<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NIPSCO INDUSTRIES, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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NIPSCO Industries, Inc.
801 E. 86th Avenue . Merrillville, IN 46410 . (219) 853-
5200
- - -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING
March 15, 1999
To the Holders of Common Shares of
NIPSCO Industries, Inc.:
The annual meeting (the "Annual Meeting") of the shareholders of NIPSCO
Industries, Inc. (the "Company"), will be held at the Century Center, 120
South Saint Joseph Street, South Bend, Indiana, on Wednesday, April 14, 1999,
at 10:00 a.m., Eastern Standard Time, for the following purposes:
(1) to elect three members of the Board of Directors, each for a term of
three years;
(2) to consider and vote upon the Amended and Restated 1994 Long Term
Incentive Plan attached as Exhibit A to the proxy statement;
(3) to consider and vote upon the Amended and Restated 1988 Long Term
Incentive Plan attached as Exhibit B to the proxy statement;
(4) to consider and vote upon an amendment to the Company's Articles of
Incorporation to change the name of the Company to NiSource Inc.; and
(5) to transact any other business that may properly come before the
meeting or any adjournment or adjournments thereof.
All persons who are shareholders of record on March 4, 1999 will be entitled
to vote at the Annual Meeting. The stock transfer books will not close.
In order that there may be proper representation at the meeting, please
vote, sign and mail the enclosed proxy at once. If the Company cannot obtain a
sufficient number of proxies, then the Annual Meeting will have to be
adjourned. Please help avoid the expense and delay of adjourning the meeting
by mailing your proxy promptly. If you attend the Annual Meeting, you may vote
in person, and any proxy that you sign and return will not be voted.
To help the Company arrange for the Annual Meeting, please let us know
whether you plan to attend the Annual Meeting by indicating in the space
provided on the proxy card.
Please Vote, Date, Sign and Return the Enclosed Proxy Promptly.
Nina M. Rausch
Secretary
<PAGE>
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
the Company. The common shares, no par value, of the Company ("Common Shares")
represented by the proxies will be voted as directed. If no direction is
given, returned proxies will be voted "FOR" all of the nominees for director
and "FOR" the other three proposals. If any other matters properly come before
the Annual Meeting, the persons named in the accompanying proxy will vote the
shares represented by such proxies on such matters in accordance with their
best judgment.
This proxy statement and form of proxy are first being sent to shareholders
on March 15, 1999. The Company will bear the expense of this solicitation. The
original solicitation of proxies by mail and a reminder letter may be
supplemented by telephone, facsimile and personal solicitation by officers and
regular employees of the Company or its subsidiaries. To aid in the
solicitation of proxies, the Company has retained Morrow & Co., Inc. for a fee
of $8,000 plus reimbursement of expenses. The Company also will request
brokerage houses and other nominees and fiduciaries to forward proxy
materials, at the Company's expense, to the beneficial owners of stock held of
record by such persons.
All of a shareholder's shares registered in the same name, including those
held for the shareholder as a participant in the Company's Automatic Dividend
Reinvestment and Share Purchase Plan and the Tax Deferred Savings Plan, will
be represented on one proxy.
This proxy may be revoked by the shareholder at any time before a vote is
taken or the authority granted is otherwise exercised. To revoke a proxy, you
may send to the Company's Secretary a letter indicating that you want to
revoke your proxy, or you can deliver to the Secretary a duly executed proxy
bearing a later date that supersedes your former proxy, or you can attend the
meeting and vote in person. Attending the Annual Meeting will not in and of
itself revoke a proxy.
If you plan to attend the Annual Meeting, please indicate in the space
provided on the proxy card, so that the Company may facilitate arrangements.
Stock Split--
All references throughout this Proxy Statement to numbers of Common Shares
reported, including per share amounts, stock option data, restricted share
awards and market price, have been restated to reflect a two-for-one stock
split that was paid on February 20, 1998 to holders of record as of the close
of business on January 30, 1998.
1
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Voting Securities--
The close of business on March 4, 1999, is the date for the determination of
the number of shares outstanding and of shareholders entitled to notice of and
to vote at the Annual Meeting. Each Common Share is entitled to one vote on
each matter.
A quorum of shareholders is necessary to take action at the Annual Meeting.
A majority of the outstanding Common Shares, represented in person or by
proxy, will constitute a quorum of shareholders at the Annual Meeting. The
inspectors of election appointed for the Annual Meeting will determine whether
or not a quorum is present. A plurality of the votes cast at the meeting is
required to elect a director. For the other proposals, approval of such
proposals requires that, of the Common Shares present in person or represented
by proxy at the Annual Meeting, the votes in favor of the proposal exceed the
votes against the proposal. Votes cast by proxy or in person at the meeting
will be tabulated by the inspectors of election. Abstentions and broker non-
votes will be treated as shares that are present, in person or by proxy, for
the purposes of determining the presence of a quorum at the Annual Meeting.
Abstentions and broker non-votes will not be counted as votes cast on any
matter presented at the Annual Meeting. As a result, abstentions and broker
non-votes will not have any effect on the proposals, other than in determining
the existence of a quorum.
PROPOSAL 1--ELECTION OF DIRECTORS
Nominees for Election as Directors
The Company's Board of Directors is composed of ten directors, who are
divided into three classes. Each class serves for a term of three years, and a
class is elected each year. Upon recommendation of the Nominating and
Compensation Committee of the Board of Directors, the Board of Directors has
nominated Ian M. Rolland and John W. Thompson for re-election and Roger A.
Young for election as directors of the Company, each for a term of three years
that will expire in 2002. The Board of Directors does not anticipate that any
of the nominees will be unable to serve, but if such a situation should arise
the proxies will be voted in accordance with the best judgment of the person
or persons acting thereunder.
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The following chart gives information about nominees (who have consented to
being named in the proxy statement and to serve if elected) and incumbent
directors. The dates shown for service as a director include service as a
director of Northern Indiana Public Service Company ("Northern Indiana") prior
to the March 3, 1988 share exchange with the Company.
<TABLE>
<CAPTION>
Has Been
Name, Age and Principal Occupations a
for Past Five Years and Present Director
Directorships Held Since
----------------------------------- --------
Nominees for Terms to Expire in 2002
<S> <C>
Ian M. Rolland, 65--Director of Lincoln National Corporation, Fort
Wayne, Indiana, an insurance and financial services firm and Wells
Fargo & Company. Prior to his 1998 retirement as an executive
officer of Lincoln National Corporation, Mr. Rolland served as
Chairman and Chief Executive Officer................................ 1978
John W. Thompson, 49--General Manager-IBM Americas of IBM
Corporation, White Plains, New York. IBM is a worldwide corporation,
whose offerings include services, software systems, products and
technologies. Mr. Thompson is also a director of Fortune Brands
Inc................................................................. 1993
Roger A. Young, 53--Chairman, Bay State Gas Company, Westborough,
Massachusetts since 1996. Bay State Gas Company is an energy
services company serving more than 305,000 natural gas customers in
the New England states of Massachusetts, New Hampshire and Maine.
Mr. Young also served as Chief Executive Officer of Bay State Gas
Company from 1990 to 1999. Mr. Young also serves as a regional
director of BankBoston Corporation.................................. --
Directors Whose Terms Expire in 2001
Steven C. Beering, 66--President of Purdue University, West
Lafayette, Indiana. Dr. Beering is also a director of Arvin
Industries, Inc., American United Life Insurance Company, Eli Lilly
and Company and Veridian Corporation, Inc........................... 1986
James T. Morris, 55--Chairman and Chief Executive Officer, IWC
Resources Corporation, Indianapolis, Indiana. Mr. Morris is also a
director of Paul Harris Stores, Inc. and National City Bank
(Indianapolis)...................................................... 1997
Denis E. Ribordy, 69--Vice Chairman of the Chicago Motor Club,
Chicago, Illinois; retired President of Ribordy Drugs, Inc.,
Merrillville, Indiana, a retail drugstore chain..................... 1981
</TABLE>
3
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<TABLE>
<CAPTION>
Has Been
Name, Age and Principal Occupations a
for Past Five Years and Present Director
Directorships Held Since
----------------------------------- --------
<S> <C>
Carolyn Y. Woo, 44--Gillen Dean and Siegfried Professor, College of
Business Administration, University of Notre Dame, South Bend,
Indiana. Ms. Woo is also a director of Bindley Western Industries,
Inc. and AON Corporation............................................ 1997
Directors Whose Terms Expire in 2000
Arthur J. Decio, 68--Chairman of the Board and Director of Skyline
Corporation, Elkhart, Indiana, a manufacturer of manufactured
housing and recreational vehicles. Mr. Decio is also a director of
Quality Dining, Inc................................................. 1991
Gary L. Neale, 59--Chairman, President and Chief Executive Officer of
the Company and of Northern Indiana since March 1, 1993; prior
thereto, Executive Vice President of the Company, and President and
Chief Operating Officer of Northern Indiana. Mr. Neale is also a
director of Modine Manufacturing Company and Chicago Bridge and Iron
Company............................................................. 1991
Robert J. Welsh, 63--Chairman and Chief Executive Officer of Welsh,
Inc., Merrillville, Indiana, a marketer of petroleum products
through convenience stores and travel centers....................... 1988
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE TO APPROVE THE PROPOSAL
TO ELECT MESSRS. IAN M. ROLLAND, JOHN W. THOMPSON AND ROGER A. YOUNG AS
DIRECTORS OF THE COMPANY, EACH TO SERVE FOR A TERM OF THREE YEARS UNTIL 2002.
Meetings and Committees of the Board of Directors--
The Board of Directors of the Company met ten times during 1998. The Board
has the following six standing committees: the Executive Committee, the Audit
Committee, the Nominating and Compensation Committee, the Environmental
Affairs Committee, the Public Affairs and Employment Committee and the
Corporate Governance Committee.
During 1998, each director attended at least 75% of the combined total
number of the Company's Board meetings and the meetings of the respective
committees on which he or she was a member.
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The Executive Committee has the authority to act on behalf of the Board at
such times as is reasonably necessary when the Board is not in session. The
Committee did not meet in 1998. Mr. Neale was Chairman and Dr. Beering and
Messrs. Decio, Rolland and Welsh were members of the Committee in 1998.
The Audit Committee met five times in 1998. The Committee has reviewed and
made recommendations to the Board with respect to the engagement of the
independent public accountants, both for 1998 and 1999, and the fees relating
to audit services and other services performed by them. The Committee meets
with the independent public accountants and officers responsible for Company
financial matters. Members of the Committee in 1998 were Mr. Rolland, Chairman,
Messrs. Schroer and Thompson and Ms. Woo.
The Nominating and Compensation Committee met five times in 1998. The
Committee advises the Board with respect to nominations of directors and the
salary, compensation and benefits of directors and officers of the Company. Dr.
Beering was Chairman of the Committee, and Messrs. Decio, Ribordy and Welsh
were members during 1998. The Committee considers nominees for directors
recommended by shareholders. The Company's By-laws require that shareholders
who desire to nominate a person for election as a director at the 2000 annual
meeting must deliver a written notice to the Secretary of the Company by
November 15, 1999. The notice of nomination must set forth (i) the name, age
and address of each nominee proposed, (ii) the principal occupation or
employment of the nominee, (iii) the number of Common Shares beneficially owned
by the nominee and (iv) such other information concerning the nominee as would
be required, under the rules of the Securities and Exchange Commission, in a
proxy statement soliciting proxies for the election of the nominee. The
nomination notice must also include the nominating shareholder's name and
address and the number of Common Shares beneficially owned by the shareholder.
