries and any successor organizations.

<PAGE>   3

     (f)  "Director" means an individual who is a member of the Board on or
          after the Effective Date.

     (g)  "Disability" means any physical or mental condition of a permanent
          nature which, in the sole judgment of the Committee, based upon the
          advice of a competent medical professional selected by the Committee,
          prevents a Director from performing his or her duties as a member of
          the Board.

     (h)  "Effective Date" means January 1, 1991.

     (i)  "Eligible Nonemployee Director" means a Nonemployee Director who meets
          the eligibility requirements for retirement benefits under this Plan,
          as set forth in Section 4 herein.  "Eligible Nonemployee Director"
          also shall include any Nonemployee Director eligible to receive
          retirement benefits by virtue of a Change in Control, as set forth in
          Section 8 herein.

     (j)  "Nonemployee Director" means a Director who is not currently employed
          by the Company or any subsidiary of the Company.

     (k)  "Plan" means the NIPSCO Industries, Inc. Nonemployee Director
          Retirement Plan, including any amendments thereto.

     (l)  "Service" means a Director's service on the Board as a Nonemployee
          Director.

     (m)  "Year of Service" means the 12-month period commencing with the first
          day of the calendar month in which each annual meeting of the
          shareholders of the Company takes

                                       3
<PAGE>   4

          place, and throughout which a Director served on the Board as a
          Nonemployee Director.

     Section 3.  Administration.  The Plan shall be administered by the
Committee.  The Committee shall have the authority to interpret the Plan, and
any such interpretation shall be final and binding upon all parties.  The Board
may amend or terminate the Plan at any time, provided that no such amendment or
termination shall adversely affect the amounts payable or vested under the Plan
before the time of such amendment or termination.  The Company shall pay all
distributions made pursuant to the Plan and all costs, charges, and expenses
related to the administration of the Plan.

     Section 4.  Eligibility for Retirement Benefits.  Any Nonemployee Director
who retires, resigns, or is terminated from Service on or after the Effective
Date, having completed at least five (5) full Years of Service, shall be
eligible to receive a retirement benefit calculated in accordance with Section
5 herein, and payable in accordance with Section 6 herein.

     Section 5.  Amount of Retirement Benefit.  Each Eligible Nonemployee
Director shall be paid monthly payments in an amount equal to one-twelfth
(1/12) of the Annual Retainer in effect as of the effective date of his or her
retirement, resignation, or termination from Service.  The number of such
payments shall equal the lesser of: (i) one hundred twenty (120); or (ii) the
number of full months of Service on the Board as a Nonemployee Director.

     Section 6.  Payment of Retirement Benefits.  Payment of retirement
benefits to an Eligible Nonemployee Director under this Plan shall be made in
cash, and shall commence one (1) month following the termination of the
Director's Service for any reason.  For this purpose, the termination of a
Director's Service for Disability shall be deemed to occur on the date that the
Committee

                                       4

<PAGE>   5

designates as the date on which the definition of Disability under this Plan
has been satisfied.

     Section 7.  Payment in the Event of Death.  In the event that an Eligible
Nonemployee Director dies prior to the receipt of all retirement benefits set
forth in this Plan, the Company shall pay the present value of the remaining
unpaid retirement benefits owing to the Nonemployee Director under this Plan in
one cash lump sum within sixty (60) calendar days following the date of death.
The interest rate to be used to determine the present value of the unpaid
retirement benefits shall be the six-month U.S. Treasury Bill rate in effect on
the date of death.  Such payment shall be made to the surviving spouse of the
Director, if any.  If there is no surviving spouse, then the payment shall be
made to the estate of the Director.

     Section 8.  Payment in the Event of Termination of Service Following a
Change in Control.  In the event that the Service of any Eligible Nonemployee
Director terminates within two (2) years following the effective date of a
Change in Control, the Director shall be entitled to receive his or her
retirement benefits under this Plan in the form of a cash lump sum payment in
an amount equal to the present value of the retirement benefits such Director
is eligible to receive under this Plan.

     If, within two (2) years following the effective date of a Change in
Control, the Service on the Board of a Nonemployee Director, who served on the
Board on the effective date of the Change in Control, terminates prior to the
time when the Director has served on the Board for five (5) full years, such
Director shall be entitled to receive a cash lump sum payment in an amount
equal to seventy-five percent (75%) of the present value of the retirement
benefits such Director would have been entitled to receive under this Plan had
the Director served on the Board for five (5) full years prior to termination
of Service.

                                       5
<PAGE>   6

     For purposes of this Section 8, the interest rate to be used to determine
the present value of the unpaid retirement benefits shall be the six-month U.S.
Treasury Bill rate in effect on the date of termination of Service.  Payments
of retirement benefits under this Section 8 shall be made within sixty (60)
calendar days following the date of termination of Service on the Board.

     In the event that the Committee determines that any payment, whether paid
or payable or distributed or distributable pursuant to this Plan would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, or any interest or penalty with respect to such excise tax (such
excise tax together with any interest or penalties thereon are hereinafter
referred to collectively as the "Excise Tax"), the Nonemployee Director subject
to the Excise Tax shall be paid an additional payment (a "Gross-Up Payment") in
an amount such that after the payment by such Nonemployee Director of all taxes
(together with any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, the Nonemployee
Director retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the payment of retirement benefits under this Plan.

     Section 9.  Unfunded Plan.  The Plan shall be a noncontributory,
nonqualified, and unfunded plan.  Retirement benefit payments under the Plan
shall represent an unsecured, general obligation of the Company, and shall be
paid by the Company from its general operating assets.  No special fund or
trust shall be required to be created by the Company to fund the obligations
under the Plan, nor shall any notes or securities be issued with respect to any
retirement benefits under the Plan.

     Section 10.  Certain Payments.  Whenever a former Director who is entitled
to receive a payment under the Plan is a person under legal disability or a
person not adjudicated incompetent but who, by reason of illness or mental or
physical disability, is, in the

                                       6

<PAGE>   7
opinion of the Committee, unable to manage properly his or her affairs, then
such payments shall be paid in one of the following ways, as the Committee
deems advisable: (i) to such person directly; or (ii) to the legally appointed
guardian or conservator of such person for his or her exclusive benefit; or
(iii) in such other manner for the exclusive benefit of such person as the
committee considers advisable. Any payment made in accordance with the
provisions of this Section 10 shall be a complete discharge of any liability of
the Company for the making of such payment under the Plan.

     Section 11.  Miscellaneous.

     (a) Neither the establishment of the Plan, nor any action taken thereunder,
         shall in any way obligate: (i) the Company to nominate a Nonemployee
         Director for reelection or to continue to retain a Nonemployee
         Director; or (ii) a Nonemployee Director to agree to be nominated for
         reelection or to continue to serve on the Board.

     (b) Subject to the provisions of Section 3 hereof, the Plan may not be
         cancelled by the Company upon any merger or consolidation with, or
         acquisition of the Company by any other entity, but shall be binding
         upon and inure to the benefit of the successors and assigns of the
         Company, and the heirs, executors, administrators, and assigns of each
         Eligible Nonemployee Director.

     (c) The Plan shall not affect in any way the rights of any Eligible
         Nonemployee Director under any deferred compensation plan or agreement
         between such Director and the Company.

     (d) The Plan shall be governed by and construed according to the laws of
         the state of Indiana.

                                       7

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