Exhibit 10.3 - Second Amendment


    Exhibit
      10.3

    Execution
      Copy

    


    November
      2, 2006

    


     

    SEMCO
      Energy, Inc. 

    


     

    
      	 	
              Re:

            	
              Second
                Amendment (the “Amendment”) under that certain Second Amended and Restated
                Credit Agreement dated as of September 15, 2005 by and among the
                financial
                institutions from time to time signatory thereto (each a “Lender”, and
                collectively the “Lenders”), LaSalle Bank Midwest National Association, as
                Administrative Agent for the Lenders (in such capacity, “Agent”), and
                SEMCO Energy, Inc. (“Company”), as amended from time to time prior to the
                date hereof (the “Credit
                Agreement”).

            


    

     

    Ladies
      and Gentlemen: 

    


    Reference
      is made to the Credit Agreement. Except as specifically defined to the contrary
      herein, capitalized terms used in this Amendment shall have the meanings given
      them in the Credit Agreement. 

     

    You
      have
      requested that the Lenders consent to modify (i) the calculation in the Credit
      Agreement of the Maximum Leverage Ratio and the Minimum Consolidated Net Worth
      Ratio to exclude certain charges arising from the implementation of FAS No.
      158
      and (ii) the Credit Agreement to permit the Company to obtain securitized
      account receivable financings, subject to certain terms and conditions.


     

    Based
      on
      the Agent’s receipt of the approval of the requisite Lenders (as attached to
      this Amendment) and a closing certificate from you in form and substance
      reasonably acceptable to the Agent, the Agent hereby confirms, for and on behalf
      of the Lenders, the amendments of the Credit Agreement as follows:

     

    1. The
      definition of Consolidated Net Worth in Section 1.1 of the Credit Agreement
      is
      hereby amended by deleting it in its entirety and inserting the following
      language in its place:

     

    Consolidated
      Net Worth
      means, as of the date of any determination thereof, the stockholders’ capital
      and surplus of the Company and its Subsidiaries determined on a consolidated
      basis in accordance with GAAP, and which shall include (whether or not
      includible under GAAP) the principal amount of the Junior Capital, adding back
      (a) an amount equal to all non-cash charges, less any tax deductions or credits
      on account of such charges, taken by the Company in accordance with GAAP under
      FAS No. 142 or FAS No. 144 after December 31, 2004 and (b) the non-cash charge
      incurred on December 31, 2006 and posted to accumulated comprehensive income,
      less any tax credits to accumulated comprehensive income on account of such
      charge, as the result of adopting FAS No. 158.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    2. The
      definition of Funded Debt in Section 1.1 of the Credit Agreement is amended
      by
      deleting it in its entirety and inserting the following language in its
      place:

     

    Funded
      Debt
      of
      any Person means, without duplication, (i) all Debt of such Person for borrowed
      money or which has been incurred in connection with the acquisition of assets
      in
      each case having a final maturity of one or more than one year from the date
      of
      origin thereof (or which is renewable or extendible at the option of the obligor
      for a period or periods more than one year from the date of origin), including
      all principal payments in respect thereof that are required to be made within
      one year from the date of any determination of Funded Debt, whether or not
      the
      obligation to make such payments shall constitute a current liability of the
      obligor under GAAP and including any Debt or off balance sheet obligations
      issued pursuant to a Securitization Transaction (whether by a Special Purpose
      Subsidiary or otherwise), provided, however, that Funded Debt shall not include
      (a) Junior Capital, (b) all outstanding Loans made to such Person pursuant
      to
      the Revolving Commitment and the aggregate amount of Debt relating to any
      Permitted Securitization, provided, however, that the aggregate principal amount
      excluded pursuant to this clause (b) shall not exceed $120,000,000 and (c)
      any
      notes of such Person evidencing Debt of such Person which when issued constitute
      a current liability of such Person under GAAP, (ii) all Capitalized Rentals
      of
      such Person, and (iii) Off Balance Sheet Liabilities.

     

    3. The
      definition of Guaranty Event in Section 1.1 of the Credit Agreement is amended
      by deleting it in its entirety and inserting the following language in its
      place:

     

    Guaranty
      Event
      means the failure at any time of the Company and the Guarantors, as of the
      last
      day of any Fiscal Quarter (determined on a consolidated basis for the Company
      and the Guarantors but without regard to any Subsidiaries which are not
      Guarantors), to constitute the source of at least seventy percent (70%) of
      the
      Consolidated Operating Income of the Company and its Subsidiaries (excluding
      any
      Special Purpose Subsidiary) for the four Fiscal Quarter period ending on such
      date or to hold at least seventy percent (70%) of the Consolidated total assets
      of the Company and its Subsidiaries (excluding any Special Purpose Subsidiary)
      on such date.