The shareholder must also furnish the signed consent of the nominee to serve as
a director, if elected.
The Environmental Affairs Committee met twice during 1998. The Committee
reviews the status of environmental compliance of the Company, and considers
Company public policy issues. Members of the Committee in 1998 were Mr. Welsh,
Chairman, Messrs. Decio and Schroer and Ms. Woo.
The Public Affairs and Employment Committee met twice in 1998. The Committee
advises the Board regarding charitable and political contributions, employment
policies, shareholder proposals concerning matters of general public interest
and consumer and utility industry related issues. Members of the Committee in
1998 were Mr. Thompson, Chairman, Dr. Beering and Messrs. Morris, Ribordy and
Rolland.
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<PAGE>
The Corporate Governance Committee met once in 1998. The Committee consists
of all members of the Board who are not also officers. The Committee meets
once a year to evaluate/advise the Board regarding the performance of the
Board of Directors and each of its members and the nature and amount of
information flowing between the Board, management and shareholders. Members of
the Committee in 1998 were Mr. Rolland, Chairman, Dr. Beering, Messrs. Decio,
Ribordy, Rolland, Schroer, Thompson and Welsh and Ms. Woo.
Compensation of Directors--
Each director who is not receiving a salary from the Company is paid $20,000
per year, $3,000 annually per standing committee on which the director sits,
$1,000 annually for each committee chairmanship, $1,000 for each Board meeting
attended and $750.00 per committee meeting attended. Directors of the Company
do not receive any additional compensation for services as a director of any
Company subsidiary, including Northern Indiana. Under a deferred compensation
arrangement, directors may have their fees deferred in the current year and
credited to an interest-bearing account or to a phantom stock account for
payment in the future.
The Company's Nonemployee Director Retirement Plan provides a retirement
benefit for each nonemployee director of the Company who has completed at
least five years of service on the Board. The benefit will be an amount equal
to the annual retainer for Board service in effect at the time of the
director's retirement from the Board, to be paid for the lesser of ten years
or the number of years of service as a nonemployee director of the Company.
The Company's Nonemployee Director Stock Incentive Plan provides for grants
of restricted Common Shares to nonemployee directors of the Company. Initial
grants were made in 1992, following shareholder approval of the plan, at the
level of 500 shares for each year of service as a director, and 2,000
restricted Common Shares have been granted to each nonemployee director
elected or re-elected since that date. A grant of 2,000 shares will be made in
the future to each person, other than an employee of the Company, who is
elected or re-elected as a director of the Company. The grants of restricted
shares vest in 20% annual increments, with full vesting five years after the
date of award. In 1998, 2,000 restricted Common Shares were granted to Dr.
Beering, Mr. Ribordy and Ms. Woo under this plan.
The Company's Nonemployee Director Restricted Stock Unit Plan, which was
adopted by the Board in December 1998 and made effective as of January 1,
1999, is a phantom stock plan that provides for grants to nonemployee
directors of restricted stock units that have a value related to the Company's
Common Shares. Each nonemployee director will receive an initial grant of 500
units in April 1999, and subsequent grants of 500 units will be made annually
to
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nonemployee directors upon election or re-election to the Board. The grants of
units vest in 20% annual increments, with full vesting five years after the
date of award, and the units have no voting or stock ownership rights.
The Company has adopted a Directors' Charitable Gift Program for nonemployee
directors. Under the program, the Company makes a donation to one or more
eligible tax-exempt organizations as designated by each eligible director. The
Company contributes up to an aggregate of $125,000 as designated by nonemployee
directors having served as a director of the Company for at least five years
and up to $250,000 as designated by those having served ten years or more.
Organizations eligible to receive a gift under the program include charitable
organizations and educational institutions located in Indiana and educational
institutions that the director attended or for which he or she serves on its
governing board. Individual directors derive no financial benefit from the
program, as all deductions relating to the charitable donations accrue solely
to the Company. All current nonemployee directors are eligible to participate
in the program.
Certain Relationships and Related Transactions--
On February 12, 1999, the Company acquired Bay State Gas Company, a
Massachusetts corporation ("Bay State"). Mr. Roger A. Young was Chairman of the
Board and Chief Executive Officer of Bay State at the time of the acquisition.
Pursuant to the acquisition transaction, Mr. Young will receive Common Shares
and/or cash in exchange for his Bay State shares in the same proportion as
other Bay State shareholders. In connection with the Bay State acquisition
transaction, Mr. Young is standing for election as a director of the Company.
Bay State will enter into a nine-month employment agreement with Mr. Young,
guaranteed by the Company, and Mr. Young will enter into a covenant not to
compete with the Company. The employment agreement provides Mr. Young with a
base compensation and a performance-based bonus. For the nine-month term of the
employment agreement, Mr. Young will receive base compensation of $641,000 and
can earn a performance-based bonus of up to $1,600,000. In consideration of Mr.
Young's covenant not to compete, he will be paid $3,200,000. Some of the
foregoing payments will be deferred at a market rate of interest and no
interest will be paid to Mr. Young in 1999. Certain of the above payments may
be increased in respect of taxes payable.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is not aware of any beneficial owner of more than 5% of its
Common Shares, as of January 30, 1999.
The following table sets forth information as to the beneficial ownership of
Common Shares, as of January 30, 1999, for each of the directors, nominees and
named executive officers, and for all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Name of
Beneficial Amount and Nature of
Owner Beneficial Ownership(/1/)
---------- -------------------------
<S> <C>
Steven C. Beering.............................. 8,627
Arthur J. Decio................................ 8,500
James T. Morris................................ 38,435
Gary L. Neale.................................. 444,050(/2/)
Denis E. Ribordy............................... 57,000(/3/)
Ian M. Rolland................................. 16,664
Edmund A. Schroer.............................. 17,500
John W. Thompson............................... 5,050
Robert J. Welsh................................ 12,000
Carolyn Y. Woo................................. 2,000
Roger A. Young................................. 156,567(/4/)
Stephen P. Adik................................ 255,299(/2/)
Patrick J. Mulchay............................. 202,347(/2/)
Jeffrey W. Yundt............................... 224,540(/2/)
Joseph L. Turner............................... 119,579(/2/)
All directors and executive officers as a
group......................................... 2,042,296
</TABLE>
- - --------
(/1/) The number of shares owned includes shares held in the Company's
Automatic Dividend Reinvestment and Share Purchase Plan, shares held in
the Company's Tax Deferred Savings Plan (the "401(k) Plan") and
restricted shares awarded under the Company's 1988 and 1994 Long-Term
Incentive Plans (the "Incentive Plans") and Nonemployee Director Stock
Incentive Plan, where applicable. The percentage of Common Shares owned
by all directors and officers as a group is approximately 1.60 percent
of the Common Shares outstanding as of January 30, 1999.
(/2/) The totals include shares for which the following executive officers
have a right to acquire beneficial ownership, within 60 days after
January 30, 1999, by exercising stock options granted under the
Incentive Plans: Gary L. Neale--260,000 shares; Stephen P. Adik--
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152,000 shares; Patrick J. Mulchay--134,400 shares; Jeffrey W. Yundt--
152,000 shares; Joseph L. Turner--65,000 shares; and all executive officers
as a group--1,052,700 shares.
(/3/) Mr. Ribordy disclaims beneficial ownership of 400 shares owned by his
wife.
(/4/) The number of shares held by Mr. Young reflect the number of Common
Shares he will hold upon conversion of the shares he holds in Bay State
and includes 129,726 Common Shares which he has the right to acquire
through the exercise of options granted to him by Bay State.
EXECUTIVE COMPENSATION
Nominating and Compensation Committee Report on Executive Compensation--
The Nominating and Compensation Committee's ("Compensation Committee")
compensation policy for all executive officers, including the person who
served as Chief Executive Officer of the Company during 1998 and the four
other most highly compensated executive officers of the Company (the "Named
Officers"), is designed to relate total compensation (base salary, incentive
bonus and long-term, stock-based compensation) to corporate performance. The
Compensation Committee has implemented a "pay-for-performance" program which
is designed to position the Company's executive compensation competitively and
to reward performance that creates additional shareholder value. The
Compensation Committee discusses and considers executive compensation matters,
then makes recommendations to the full Board of Directors, which takes the
final action on such matters. The Board accepted all of the Compensation
Committee's recommendations in 1998.
The Compensation Committee has engaged Hewitt Associates ("Hewitt"), an
independent compensation consulting firm, to advise it and provide surveys of
comparative compensation practices for a group of similarly sized energy
companies, typically electric, gas or combination utility companies,
approximately half of which are located in the Midwest. The 1998 executive
compensation comparative group consisted of 21 companies from which data was
available to Hewitt and which were believed to be competitors of the Company
for executive talent. The comparative compensation group is subject to change
in future years if information about any company included in the group is not
available, if it is determined that any companies included in the group are no
longer competitors for executive talent, or if different energy or other types
of companies are determined to be competitors. The changing nature of the
Company's competitive businesses is expected to require the inclusion of
nonutility companies into the comparative compensation group in future years.
The Company's comparative compensation
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group is not the same as the corporations that make up the Dow Jones Utilities
Index in the Stock Price Performance Graph included in this proxy statement.
The Compensation Committee considers the surveys provided by Hewitt in
determining base salary, incentive bonus and long-term stock-based
compensation. The Compensation Committee's philosophy is to set conservative
base salaries while providing performance-based variable compensation through
the bonus and incentive plans described below to allow total compensation to
fluctuate according to the Company's financial performance. Long-term
incentive awards are stock-based (e.g., stock options or performance-based
restricted stock awards) to emphasize long-term stock price appreciation and
the concomitant increased shareholder value. In 1998, total compensation of
the executive officers, including the Chief Executive Officer, was targeted
between the 50th and the 75th percentile of the comparative compensation
group. Total compensation would reach this level only if the Company met the
applicable performance targets under the bonus and incentive plans. For those
executive officers with significant responsibilities for Northern Indiana's
business or Primary Energy's business, their total compensation is also
dependent on Northern Indiana's pre-tax operating income or Primary Energy's
pre-tax return on assets, respectively.
In establishing Mr. Neale's base salary for 1998, the Compensation Committee
reviewed information provided by Hewitt regarding the chief executive officer
compensation practices of comparative energy companies. The Compensation
Committee determined to set base salary near the median salary of the
comparative group, giving regard to Mr. Neale's proven abilities and strong
performance with the Company since joining it as Executive Vice President and
Chief Operating Officer in 1989. As with the other executive officers, Mr.
Neale's total compensation was targeted to be between the 50th and the 75th
percentile of the comparative compensation group, depending upon the Company's
financial performance. The result of the Compensation Committee's
determination as to Mr. Neale's total compensation package was that more than
50% of Mr. Neale's total compensation was performance-based and at risk,
dependent upon the Company's earnings per share and stock price performance.
This compensation would be realized only if specific financial benchmarks were
reached by the Company.
Annual incentive awards for all executive officers are determined in
accordance with the Senior Management Incentive Plan (the "Bonus Plan"). One
Named Officer, however, also receives compensation under the Primary Energy
Plan. (see note (6) to the Summary Compensation Table.) The Bonus Plan sets
forth a formula established at the beginning of each fiscal year by the
Compensation Committee for awarding incentive bonuses, based upon the
Company's financial performance. Bonuses awarded to each of the Named Officers
(including the Chief Executive Officer) are based on overall corporate
financial performance, rather than
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individual performance of the executive. In 1998, the bonus formula (and the
relative weight of the factors on which it was based) was based upon attaining
targets for the Company's earnings per share and, in the case of executive
officers who have significant responsibilities for Northern Indiana, the pre-
tax operating income of Northern Indiana. The range of awards and levels of
awards (as a percent of base salary), if financial performance targets are
achieved, are as follows:
<TABLE>
<CAPTION>
Award if
Range Targets Met
-------- -----------
<S> <C> <C>
Chief Executive Officer................................. 0 to 85% 70%
Executive Vice Presidents............................... 0 to 75% 65%
Senior Vice Presidents and
Vice Presidents........................................ 0 to 65% 45%
</TABLE>
The required financial performance levels of the Company necessary to attain
the maximum and target bonus levels have been increased annually since the
inception of the Bonus Plan in 1990. In 1998, the Company's actual earnings
per share were slightly lower than targeted.
Executive officers are also eligible to receive awards under the Company's
Long-Term Incentive Plans. Under the Long-Term Incentive Plans, stock options,
stock appreciation rights, performance units, restricted stock awards and
supplemental cash payments may be awarded. Stock options and restricted stock
awards were awarded in 1998. Base salaries of the executive officers, prior
awards under the Long-Term Incentive Plan, and the Company's total
compensation target are considered in establishing long-term incentive awards.
Options and restricted stock awards granted to executive officers are valued
using the Black-Scholes option pricing model at the time of grant for purposes
of determining the number of options to be granted to reach total target
compensation. In 1998, the number of options and restricted shares granted to
the Chief Executive Officer and other executive officers (including all Named
Officers) was based on these considerations. The compensation value of stock
options and/or restricted stock awards depends on actual stock price
appreciation. In addition, restricted stock awards are subject to performance
vesting criteria. The criteria for 1998 awards involve meeting specific
performance objectives.
Section 162(m) of the Internal Revenue Code provides that compensation in
excess of $1,000,000 per year paid to the chief executive officer or any of
the four other most highly compensated executive officers employed at year-
end, other than compensation meeting the definition of "performance-based
compensation," will not be deductible by a corporation for federal income tax
purposes. The Compensation Committee believes that, upon approval of the
Incentive Plans by the shareholders, the Company's long-term stock-based
compensation
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constitutes performance-based compensation for purposes of the Internal
Revenue Code. In light of its emphasis on such performance-based compensation,
the Compensation Committee does not anticipate that the limits of Section
162(m) will materially affect the deductibility of compensation paid by the
Company. However, the Compensation Committee will continue to review the
deductibility of compensation under Section 162(m) and related regulations.
The Compensation Committee believes that its overall executive compensation
program has been successful in providing competitive compensation sufficient
to attract and retain highly qualified executives, while at the same time
encouraging increased performance from the executive officers which creates
additional shareholder value.
Nominating and Compensation
Committee
Steven C. Beering, Chairman
Arthur J. Decio
Denis E. Ribordy
Robert J. Welsh
January 30, 1999
12
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative
total shareholder return on Common Shares, from 1993 through 1998, with the
cumulative total return on the Standard & Poor's 500 Stock Index and the Dow
Jones Utilities Average, assuming the investment of $100 on December 31, 1993
and the reinvestment of dividends.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG NIPSCO, S&P 500 INDEX AND PEER GROUP
<CAPTION>
Measurement Period S&P DJ UTILITIES
(Fiscal Year Covered) NIPSCO 500 INDEX PEER GROUP
- - ------------------- ------ --------- ------------
<S> <C> <C> <C>
Measurement Pt-
12/31/1993 $100 $100 $100
FYE 12/31/1994 $ 94.90 $101.31 $ 84.75
FYE 12/31/1995 $127.92 $139.33 $112.45
FYE 12/31/1996 $138.58 $171.31 $122.45
FYE 12/31/1997 $180.62 $228.44 $150.60
FYE 12/31/1998 $230.39 $293.73 $178.96
</TABLE>
13
<PAGE>
Compensation of Executive Officers--
Summary. The following table summarizes compensation for services to the
Company and its subsidiaries, including Northern Indiana, for the years 1998,
1997 and 1996 awarded to, earned by or paid to each of the Named Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(/1/) Compensation
------------------------------ --------------------
Awards Payouts
---------- ---------
Other Securities Long-Term All
annual Under- Incentive other
compen- lying Plan Compen-
Name and Principal Salary Bonus sation Options/ Payouts sation
Position Year ($) ($)(/2/) ($)(/3/) SARS (#) ($)(/4/) ($)(/5/)
- - ------------------ ---- ------- -------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Neale, 1998 561,250 345,000 7,073 50,000 415,251 31,704
Chairman, President and 1997 520,000 390,000 6,711 50,000 -- 42,993
Chief Executive Officer 1996 460,000 236,624 5,161 50,000 567,188 40,129
Stephen P. Adik, 1998 268,750 148,500 2,202 20,000 207,626 5,324
Senior Executive Vice
President, Chief 1997 250,000 171,250 2,575 20,000 -- 5,673
Financial Officer and
Treasurer 1996 205,000 84,952 9,103 20,000 283,594 5,919
Patrick J. Mulchay, 1998 225,000 148,350 1,412 20,000 -- 6,666
Executive Vice
President, 1997 210,000 150,675 851 20,000 -- 7,506
President and Chief
Operating Officer-- 1996 175,000 72,520 1,614 20,000 283,594 7,717
Northern Indiana Public
Service
Company
Jeffrey W. Yundt, 1998 225,000 124,200 6,348 20,000 -- 3,485
Executive Vice
President, 1997 210,000 143,850 8,905 20,000 -- 3,693
President and Chief
Executive Officer-- 1996 175,000 75,520 1,671 20,000 283,594 3,824
Bay State Gas Company
Joseph L. Turner, 1998 195,000 205,838(/6/) 2,203 10,000 -- 6,948
Senior Vice President 1997 180,000 113,675(/6/) 1,175 8,000 -- 7,599
1996 160,000 182,958 5,144 10,000 283,594 8,100
</TABLE>
- - --------
(/1/Compensation)deferred at the election of the Named Officer is reported in
the category and year in which such compensation was earned.
14
<PAGE>
(/2/All)bonuses are paid pursuant to the Bonus Plan, except for a portion of
the bonus paid to Joseph L. Turner, which is described in Note 6. The
Bonus Plan is designed to supplement a conservative base salary with
incentive bonus payments if targeted financial performance is attained.
The 1998 target aggregate payout for the Bonus Plan for the Named Officers
was $974,825, which was more than the actual aggregate payout for the
Named Officers. See "Nominating and Compensation Committee Report on
Executive Compensation."
(/3/In)accordance with applicable Securities and Exchange Commission rules,
the amounts shown for each of the Named Officers do not include
perquisites and other personal benefits, as the aggregate amount of such
benefits is less than the lesser of $50,000 and 10% of the total salary
and bonus of such Named Officer.
(/4/The)payouts shown are based on the value, at date of vesting, of
restricted shares awarded under the Long-Term Incentive Plans which vested
during the years shown. Vesting was based on meeting certain performance
requirements. Total restricted shares held (assuming 100% vesting) and
aggregate market value at December 31, 1998 (based on the average of the
high and low sale prices of the Common Shares on that date as reported in
The Wall Street Journal) for the Named Officers were as follows: Mr.
Neale, 128,000 shares valued at $3,860,006; Messrs. Adik, Mulchay and
Yundt, 50,000 shares, each valued at $1,507,815; and Mr. Turner, 29,645
shares (includes 5,645 shares purchased pursuant to the PE Plan described
in footnote 6) valued at $893,984. Dividends on the restricted shares are
paid to the Named Officers.
(/5/The)Chairman, President and Chief Executive Officer, the Executive Vice
Presidents and certain Vice Presidents of the Company and Northern Indiana
have available to them a supplemental life insurance plan which provides
split-dollar coverage of up to 3.5 times base compensation as of
commencement of the plan in 1991 and could provide life insurance coverage
after retirement if there is adequate cash value in the respective policy.
"All other Compensation" represents Company contributions to the 401(k)
Plan and the dollar value of the benefit to the Named Officers under the
supplemental life insurance plan, as follows: Mr. Neale--$1,066 401(k)
Plan, $27,411 premium value and $3,228 term insurance cost; Mr. Adik--
$1,110 401(k) Plan, $3,252 premium value and $962 term insurance cost; Mr.
Mulchay--$362 401(k) Plan, $5,269 premium value and $1,035 term insurance
cost; Mr. Yundt--$2,754 premium value and $731 term insurance cost and Mr.
Turner--$5,253 premium value and $1,695 term insurance cost. The value of
the life insurance premiums paid by the Company in excess of term
insurance cost on behalf of the Named Officers under the supplemental life
insurance plan has been restated for all periods in accordance with the
present value interest-free loan method.
(/6/Joseph)L. Turner is also President of Primary Energy, Inc., and
participates in the Primary Energy Incentive Plan ("PE Plan"). The PE Plan
provides for a bonus based on meeting
15
<PAGE>
certain financial performance criteria of Primary Energy. Under the PE
Plan, $93,023 of Mr. Turner's bonus for 1998 was used to purchase Common
Shares of the Company on or about February 26, 1999, the date of payment of
the bonus. In 1997, $41,043 of Mr. Turner's bonus under the PE Plan was
used to purchase Common Shares of the Company on or about February 27,
1998, the date of payment of the bonus. The PE Plan provides that the
Common Shares are restricted for a period of five years, subject to
continued employment, except that they vest earlier in the event of the
employee's retirement, death or disability.
Option Grants in 1998. The following table sets forth grants of options to
purchase Common Shares made during 1998 to the Named Officers. No stock
appreciation rights were awarded during 1998.
Option/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
- - --------------------------------------------------------------------------------------------
Number of
Securities Percent of Total Grant
Underlying Options/SARs Date
Options/SARs granted to Exercise or Present
Granted Employees in Base Expiration Value
Name (#)(/1/) Fiscal Year(/2/) Price ($/Sh)(/3/) Date ($)(/4/)
- - ---- ------------ ---------------- ----------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Gary L. Neale........... 50,000 8.2% $29.22 08/25/08 $214,000
Stephen P. Adik......... 20,000 3.3% 29.22 08/25/08 85,600
Patrick J. Mulchay...... 20,000 3.3% 29.22 08/25/08 85,600
Jeffrey W. Yundt........ 20,000 3.3% 29.22 08/25/08 85,600
Joseph L. Turner........ 10,000 1.6% 29.22 08/25/08 42,800
</TABLE>
- - --------
(/1/All)options granted in 1998 are fully exercisable commencing one year from
the date of grant. Vesting may be accelerated as a result of certain
events relating to a change in control of the Company. The exercise price
and tax withholding obligation related to exercise may be paid by delivery
of already owned Common Shares or by reducing the number of Common Shares
received on exercise, subject to certain conditions.
(/2/Based)on an aggregate of 607,000 options granted to all employees in 1998.
(/3/All)options were granted at the average of high and low sale prices of the
Common Shares as reported in The Wall Street Journal on the date of grant.
(/4/Grant)date present value is determined using the Black-Scholes option
pricing model. The assumptions used in the Black-Scholes option pricing
model were as follows: volatility--13.09% (calculated using daily Common
Share prices for the twelve-month period preceding the date of grant);
risk-free rate of return--5.29% (the rate for a ten-year U.S.
16
<PAGE>
treasury); dividend yield--$0.96; option term--ten years; vesting--100% one
year after date of grant; and an expected option term of 5.4 years. No
assumptions relating to non-transferability or risk of forfeiture were made.
Actual gains, if any, on option exercises and Common Shares are dependent on
the future performance of the Common Shares and overall market condition.
There can be no assurance that the amounts reflected in this table will be
achieved.
Option Exercises in 1998. The following table sets forth certain information
concerning the exercise of options or stock appreciation rights ("SARs") during
1998 by each of the Named Officers and the number and value of unexercised
options and SARs at December 31, 1998.
Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/SARs
Acquired Options/SARs at Fiscal at Fiscal Year-End
on Value Year-End (#) ($)(/1/)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Neale........... 80,000 $1,266,871 260,000 50,000 $3,405,470 $46,875
Stephen P. Adik......... 11,200 232,400 152,000 20,000 2,352,687 18,750
Patrick J. Mulchay...... -- -- 134,000 20,000 1,971,662 18,750
Jeffrey W. Yundt........ -- -- 152,000 20,000 2,352,687 18,750
Joseph L. Turner........ 12,000 163,437 65,000 10,000 887,156 9,375
</TABLE>
- - --------
(/1/Represents)the difference between the option exercise price and $30.16, the
average of high and low sale prices of the Common Shares on December 31,
1998, as reported in The Wall Street Journal.
17
<PAGE>
Long-Term Incentive Plan Awards in 1998. The following table sets forth
restricted shares awarded pursuant to the Long-Term Incentive Plans during
1998 to each of the Named Officers.
Long-Term Stock Incentive Plans--Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Performance
or Other
Period Estimated Future Payouts Under
Number of Shares, Until Non-Stock Price-Based Plans
Units or Other Maturation ------------------------------------
Name Rights (#) or Payout Threshold (#) Target (#) Maximum (#)
- - ---- ----------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gary L. Neale........... 20,000 2 years -- 20,000 20,000
Stephen P. Adik......... 10,000 2 years -- 10,000 10,000
Patrick J. Mulchay...... 10,000 2 years -- 10,000 10,000
Jeffrey W. Yundt........ 10,000 2 years -- 10,000 10,000
Joseph L. Turner........ -- -- -- -- --
</TABLE>
The restrictions on shares awarded during 1998 lapse two years from the date
of grant. The vesting of the restricted shares is variable from 0% to 100% of
the number awarded, based upon meeting certain specific financial performance
objectives. There is a two-year holding period for the shares after the
restrictions lapse.
18
<PAGE>
Pension Plan and Supplemental Executive Retirement Plan--
The following table shows estimated annual benefits, giving effect to the
Company's Supplemental Executive Retirement Plan (as described below), payable
upon retirement to persons in the specified remuneration and years-of-service
classifications.
Pension Plan Table
<TABLE>
<CAPTION>
Remuneration Years of service
- - ------------ ---------------------------------------
15 20 25 30 35
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 350,000.............................. 144,750 193,000 201,750 210,500 210,500
400,000.............................. 167,250 223,000 233,000 243,000 243,000
450,000.............................. 189,750 253,000 264,250 275,500 275,500
500,000.............................. 212,250 283,000 295,500 308,000 308,000
550,000.............................. 234,750 313,000 326,750 340,500 340,500
600,000.............................. 257,250 343,000 358,000 373,000 373,000
650,000.............................. 279,750 373,000 389,250 405,500 405,500
700,000.............................. 302,250 403,000 420,500 438,000 438,000
750,000.............................. 324,750 433,000 451,750 470,500 470,500
800,000.............................. 347,250 463,000 483,000 503,000 503,000
850,000.............................. 369,750 493,000 514,250 535,500 535,500
900,000.............................. 392,250 523,000 545,500 568,000 568,000
950,000.............................. 414,750 553,000 576,750 600,500 600,500
1,000,000.............................. 437,250 583,000 608,000 633,000 633,000
1,050,000.............................. 459,750 613,000 639,250 665,500 665,500
1,100,000.............................. 482,250 643,000 670,500 698,000 698,000
</TABLE>
The credited years of service for each of the Named Officers, pursuant to
the Supplemental Plan, are as follows: Gary L. Neale--24 years; Stephen P.
Adik--20 years; Patrick J. Mulchay--36 years; Jeffrey W. Yundt--19 years; and
Joseph L. Turner--27 years.
Upon their retirement, regular employees and officers of the Company and its
subsidiaries which adopt the plan (including directors who are also full-time
officers) will be entitled to a monthly pension in accordance with the
provisions of the Company's pension plan, originally effective as of January
1, 1945. The directors who are not and have not been officers of the Company
are not included in the pension plan. The pensions are payable out of a trust
fund established under the pension plan with The Northern Trust Company,
trustee. The trust fund
19
<PAGE>
consists of contributions made by the Company and the earnings of the fund.
Over a period of years the contributions are intended to result in over-all
actuarial solvency of the trust fund. The pension plan of the Company has been
determined by the Internal Revenue Service to be qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code").
Pension benefits are determined separately for each participant. The formula
for a monthly payment for retirement at age 65 is 1.7% of average monthly
compensation multiplied by years of service (to a maximum of 30 years) plus
0.6% of average monthly compensation multiplied by years of service over 30.
Average monthly compensation is the average for the 60 consecutive highest-paid
months in the employee's last 120 months of service. Covered compensation is
defined as wages reported as W-2 earnings (up to a limit set forth in the Code
and adjusted periodically) plus any salary reduction contributions made under
the 401(k) Plan, minus any portion of a bonus in excess of 50% of base pay, and
any amounts paid for unused vacations. The benefits listed in the Pension Plan
table are not subject to any deduction for Social Security or other offset
amounts.
The Company also has a Supplemental Executive Retirement Plan for officers.
Participants in the Plan are selected by the Board of Directors. Benefits from
the Plan are to be paid from the general assets of the Company.
The Supplemental Plan provides the larger of (i) 60% of five-year average pay
less Primary Social Security Benefits (prorated for less than 20 years of
service) and an additional 0.5% of 5-year average pay less Primary Social
Security Benefits per year for participants with between 20 and 30 years of
service, or (ii) the benefit formula under the Company's Pension Plan. In
either case, the benefit is reduced by the actual pension payable from the
Company's Pension Plan. In addition, the Supplemental Plan provides certain
disability and pre-retirement death benefits for the spouse of a participant.
Change in Control and Termination Agreements--
The Board of Directors of the Company has authorized Change in Control and
Termination Agreements (the "Agreements") with Mr. Neale and the Vice
Presidents of the Company (including each of the Named Officers) (each such
person being an "executive"). The Company believes that these Agreements and
related shareholder rights protections are in the best interests of the
shareholders, to insure that in the event of extraordinary events, totally
independent judgment is enhanced to maximize shareholder value. The Agreements,
which are terminable upon three years' notice, provide for the payment of three
times then current annual base salary and target incentive bonus compensation
and the continuation of certain employee
20
<PAGE>
benefits for a period of 36 months (the "Severance Period"), and a pro rata
portion of the executive's targeted incentive bonus for the year of
termination. These benefits are payable if the executive terminates employment
for "Good Reason" or is terminated by the company for any reason other than
"Good Cause" within twenty-four months following certain changes in control.
Each of these Agreements also provides for payment of these benefits if the
executive voluntarily terminates employment during a specified period within
the twenty-four months following the change in control.
The executive would receive benefits from the Company that would otherwise
be earned during the Severance Period under the Company's Supplemental Plan
and qualified retirement plans. All stock options held by the executive would
become immediately exercisable upon the date of termination of employment, and
the restrictions would lapse on all restricted shares awarded to the
executive. If any penalty tax under the Code is imposed on the payment of
amounts under the contracts, the Company would increase the payment to the
extent necessary to compensate the executive for the imposition of such tax.
During the Severance Period, the executive and spouse would continue to be
covered by applicable health or welfare plans of the Company. If the executive
died during the Severance Period, all amounts payable to the executive would
be paid to a named beneficiary. No amounts would be payable under the
Agreements if the executive's employment were terminated by the Company for
Good Cause (as defined in the Agreements).
The Agreement with Mr. Neale also provides for the same severance payments
as above described in the event his employment is terminated at any time by
the Company (other than for Good Cause) or due to death or disability, or if
he voluntarily terminates employment with Good Reason (as defined in the
Agreements).
PROPOSAL 2--APPROVAL OF THE AMENDED AND RESTATED
NIPSCO INDUSTRIES, INC. 1994 LONG-TERM INCENTIVE PLAN
Background
At the annual meeting of shareholders held on April 13, 1994, the
shareholders of the Company approved the NIPSCO Industries, Inc. 1994 Long-
Term Incentive Plan ("1994 Incentive Plan"). Since 1994, the Nominating and
Compensation Committee of the Board of Directors ("Compensation Committee")
has approved certain minor amendments to the 1994 Incentive Plan, as permitted
by the 1994 Incentive Plan. At a Compensation Committee meeting on February
24, 1999, the Compensation Committee approved certain additional amendments
21
<PAGE>
to the 1994 Incentive Plan ("Proposed Amendments"), described more fully
below, and directed that the 1994 Incentive Plan, as amended ("Amended and
Restated 1994 Incentive Plan") be submitted to shareholders for their
approval.
As approved by the shareholders in 1994, the 1994 Incentive Plan did not
specify the business criteria to be used with respect to the grant of
restricted stock awards. The Compensation Committee has therefore determined
the business criteria at the time the restricted stock awards were made.
Section 162(m) of the Code limits the ability of a publicly held corporation,
such as the Company, to deduct compensation paid to certain executives if that
compensation exceeds $1,000,000. This limitation does not apply to qualified
performance-based compensation. Pursuant to the regulations issued under
Section 162(m), restricted stock awards made under the 1994 Incentive Plan
would not be considered qualified performance-based compensation unless the
shareholders have approved the business criteria used by the Compensation
Committee. The regulations also require that the plan include per participant
limits for certain types of awards available under the plan. Therefore, the
Company is seeking shareholder approval of the Amended and Restated 1994
Incentive Plan which, as a result of the Proposed Amendments, will now
specifically include the business criteria used by the Compensation Committee
for outstanding and future grants of restricted stock and will contain the
necessary per participant limits.
The Section 162(m) regulations also provided that plans, like the 1994
Incentive Plan, along with satisfying certain other requirements, must be
submitted for shareholder reapproval every five years. Because the 1994
Incentive Plan was last voted on at the annual shareholders' meeting held in
1994, it is necessary to obtain shareholder reapproval of the 1994 Incentive
Plan, even if there were no amendments being made to the plan. Therefore, the
Company recommends that the shareholders approve the Amended and Restated 1994
Incentive Plan, which is summarized in the remainder of this section. If the
Amended and Restated 1994 Incentive Plan is not approved, the Company intends
to continue the 1994 Incentive Plan in its current form. A copy of the Amended
and Restated 1994 Incentive Plan is set forth in Exhibit A to this Proxy
Statement. The following summary is qualified in its entirety by reference to
the full text of the Amended and Restated 1994 Incentive Plan set forth as
Exhibit A.
22
<PAGE>
General Description of the Amended and Restated 1994 Incentive Plan
Introduction. The Amended and Restated 1994 Incentive Plan is a stock-based
compensation plan providing for the grant of incentive stock options ("ISOs")
within the meaning of section 422 of the Code, options not intended to be ISOs
("nonqualified stock options"), stock appreciation rights ("SARs"), restricted
stock and performance units to officers and other key executives of the
Company who are in positions in which their decisions, actions and counsel
significantly impact profitability. The Amended and Restated 1994 Incentive
Plan is intended to recognize the contributions made to the Company by
officers and other key executives who make substantial contributions through
their loyalty, ability, industry and invention, and to improve the ability of
the Company to secure, retain and motivate such employees upon whom the
Company's future earnings depend, by providing such persons with an
opportunity to either acquire or increase their proprietary interest in the
Company or to receive additional compensation based upon the performance of
the Company's Common Shares.
The terms and conditions of the Amended and Restated 1994 Incentive Plan, as
modified by the Proposed Amendments, are intended to address certain
limitations on the deductibility of executive compensation under Section
162(m) of the Code. Section 162(m) limits the deductibility of certain
compensation in excess of $1 million per year paid by a publicly traded
corporation to the chief executive officer and the four other executive
officers named in the summary compensation table of the proxy statement who
are employed on the last day of the taxable year. Pursuant to the regulations
issued under Section 162(m), certain types of compensation may be excluded
from the limitations on deductibility if the compensation is "performance-
based." Compensation resulting from the exercise of stock options and SARs is
deemed to meet the performance-based standard if, among other requirements,
the maximum number of option shares and SARs that an individual executive may
receive during a specified period is predetermined. The 1994 Incentive Plan as
originally approved by shareholders limited the number of option shares that
may be granted to certain key executives and the Proposed Amendments would
apply similar limits to SARs granted to these same executives. Compensation
resulting from performance-based restricted stock awards and performance units
meet the Section 162(m) performance-based standard if the business criteria on
which the performance goal is based and either the maximum amount of
compensation to be paid or the formula used to calculate the amount of
compensation if the performance goal is attained are predetermined. The 1994
Incentive Plan as originally approved by shareholders identified certain
business criteria that could be used for the performance units. As described
below, the Proposed Amendments refine the criteria to be used for performance
units, apply these same criteria to awards of performance-based restricted
stock and add the per participant limits to the plan with respect to grants of
SARs and performance units.
23
<PAGE>
Shares Subject to Awards. The total number of Common Shares of the Company
subject to awards may not exceed 5,000,000 Common Shares. All awards and
Common Shares available under the Amended and Restated 1994 Incentive Plan are
subject to adjustment in the event of a merger, recapitalization, stock
dividend, stock split or other similar change affecting the number of
outstanding Common Shares of the Company. Unpurchased shares subject to an
option that lapses or terminates without exercise and shares subject to
restricted stock awards, but never issued because the conditions of the award
were not fulfilled, are available for future awards. Common Shares delivered
in lieu of cash payments or withheld by the Company are considered to have
been used by the Amended and Restated 1994 Incentive Plan and are not
available for further awards or such delivery.
Information relating to awards which have been granted to the executive
officers named in the Summary Compensation Table is presented in the various
tables located under the sub-caption "Compensation of Executive Officers." In
addition, as of December 31, 1998, 365,800 options were outstanding under the
1994 Incentive Plan to all executive officers as a group at exercise prices
ranging from $16.21 to $29.22 and 1,398,000 options were outstanding to all
employees as a group at exercise prices from $16.21 to $29.22. In addition, as
of December 31, 1998, there were 50,000 shares of restricted stock that had
been granted to all executive officers as a group under the 1994 Incentive
Plan which had not yet vested, and 50,000 shares of restricted stock that had
been granted to all employees as a group which had not yet vested. There are
currently no SARs outstanding. Future awards are within the discretion of the
Compensation Committee.
Administration. The Amended and Restated 1994 Incentive Plan is administered
by the Compensation Committee, which must be composed of two or more directors
who are "non-employee directors" within the meaning of Rule 16b-3 ("Rule 16b-
3") promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act") and are "outside directors" within the meaning of Section
162(m) of the Code and the regulations thereunder.
The Compensation Committee has the sole power to administer the Amended and
Restated 1994 Incentive Plan and to make rules to implement the provisions
thereof. Subject to the provisions of the Amended and Restated 1994 Incentive
Plan, the Compensation Committee's powers include, but are not limited to,
determining the officers and employees of the Company and any subsidiaries to
whom awards shall be granted, and fixing the size, terms, conditions and
timing of all awards. The Compensation Committee is, however, limited in the
number of Common Shares subject to options and restricted stock awards that
may be granted to certain executive officers of the Company.
24
<PAGE>
The Amended and Restated 1994 Incentive Plan provides that the maximum number
of option shares and SARs granted to each person who qualifies as an executive
officer named from time to time in the summary compensation table in the proxy
statement and who is employed on the last day of the taxable year ("SCT
Executives") shall be 500,000 options and SARs with respect to Common Shares
during the term of the Amended and Restated 1994 Incentive Plan and that no
more than 50,000 options and SARs with respect to Common Shares may be granted
in any one year.
The Amended and Restated 1994 Incentive Plan further provides that the
maximum number of restricted stock awards granted to each SCT Executive shall
be 150,000 during the term of the Amended and Restated 1994 Incentive Plan and
that no more than 50,000 shares of restricted stock may be awarded in any one
year, provided, however, that no more than 50,000 shares of restricted stock
may be awarded in any three year period during the term of the Amended and
Restated 1994 Incentive Plan. Similar limits also apply to the grant of
performance units.
The Compensation Committee retains its discretion as to the timing and amount
of particular awards, and in establishing the number of options, SARs,
restricted stock awards and performance units that may be granted to SCT
Executives, is not obligated to grant options, SARs, restricted stock awards or
performance units equal to any amount within any year, during the term of the
Amended and Restated 1994 Incentive Plan, or at any other time. The limitations
applicable to SCT Executives may in each case be adjusted in the event of any
stock dividend, recapitalization, stock split or other capital adjustment or
any other transaction materially affecting Common Shares, pursuant to Section
3(b) of the Amended and Restated 1994 Incentive Plan.
Eligibility. The Compensation Committee may select as a participant in the
Amended and Restated 1994 Incentive Plan any executive or managerial employee
of the Company and its subsidiaries who is in a position in which the
employee's decisions, actions and counsel significantly impact profitability. A
Director who is not an employee is not eligible to receive awards under the
Amended and Restated 1994 Incentive Plan. The determination of who is a
participant and the awards to be granted is made on a year-to-year basis. On
January 30, 1999, approximately 177 employees were participants in the Amended
and Restated 1994 Incentive Plan.
Stock Options. An ISO or a nonqualified option is the right to purchase, in
the future, the Company's Common Shares at a set price. Under the Amended and
Restated 1994 Incentive Plan, the purchase price of shares subject to any
option, which can be either an ISO or a
25
<PAGE>
nonqualified option, must be at least 100% of the Fair Market Value of the
shares on the date of grant. Fair Market Value is defined as the average of the
high and low prices of the Company's Common Shares on the New York Stock
Exchange on the date on which the option is granted. On January 29, 1999 (the
last trading day in January), the closing price of the Common Shares on the New
York Stock Exchange was 27 1/8.
Each option terminates on the earliest of (a) the expiration of the term,
which may not exceed ten (10) years from the date of grant; (b) thirty days
after the date the option holder's employment or service terminates for any
reason other than disability, death or retirement; or (c) the expiration of
three (3) years from the date an option holder's employment or service
terminates by reason of such option holder's disability, death or retirement.
If an ISO is granted to an employee who then owns, directly or by attribution
under the Code, shares possessing more than 10% of the total combined voting
power of all classes of shares of the Company, the term of the option will not
exceed five (5) years and the exercise price will be at least 110% of the Fair
Market Value of the shares on the date that the ISO is granted.
An option holder may pay the exercise price for an option (a) in cash, (b) in
cash received from a broker-dealer to whom the holder has submitted an exercise
notice consisting of a fully endorsed option (however, in the case of a holder
subject to Section 16 of the Exchange Act, this payment option shall only be
available to the extent such holder complies with Regulation T issued by the
Federal Reserve Board), (c) by delivering Common Shares having an aggregate
Fair Market Value on the date of exercise equal to the exercise price, (d) 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 exercise price, (e) by such other medium of
payment as the Compensation Committee, in its discretion, shall authorize at
the time of grant, or (f) by any combination of (a), (b), (c), (d) and (e).
Each option will be evidenced by a written option agreement containing
provisions consistent with the Amended and Restated 1994 Incentive Plan and
such other provisions as the Compensation Committee deems appropriate. No ISO
granted under the Plan may be transferred, except by will or the laws of
descent and distribution. Nonqualified options may be assigned, without
consideration and with the approval of the Compensation Committee, to the
option holder's spouse, lineal descendant, trustee for spouse or lineal
descendant, or an organization exempt from taxation under Section 501(c)(3) of
the Code.
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Restricted Stock Awards. A restricted stock award is the grant of a right to
receive Common Shares of the Company, either immediately or on a future date
upon satisfaction of certain criteria or conditions, which may or may not be
performance-based. Common Shares awarded may not be transferred or encumbered
until the restrictions established by the Compensation Committee lapse.
Pursuant to the 1994 Incentive Plan as originally approved by the
shareholders, the Compensation Committee determined the business criteria
applicable to performance-based restricted stock awards at the time of the
grant. Pursuant to the Proposed Amendments, the Amended and Restated 1994
Incentive Plan sets forth the following business criteria as the basis for the
grant of performance-based restricted Stock awards: (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. The Compensation Committee will choose which of these criteria,
if any, to include in each individual restricted stock grant and the
performance targets that must be satisfied before the restrictions will be
lifted. In the event of a participant's termination of employment (other than
due to death, disability or retirement) prior to the lapse of applicable
restrictions, all shares as to which there still remain unlapsed restrictions
shall be forfeited. Each restricted stock award will be evidenced by a written
restricted stock award agreement containing provisions consistent with the
Amended and Restated 1994 Incentive Plan and such other provisions as the
Compensation Committee deems appropriate.
Stock Appreciation Rights. An SAR is a right to receive, in the future in
cash or Common Shares, all or a portion of the excess of the Fair Market Value
of the Company's Common Shares, at the time the SAR is exercised, over a
specified price not less than the Fair Market Value of the Company's Common
Shares at the date of the grant. SARs may be granted in tandem with a
previously or contemporaneously granted stock option, or separately from the
grant of a stock option. SARs granted under the Amended and Restated 1994
Incentive Plan may not be granted for a period less than one year nor more
than ten years and will be exercisable in whole or in part, at such time or
times and as determined by the Committee at the time of the grant, which
period may not commence any earlier than six months after the date of grant.
Performance Units. A performance unit is a right to a future payment, either
in cash or Common Shares, based upon the achievement of pre-established long-
term performance targets. The Compensation Committee may establish performance
periods of from two to five years, and maximum and minimum performance targets
during the period. The level of
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achievement of targets will determine what portion of value of a unit is
awarded. The business criteria used to define the performance targets could
include one or more of the following: (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.
In the event a participant holding a performance unit ceases to be employed
prior to the end of the applicable performance period by reason of death,
disability or retirement, such participant's units, to the extent earned,
shall be payable at the end of the performance period. Upon any other
termination of employment, participation terminates and all outstanding
performance units are canceled.
Duration of the Amended and Restated 1994 Incentive Plan. No award may be
granted under the Amended and Restated 1994 Incentive Plan after April 13,
2004.
Provisions Relating to a "Change in Control" of the Company. Notwithstanding
any other provision of the Amended and Restated 1994 Incentive Plan, in the
event of a "Change in Control" of the Company, the date upon which each award
then outstanding under the Amended and Restated 1994 Incentive Plan first
becomes exercisable or vests, as the case may be, will automatically
accelerate to the effective date of the Change in Control. The Compensation
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: (a) 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; (b) provide for the vesting or termination of the restrictions on
any such award; (c) make such adjustment to any such award then outstanding as
the Compensation Committee deems appropriate to reflect such Change in
Control; and (d) cause any such award then outstanding to be assumed, by the
acquiring or surviving corporation, after such Change in Control. A "Change in
Control" shall have the meaning given to such term in separate change in
control agreements between the Company and certain executives. (See discussion
of "Change in Control and Termination Agreements" in the portion of this proxy
statement dealing with the election of directors.)
Termination, Suspension or Amendment. The Board or Compensation Committee
may at any time terminate, suspend or amend the Amended and Restated 1994
Incentive Plan without the authorization of shareholders to the extent allowed
by law, including without limitation any
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rules issued by the Securities and Exchange Commission under Section 16 of the
Exchange Act, insofar as shareholder approval thereof is not required for the
Amended and Restated 1994 Incentive Plan to continue to satisfy the
requirements of Rule 16b-3. No termination, suspension or amendment of the
Amended and Restated 1994 Incentive 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 therein does not adversely affect any such
right. The Amended and Restated 1994 Incentive Plan will apply to grants made
under the plan at any time.
Tax Aspects with Respect to Grants under the Amended and Restated 1994
Incentive Plan. The following discussion is intended to summarize briefly the
general principles of Federal income tax law applicable to awards granted under
the Amended and Restated 1994 Incentive Plan. A recipient of an ISO will not
recognize taxable income upon either the grant or exercise of the ISO. The
option holder will recognize long-term capital gain or loss on a disposition of
the Common Shares acquired upon exercise of an ISO, provided the option holder
does not dispose of those Common Shares within two years from the date the ISO
was granted or within one year after the Common Shares were transferred to such
option holder (a "disqualifying disposition"). If the option holder satisfies
both of the foregoing holding periods, then the Company will not be allowed a
deduction by reason of the grant or exercise of an ISO.
As a general rule, if the option holder disposes of the Common Shares in a
disqualifying disposition, the gain recognized will be taxed as ordinary income
to the extent of the difference between (a) the lesser of the fair market value
of the Common Shares on the date of exercise or the amount received for the
Common Shares in the disqualifying disposition, and (b) the adjusted basis of
the Common Shares, and the Company will be entitled to a deduction in that
amount. The gain (if any) in excess of the amount recognized as ordinary income
on a disqualifying disposition will be long-term or short-term capital gain,
depending on the length of time the option holder held the Common Shares prior
to the disposition.
The amount by which the fair market value of a Common Share at the time of
exercise exceeds the exercise price will be included in the computation of such
option holder's "alternative minimum taxable income" in the year the option
holder exercises the ISO. If an option holder pays alternative minimum tax with
respect to the exercise of an ISO, the amount of such tax paid will be allowed
as a credit against regular tax liability in subsequent years. The option
holder's basis in the Common Shares for purposes of the alternative minimum tax
will be adjusted when income is included in alternative minimum taxable income.
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A recipient of a nonqualified stock option will not recognize taxable income
at the time of grant, and the Company will not be allowed a deduction by
reason of the grant. Such an option holder will recognize ordinary income in
the taxable year in which the option holder exercises the nonqualified stock
option, in an amount equal to the excess of the fair market value of the
Common Shares received upon exercise at the time of exercise of such an option
over the exercise price of the option, and the Company will be allowed a
deduction in that amount. Upon disposition of the Common Shares subject to the
option, an option holder will recognize long-term or short-term capital gain
or loss, depending upon the length of time the Common Shares were held prior
to disposition, equal to the difference between the amount realized on
disposition and the option holder's adjusted basis of the Common Shares
subject to the option (which adjusted basis ordinarily is the fair market
value of the Common Shares subject to the option on the date the option was
exercised).
At the date of grant, the holder of an SAR will not be deemed to receive
income, and the Company will not be entitled to a deduction. On the date of
exercise, the holder of an SAR will realize ordinary income equal to the
amount of cash or the fair market value of the Common Shares received on
exercise. The Company will be entitled to a corresponding deduction with
respect to ordinary income realized by the holder of an SAR, provided that the
Company complies with applicable withholding tax requirements. Upon the
vesting of restricted stock awards, the holder will realize ordinary income in
an amount equal to the fair market value of the shares at that time and the
Company receives a corresponding deduction. Upon receipt of payment of a
performance unit, the recipient will realize ordinary income and the Company
receives a corresponding deduction.
Vote Required for Approval of the Amended and Restated 1994 Incentive Plan
Approval of the Amended and Restated 1994 Incentive Plan requires that, of
the Common Shares present in person or represented by proxy at the Annual
Meeting, the votes in favor of the Amended and Restated 1994 Incentive Plan
exceed the votes against the Amended and Restated 1994 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF PROPOSAL 2.
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PROPOSAL 3--APPROVAL OF THE AMENDED AND RESTATED
NIPSCO INDUSTRIES, INC. LONG-TERM INCENTIVE PLAN
Background
At the annual meeting of shareholders held on April 13, 1988, the
shareholders of the Company approved the NIPSCO Industries, Inc. Long-Term
Incentive Plan ("1988 Incentive Plan"). Since 1988, the Compensation Committee
has approved certain minor amendments to the 1988 Incentive Plan, as permitted
by the 1988 Incentive Plan. At a Compensation Committee meeting on February 24,
1999, the Compensation Committee approved certain additional amendments to the
1988 Incentive Plan ("Proposed Amendments"), described more fully below, and
directed that the 1988 Incentive Plan, as amended ("Amended and Restated 1988
Incentive Plan") be submitted to shareholders for their approval.
As approved by the shareholders in 1988, the 1988 Incentive Plan did not
specify the business criteria to be used with respect to the grant of
restricted stock awards. The Compensation Committee has therefore determined
the business criteria at the time the stock awards were made. Section 162(m) of
the Code limits the ability of a publicly held corporation, such as the
Company, to deduct compensation paid to certain executives if that compensation
exceeds $1,000,000. This limitation does not apply to qualified performance-
based compensation. Pursuant to the regulations issued under Section 162(m),
restricted stock awards made under the 1988 Incentive Plan would not be
considered qualified performance-based compensation unless the shareholders
have approved the business criteria used by the Compensation Committee. The
regulations also require that the plan include per participant limits for
options and SARs available under the plan. Therefore, the Company is seeking
shareholder approval of the Amended and Restated 1988 Incentive Plan which, as
a result of the Proposed Amendments, will now specifically include the business
criteria used by the Compensation Committee for outstanding grants of
restricted stock and will contain the necessary per participant limits.
Therefore, the Company recommends that the shareholders approve the Amended
and Restated 1988 Incentive Plan, which is summarized in the remainder of this
section. If the Amended and Restated 1988 Incentive Plan is not approved, the
Company intends to continue the 1988 Incentive Plan in its current form. A copy
of the Amended and Restated 1988 Incentive Plan is set forth in Exhibit B to
this Proxy Statement. The following summary is qualified in its entirety by
reference to the full text of the Amended and Restated 1988 Incentive Plan set
forth as Exhibit B.
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General Description of the Amended and Restated 1988 Incentive Plan
Introduction. The Amended and Restated 1988 Incentive Plan is a stock-based
compensation plan providing for the grant of ISOs, nonqualified stock options,
SARs, restricted stock and performance units to officers and other key
executives of the Company who are in positions in which their decisions,
actions and counsel significantly impact profitability. The Amended and
Restated 1988 Incentive Plan is intended to recognize the contributions made
to the Company by officers and other key executives who make substantial
contributions through their loyalty, ability, industry and invention, and to
improve the ability of the Company to secure, retain, and motivate such
employees upon whom the Company's future earnings depend, by providing such
persons with an opportunity to either acquire or increase their proprietary
interest in the Company or to receive additional compensation based upon the
performance of the Company's Common Shares.
The terms and conditions of the Amended and Restated 1988 Incentive Plan, as
modified by the Proposed Amendments, are intended to address certain
limitations on the deductibility of executive compensation under Section
162(m) of the Code. Section 162(m) limits the deductibility of certain
compensation in excess of $1 million per year paid by a publicly traded
corporation to the chief executive officer and the four other executive
officers named in the summary compensation table of the proxy statement who
are employed on the last day of the taxable year. Pursuant to the regulations
issued under Section 162(m), certain types of compensation may be excluded
from the limitations on deductibility if the compensation is "performance-
based." Compensation resulting from the exercise of stock options and SARs is
deemed to meet the performance-based standard if, among other requirements,
the maximum number of option shares and SARs that an individual executive may
receive during a specified period is predetermined. Compensation resulting
from performance-based restricted stock awards and performance units meet the
Section 162(m) performance-based standard if the business criteria on which
the performance goal is based and either the maximum amount of compensation to
be paid or the formula used to calculate the amount of compensation if the
performance goal is attained are predetermined. The 1988 Incentive Plan as
originally approved by shareholders identified certain business criteria that
could be used for the performance units. As described below, the Proposed
Amendments refine the criteria to be used for performance units, apply these
same criteria to awards of performance-based restricted stock and add the per
participant limits to the plan with respect to grants of options and SARs.
Shares Subject to Awards. The total number of Common Shares of the Company
subject to awards may not exceed 5,000,000 Common Shares. All awards and
Common Shares available under the Amended and Restated 1988 Incentive Plan are
subject to adjustment in the event of
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a merger, recapitalization, stock dividend, stock split or other similar
change affecting the number of outstanding Common Shares of the Company.
Unpurchased shares subject to an option that lapses or terminates without
exercise and shares subject to restricted stock awards, but never issued
because the conditions of the award were not fulfilled, are available for
future awards. Common Shares delivered in lieu of cash payments or withheld by
the Company are considered to have been used by the Amended and Restated 1988
Incentive Plan and are not available for further awards or such delivery.
Information relating to awards which have been granted to the executive
officers named in the Summary Compensation Table is presented in the various
tables located under the sub-caption "Compensation of Executive Officers." In
addition, as of December 31, 1998, 875,900 options were outstanding under the
1988 Incentive Plan to all executive officers as a group at exercise prices
ranging from $8.53 to $18.91 and 1,253,000 options were outstanding to all
employees as a group at exercise prices from $8.53 to $18.91. In addition, as
of December 31, 1998, there were 364,666 shares of restricted stock that had
been granted to all executive officers under the 1988 Incentive Plan which had
not yet vested, and 484,666 shares of restricted stock that had been granted
to all employees as a group which had not yet vested. There are no outstanding
SARs.
Administration. The Amended and Restated 1988 Incentive Plan is administered
by the Compensation Committee, which must be composed of two or more directors
who are "non-employee directors" within the meaning of Rule 16b-3 and are
"outside directors" within the meaning of Section 162(m) of the Code and the
regulations thereunder.
The Compensation Committee has the sole power to administer the Amended and
Restated 1988 Incentive Plan and to make rules to implement the provisions
thereof. Subject to the provisions of the Amended and Restated 1988 Incentive
Plan, the Compensation Committee's powers include, but are not limited to,
determining the officers and employees of the Company and any subsidiaries to
whom awards shall be granted, and fixing the size, terms, conditions and
timing of all awards.
The Amended and Restated 1988 Incentive Plan provides that the maximum
number of options granted to each SCT Executive shall be 350,000 options and
SARs with respect to Common Shares during the term of the plan.
The Compensation Committee retains its discretion as to the timing and
amount of particular awards, and in establishing the limitations on the number
of options and restricted stock awards that may be granted to SCT Executives,
is not obligated to grant options, SARs, restricted stock
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awards or performance units equal to any amount within any year, during the
term of the Amended and Restated 1988 Incentive Plan, or at any other time. The
limitations applicable to SCT Executives may in each case be adjusted in the
event of any stock dividend, recapitalization, stock split or other capital
adjustment or any other transaction materially affecting Common Shares,
pursuant to Section 20 of the Amended and Restated 1988 Incentive Plan.
Eligibility. The Compensation Committee may select as a participant in the
Amended and Restated 1988 Incentive Plan any executive or managerial employee
of the Company and its subsidiaries who is in a position in which the
employee's decisions, actions and counsel significantly impact profitability. A
Director who is not an employee is not eligible to receive awards under the
Amended and Restated 1988 Incentive Plan. The determination of who is a
participant and the awards to be granted is made on a year-to-year basis. On
January 30, 1999, approximately 53 employees were participants in the Amended
and Restated 1988 Incentive Plan.
Stock Options. An ISO or a nonqualified option is the right to purchase, in
the future, the Company's Common Shares at a set price. Under the Amended and
Restated 1988 Incentive Plan, the purchase price of shares subject to any
option, which can be either an ISO or a nonqualified option, must be at least
100% of the Fair Market Value of the shares on the date of grant. Fair Market
Value is defined as the average of the high and low prices of the Company's
Common Shares on the New York Stock Exchange on the date on which the option is
granted. On January 29, 1999 (the last trading day in January), the closing
price of the Common Shares on the New York Stock Exchange was 27 1/8.
Nonqualified options terminate on the earliest of (a) the expiration of the
term, which may not exceed ten (10) years from the date of grant; (b) thirty
days after the date the option holder's employment or service terminates for
any reason other than disability, death or retirement; or (c) the expiration of
twelve (12) months from the date an option holder's employment or service
terminates by reason of such option holder's disability, death or retirement.
ISOs terminate on the earliest of (a) the expiration of the term, which may
not exceed ten (10) years from the date of grant; (b) ninety days after the
date the option holder's employment or service terminates for any reason other
than disability; or (c) the expiration of one year from the date an option
holder's employment or service terminates by reason of such option holder's
disability.
If an ISO is granted to an employee who then owns, directly or by attribution
under the Code, shares possessing more than 10% of the total combined voting
power of all classes of
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shares of the Company, the term of the option will not exceed five (5) years
and the exercise price will be at least 110% of the Fair Market Value of the
shares on the date that the ISO is granted.
An option holder may pay the exercise price for an option (a) in cash, (b)
in cash received from a broker-dealer to whom the holder has submitted an
exercise notice consisting of a fully endorsed option (however, in the case of
a holder subject to Section 16 of the Exchange Act, this payment option shall
only be available to the extent such holder complies with Regulation T issued
by the Federal Reserve Board), (c) by delivering Common Shares having an
aggregate Fair Market Value on the date of exercise equal to the exercise
price, (d) 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 exercise price, (e) by such
other medium of payment as the Compensation Committee, in its discretion,
shall authorize at the time of grant, or (f) by any combination of (a), (b),
(c), (d) and (e).
Each option will be evidenced by a written option agreement containing
provisions consistent with the Amended and Restated 1988 Incentive Plan and
such other provisions as the Compensation Committee deems appropriate. No ISO
granted under the Plan may be transferred, except by will or the laws of
descent and distribution. Nonqualified options may be assigned, without
consideration and with the approval of the Compensation Committee, to the
option holder's spouse, lineal descendant, trustee for spouse or lineal
descendant, or an organization exempt from taxation under Section 501(c)(3) of
the Code.
Restricted Stock Awards. A restricted stock award is the grant of a right to
receive Common Shares of the Company, either immediately or on a future date
upon satisfaction of certain criteria or conditions, which may or may not be
performance-based. Common Shares awarded may not be transferred or encumbered
until the restrictions established by the Compensation Committee lapse.
Pursuant to 1988 Incentive Plan as originally approved by the shareholders,
the Compensation Committee determined the business criteria applicable to
performance-based restricted stock awards at the time of the grant. The
outstanding grants under the plan generally contained one or more of the
following business criteria: (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. In the event of a
participant's termination of employment (other than due to death or
retirement) prior to the lapse of applicable restrictions, all shares as to
which there still remain
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unlapsed restrictions shall be forfeited. Each restricted stock award will be
evidenced by a written restricted stock award agreement containing provisions
consistent with the Amended and Restated 1988 Incentive Plan and such other
provisions as the Compensation Committee deems appropriate.
Stock Appreciation Rights. An SAR is a right to receive, in the future in
cash or Common Shares, all or a portion of the excess of the Fair Market Value
of the Company's Common Shares, at the time the SAR is exercised, over a
specified price not less than the Fair Market Value of the Company's Common
Shares at the date of the grant. SARs may be granted in tandem with a
previously or contemporaneously granted stock option, or separately from the
grant of a stock option. SARs granted under the Amended and Restated 1988
Incentive Plan may not be granted for a period less than one year nor more than
ten years and will be exercisable in whole or in part, at such time or times
and as determined by the Committee at the time of the grant, which period may
not commence any earlier than six months after the date of grant.
Performance Units. A performance unit is a right to a future payment, either
in cash or Common Shares, based upon the achievement of pre-established long-
term performance targets. The Compensation Committee may establish performance
periods of from two to five years, and maximum and minimum performance targets
during the period. The level of achievement of targets will determine what
portion of value of a unit is awarded. The business criteria used to define the
performance targets could include one or more of the following: (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.
In the event a participant holding a performance unit ceases to be employed
prior to the end of the applicable performance period by reason of death,
disability or retirement, such participant's units, to the extent earned, shall
be payable at the end of the performance period. Upon any other termination of
employment, participation terminates and all outstanding performance units are
canceled.
Duration of the Amended and Restated 1988 Incentive Plan. No award may be
granted under the Amended and Restated 1988 Incentive Plan after April 13,
1998.
Termination, Suspension or Amendment. The Board or Compensation Committee may
at any time terminate, suspend or amend the Amended and Restated 1988 Incentive
Plan without
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<PAGE>
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 Exchange Act, insofar as shareholder approval thereof
is not required for the Amended and Restated 1988 Incentive Plan to continue to
satisfy the requirements of Rule 16b-3. No termination, suspension or amendment
of the Amended and Restated 1988 Incentive 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 therein does not adversely affect any such
right. The Amended and Restated 1988 Incentive Plan will apply to grants made
under the plan at any time.
Tax Aspects with Respect to Grants under the Amended and Restated 1988
Incentive Plan. The following discussion is intended to summarize briefly the
general principles of Federal income tax law applicable to awards granted under
the Amended and Restated 1988 Incentive Plan. A recipient of an ISO will not
recognize taxable income upon either the grant or exercise of the ISO. The
option holder will recognize long-term capital gain or loss on a disposition of
the Common Shares acquired upon exercise of an ISO, provided the option holder
does not dispose of those Common Shares within two years from the date the ISO
was granted or within one year after the Common Shares were transferred to such
option holder (a "disqualifying disposition"). If the option holder satisfies
both of the foregoing holding periods, then the Company will not be allowed a
deduction by reason of the grant or exercise of an ISO.
As a general rule, if the option holder disposes of the Common Shares in a
disqualifying disposition, the gain recognized will be taxed as ordinary income
to the extent of the difference between (a) the lesser of the fair market value
of the Common Shares on the date of exercise or the amount received for the
Common Shares in the disqualifying disposition, and (b) the adjusted basis of
the Common Shares, and the Company will be entitled to a deduction in that
amount. The gain (if any) in excess of the amount recognized as ordinary income
on a disqualifying disposition will be long-term or short-term capital gain,
depending on the length of time the option holder held the Common Shares prior
to the disposition.
The amount by which the fair market value of a Common Share at the time of
exercise exceeds the exercise price will be included in the computation of such
option holder's "alternative minimum taxable income" in the year the option
holder exercises the ISO. If an option holder pays alternative minimum tax with
respect to the exercise of an ISO, the amount of such tax paid will be allowed
as a credit against regular tax liability in subsequent years. The option
holder's basis in the Common Shares for purposes of the alternative minimum tax
will be adjusted when income is included in alternative minimum taxable income.
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A recipient of a nonqualified stock option will not recognize taxable income
at the time of grant, and the Company will not be allowed a deduction by reason
of the grant. Such an option holder will recognize ordinary income in the
taxable year in which the option holder exercises the nonqualified stock
option, in an amount equal to the excess of the fair market value of the Common
Shares received upon exercise at the time of exercise of such an option over
the exercise price of the option, and the Company will be allowed a deduction
in that amount. Upon disposition of the Common Shares subject to the option, an
option holder will recognize long-term or short-term capital gain or loss,
depending upon the length of time the Common Shares were held prior to
disposition, equal to the difference between the amount realized on disposition
and the option holder's adjusted basis of the Common Shares subject to the
option (which adjusted basis ordinarily is the fair market value of the Common
Shares subject to the option on the date the option was exercised).
At the date of grant, the holder of an SAR will not be deemed to receive
income, and the Company will not be entitled to a deduction. On the date of
exercise, the holder of an SAR will realize ordinary income equal to the amount
of cash or the market value of the Common Shares received on exercise. The
Company will be entitled to a corresponding deduction with respect to ordinary
income realized by the holder of an SAR, provided that the Company complies
with applicable withholding tax requirements. Upon the vesting of restricted
stock awards, the holder will realize ordinary income in an amount equal to the
fair market value of the shares at that time and the Company receives a
corresponding deduction. Upon receipt of payment of a performance unit, the
recipient will realize ordinary income and the Company receives a corresponding
deduction.
Vote Required for Approval of the Amended and Restated 1988 Incentive Plan
Approval of the Amended and Restated 1988 Incentive Plan requires that, of
the Common Shares present in person or represented by proxy at the Annual
Meeting, the votes in favor of the Amended and Restated 1988 Incentive Plan
exceed the votes against the Amended and Restated 1988 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF PROPOSAL 3.
38
<PAGE>
PROPOSAL 4--APPROVAL OF AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION TO
CHANGE THE NAME OF COMPANY TO NiSource Inc.
The Board of Directors has unanimously approved and recommends to the
shareholders that the Company's Articles of Incorporation be amended to change
the name of the Company from NIPSCO Industries, Inc. to NiSource Inc. The Board
of Directors believes that changing the Company's name reflects more clearly
the Company's growth and that NiSource describes the new direction of the
Company as a multistate supplier in energy and water resources and related
services.
If the name change is approved, current Company stock certificates will
remain valid and no exchange of certificates will be required, unless and until
the securities are sold or transferred. The Company intends to retain as its
trading symbol the letters "NI".
This name change will be effected by an amendment to Article I of the
Company's Articles of Incorporation. Article I of the Company's Articles of
Incorporation presently provides:
The name of the Corporation is NIPSCO Industries, Inc.
The Board of Directors has recommended that the shareholders vote to
amend Article I to provide:
The name of the Corporation is NiSource Inc.
Vote Required to Approve Amendment to Articles of Incorporation
Approval of the proposed amendment to the Articles of Incorporation requires
that, of the Common Shares present in person or represented by proxy at the
Annual Meeting, the votes in favor of the proposed amendment exceed the votes
against the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF PROPOSAL 4.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any holder of Common Shares who wishes to submit a proposal to be voted upon
by shareholders at the 2000 annual meeting of the Company, and who wishes the
proposal to be included in the Company's proxy materials, must submit the
proposal to the Secretary of the Company by November 15, 1999. The holder
submitting the proposal must have owned Common Shares, worth at least $2,000 in
market value, for at least one year prior to submitting
39
<PAGE>
the proposal and represent to the Company that the holder intends to hold those
shares through the date for the 2000 annual meeting.
Any holder of Common Shares who wishes to nominate a director or bring other
business before the 2000 annual meeting must also file a notice of the holder's
intent to do so by November 15, 1999. The notice must include a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such holder and the beneficial owner, if any, on whose
behalf the proposal is made. The notice must also include the nominating
shareholder's name and address and the number of Common Shares beneficially
owned by the shareholder. Any nomination submitted shall also set forth the
information relating to the nominated director as required under the Exchange
Act.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of the Forms 3, 4 and 5 furnished to the Company
pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Company
believes that all of its directors, officers and beneficial owners of more than
10% of its Common Shares filed all such reports on a timely basis during 1998,
except that James T. Morris omitted to file information on a timely basis on
the Form 5 for the year ended December 31, 1997 with respect to two 1997 gift
transactions aggregating 200 (pre-split) Common Shares.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Attention is directed to the financial statements contained in the Company's
Annual Report for the year ended December 31, 1998. A copy of the Annual Report
has been sent, or is concurrently being sent, to all shareholders of record as
of March 4, 1999.
AVAILABILITY OF FORM 10-K
A copy of the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1998, including the financial statements and the financial
statement schedules, but without exhibits, will be provided without charge to
any shareholder or beneficial owner of the Company's shares upon written
request to Nina M. Rausch, Secretary, NIPSCO Industries, Inc., 5265 Hohman
Avenue, Hammond, Indiana 46320-1775.
40
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been selected by the Board of Directors to serve as
the Company's independent public accountants for the year 1999, as they have
served for many years past. A representative of that firm will be present at
the annual meeting and will be given an opportunity to make a statement if he
so desires. The representative will also be available to respond to questions
from shareholders.
OTHER BUSINESS
The Board of Directors does not intend to bring any other matters before the
meeting and does not know of any matters which will be brought before the
meeting by others. If any matters properly come before the meeting it is the
intention of the persons named in the enclosed form of proxy to vote the proxy
in accordance with their judgment on such matters.
It is important that proxies be returned promptly. Therefore, shareholders
are urged to vote, date, sign and return the enclosed proxy. No postage need be
affixed if mailed in the United States.
By Order of the Board of Directors
Nina M. Rausch
Secretary
Dated: March 15, 1999
41
<PAGE>
EXHIBIT A
NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
As Amended and Restated
Effective April 14, 1999
<PAGE>
NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
As Amended and Restated Effective April 14, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purpose................................................................ A-1
2. Administration......................................................... A-1
3. Common Shares Subject to the Plan...................................... A-2
4. Participants........................................................... A-3
5. Awards Under the Plan.................................................. A-3
6. Section 162(m) Limitations............................................. A-3
7. NonQualified Stock Options............................................. A-3
(a) Option Price......................................................... A-3
(b) Exercise of Option................................................... A-4
(c) Payment for Shares................................................... A-4
(d) Transferability...................................................... A-4
(e) Rights Upon Termination of Employment................................ A-5
8. Incentive Stock Options................................................ A-5
(a) Option Price......................................................... A-5
(b) Exercise of Option................................................... A-5
(c) Payment for Shares................................................... A-6
(d) Transferability...................................................... A-7
(e) Rights Upon Termination of Employment................................ A-7
9. Stock Appreciation Rights.............................................. A-7
(a) Awards............................................................... A-8
(b) Term................................................................. A-8
(c) Payment.............................................................. A-8
10. Performance Units...................................................... A-8
(a) Performance Period................................................... A-9
(b) Valuation of Units................................................... A-9
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(c) Performance Targets.................................................. A-9
(d) Adjustments.......................................................... A-9
(e) Payments of Units.................................................... A-9
(f) Termination of Employment............................................ A-9
(g) Other Terms.......................................................... A-10
11. Restricted Stock Awards................................................ A-10
(a) Restriction Period................................................... A-10
(b) Restrictions Upon Transfer........................................... A-10
(c) Certificates......................................................... A-11
(d) Lapse of Restrictions................................................ A-11
(e) Termination Prior to Lapse of Restrictions........................... A-11
12. Supplemental Cash Payments............................................. A-11
13. General Restrictions................................................... A-12
14. Rights as a Shareholder................................................ A-12
15. Employment Rights...................................................... A-12
16. Tax--Withholding....................................................... A-12
17. Change in Control...................................................... A-13
18. Amendment or Termination............................................... A-13
19. Effect on Other Plans.................................................. A-14
20. Duration of the Plan................................................... A-14
</TABLE>
A-ii
<PAGE>
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.
A-1
<PAGE>
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
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.
A-2
<PAGE>
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.
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. 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 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.
A-3
<PAGE>
(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 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. (S) 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-
A-4
<PAGE>
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 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
A-5
<PAGE>
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
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
A-6
<PAGE>
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. (S) 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:
A-7
<PAGE>
(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-8
<PAGE>
(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 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
A-9
<PAGE>
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.
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.
A-10
<PAGE>
(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."
(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.
A-11
<PAGE>
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.
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
A-12
<PAGE>
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 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.
A-13
<PAGE>
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.
A-14
<PAGE>
EXHIBIT B
NIPSCO INDUSTRIES, INC.
LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective April 14, 1999)
<PAGE>
NIPSCO INDUSTRIES, INC.
LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective April 14, 1999)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purpose................................................................ B-1
2. Administration and Delegation.......................................... B-1
3. Review and Approval.................................................... B-2
4. Shares Subject to Plan................................................. B-2
5. Participants........................................................... B-2
6. Awards Under the Plan.................................................. B-2
7. Section 162(m) Limitations............................................. B-2
8. Nonqualified Stock Options............................................. B-2
(a) Option Price......................................................... B-2
(b) Exercise at Option................................................... B-3
(c) Payment for Shares................................................... B-3
(d) Transferability...................................................... B-3
(e) Rights Upon Termination at Employment................................ B-4
9. Incentive Stock Options................................................ B-5
(a) Option Price......................................................... B-5
(b) Exercise of Option................................................... B-5
(c) Payment for Shares................................................... B-5
(d) Transferability...................................................... B-6
(e) Rights Upon Termination of Employment................................ B-6
10. Stock Appreciation Rights.............................................. B-6
(a) Award................................................................ B-7
(b) Term................................................................. B-7
(c) Payment.............................................................. B-7
11. Performance Units...................................................... B-7
(a) Performance Period................................................... B-8
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(b) Valuation of Units................................................... B-8
(c) Performance Targets.................................................. B-8
(d) Adjustments.......................................................... B-8
(e) Payments of Units.................................................... B-8
(f) Termination of Employment............................................ B-8
(g) Other Terms.......................................................... B-9
12. Restricted Stock Awards................................................ B-9
(a) Restriction Period................................................... B-9
(b) Restrictions Upon Transfer........................................... B-9
(c) Certificates......................................................... B-9
(d) Lapse of Restrictions................................................ B-10
(e) Termination Prior to Lapse of Restrictions........................... B-10
13. Supplemental Cash Payments............................................. B-10
14. General Restrictions................................................... B-10
15. Rights of a Shareholder................................................ B-11
16. Right to Terminate Employment.......................................... B-11
17. Withholding............................................................ B-11
18. Non-Assignability...................................................... B-12
19. Non-Uniform Determinations............................................. B-12
20. Adjustments............................................................ B-12
21. Amendment or Termination............................................... B-13
22. Effect on Other Plans.................................................. B-13
23. Duration of the Plan................................................... B-13
</TABLE>
B-ii
<PAGE>
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.
B-1
<PAGE>
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.
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
B-2
<PAGE>
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.
(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.(S) 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
B-3
<PAGE>
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.
(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.
B-4
<PAGE>
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 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
B-5
<PAGE>
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.
(S) 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 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
B-6
<PAGE>
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, 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
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<PAGE>
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, 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
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<PAGE>
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.
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
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<PAGE>
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:
(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
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<PAGE>
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, 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.
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<PAGE>
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 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
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<PAGE>
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.
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.
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.
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<PAGE>
NIPSCO Industries, Inc.
- - --------------------------------------------------------------------------------
Officers NOTICE OF ANNUAL
Gary L. Neale MEETING AND
Chairman, PROXY STATEMENT
President and
Chief Executive 1999
Officer
Stephen P. Adik
Senior Executive Vice
President and Chief
Financial Officer, and
Treasurer
Patrick J. Mulchay
Executive Vice President
President and Chief
Operating Officer, Northern
Indiana Public Service
Company
Jeffrey W. Yundt
Executive Vice President
President and Chief
Executive Officer,
Bay State Gas Company
James K. Abcouwer
Senior Vice President
Joseph L. Turner
Senior Vice President
Thomas J. Aruffo
Vice President, Chief
Information Officer
David A. Kelly
Vice President, Taxes
Mark T. Maassel
Vice President, Regulatory
and Government Policy
Mark D. Wyckoff
Vice President, Human
Resources, and Assistant
Secretary
Arthur E. Smith,
Jr.
Environmental Officer and
Counsel
Dennis E. Senchak
Assistant Treasurer
Gail W. Harowski
Assistant Treasurer
Nina M. Rausch
Secretary
Gary W. Pottorff
Auditor
NIPSCO Industries, Inc.
801 E. 86th Avenue
Merrillville, Indiana 46410
- - --------------------------------------------------------------------------------
<PAGE>
PROXY PROXY
NIPSCO Industries, Inc.
This Proxy is Solicited on Behalf of the Board of Directors
for The Annual Meeting of Shareholders, April 14, 1999
The undersigned hereby appoints Gary L. Neale and Stephen P. Adik, or either of
them, the attorneys and proxies of the undersigned, with full power of
substitution, for and in the name of the undersigned to represent and vote the
shares of the undersigned at the Annual Meeting of Shareholders of the Company,
to be held at the Century Center, 120 South Saint Joseph Street, South Bend,
Indiana, on Wednesday, April 14, 1999, at 10 a.m., EST, and at any adjournment
or adjournments thereof.
Unless otherwise marked, this proxy will be voted "FOR" the nominees listed in
Proposal 1 and "FOR" Proposals 2, 3 and 4.
The undersigned shareholder hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement relating to the Annual Meeting and
hereby revokes any proxy or proxies heretofore given. The undersigned
shareholder may revoke this proxy at any time before it is voted by filing with
the Secretary of the Company a written notice of revocation or a duly executed
proxy bearing a later date, or by attending the Annual Meeting and voting in
person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
NIPSCO INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. []
1. To elect three directors to serve on the Board of Directors, each for a
three-year term and until their respective successors are elected and
qualified.
Nominees: Ian M. Rolland, John W. Thompson and Roger A. Young
For [_] Withheld [_] For All Except [_]
2. To approve the Amended and Restated 1994 Incentive Plan.
For [_] Against [_] Abstain [_]
3. To approve the Amended and Restated 1988 Incentive Plan.
For [_] Against [_] Abstain [_]
4. To amend Article 1 of the Company's Articles of Incorporation to change the
name of the Company to NiSource Inc.
For [_] Against [_] Abstain [_]
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.
- - --------------------------------------------------------------------------------
If you plan to attend the annual meeting in person, please indicate below the
number of shareholder(s) attending: ____________________________________________
Dated: ____________________________, 1999
Signature(s) ____________________________
- - --------------------------------------------------------------------------------
Please sign exactly as your name appears hereon. Joint owners should each sign.
Where applicable, indicate your official position or representative capacity.