     

    4. The
      following definition is inserted in Section 1.1 of the Credit Agreement in
      the
      appropriate alphabetical order:

     

    Permitted
      Securitization
      shall mean the transfer or encumbrance of certain accounts receivable of the
      Company or any Subsidiary to a Special Purpose Subsidiary conducted in
      accordance with the following requirements:

     

    
      	(a)  	
              The
                disposition of such accounts receivable will not result in the aggregate
                principal amount of Debt at any time issued and outstanding in respect
                of
                Permitted Securitizations being in excess of $155,000,000 less the
                aggregate principal amount of the Revolving Commitment hereunder
                and of
                any term loans which may from time to time be evidenced hereby (giving
                effect to any permanent reduction in the Revolving Commitment or
                prepayment of any other loan made simultaneously with the closing
                of such
                Permitted Securitization);

            


    

     

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      	(b)  	
              At
                such time as the Company or a Subsidiary makes the initial transfer
                of
                accounts receivable to a Special Purpose Subsidiary in connection
                with the
                closing of such Permitted Securitization, the Company or such Subsidiary
                shall itself actually receive (substantially contemporaneously with
                such
                disposition) cash in connection with any such Securitization Transaction
                in an amount based on normal and customary advance rates (and taking
                into
                account typical deductions for market-based, arms-length Securitization
                Transactions);

            


    

     

    
      	(c)  	
              Each
                such disposition shall be without recourse to the Company or any
                of its
                Subsidiaries (except for customary clean up call provisions and customary
                representations and warranties relating to the Company’s or any of its
                Subsidiaries’ transfer of accounts receivable) and otherwise on normal and
                customary terms and conditions for comparable asset-based Securitization
                Transactions;

            


    

     

    
      	(d)  	
              Each
                such Securitization Transaction shall be structured on the basis
                of the
                issuance of non-recourse (to the Company or its Subsidiaries other
                than
                the applicable Special Purpose Subsidiary) debt securities by a Special
                Purpose Subsidiary; and

            


    

     

    
      	(e)  	
              Both
                immediately before and immediately after each such disposition, no
                Unmatured Event of Default or Event of Default (whether or not related
                to
                such disposition) shall have occurred and be
                continuing.

            


    

     

    5. The
      following definition is inserted in Section 1.1 of the Credit Agreement in
      the
      appropriate alphabetical order:

     

    Securitization
      Transaction(s)
      shall mean a transfer of, or grant of a lien on, accounts receivable by Company
      or any Subsidiary to a Special Purpose Subsidiary or other special purpose
      or
      limited purpose entity and the issuance (whether by such Special Purpose
      Subsidiary or other special purpose or limited purpose entity or any other
      Person) of debt or of any securities secured directly or indirectly by interests
      in, or of trust or a comparable certificates or other securities directly or
      indirectly evidencing interests in, such accounts receivable.

     

    6. The
      following definition is inserted in Section 1.1 of the Credit Agreement in
      the
      appropriate alphabetical order:

     

    Special
      Purpose Subsidiary
      shall mean any wholly-owned direct or indirect Subsidiary of the Company
      established for the sole purpose of conducting a Permitted Securitization and
      otherwise established and operated in accordance with customary industry
      practices. Special Purpose Subsidiary shall include, but is not limited to,
      any
      entity which constitutes a Qualifying Special Purpose Subsidiary under FASB
      Statement 140.

     

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    7. Section
      10.1.10 of the Credit Agreement is hereby amended by deleting it in its entirety
      and inserting the following language in its place:

     

    Section
      10.1.10 Other
      Information.
      (a)
      Promptly from time to time, such other information concerning the Affiliated
      Parties as any Lender or the Administrative Agent may reasonably request, and
      (b) promptly following a Permitted Securitization, (i) copies of all
      documentation related to such Permitted Securization and (ii) copies of all
      notices issued by the Persons party to such Permitted Securitization promptly
      following the delivery thereof. 

     

    8. Section
      11.1(i) of the Credit Agreement is hereby amended by deleting it in its entirety
      and inserting the following language in its place:

     

    (i) Debt
      issued in connection with a Permitted Securitization, in compliance with the
      definition thereof, together with customary clean up call provisions in
      connection with any Permitted Securitization;

     

    9. Section
      11.2 of the Credit Agreement is hereby amended by inserting the following
      language as new clause (i) and renumbering existing clause (i) as clause
      (j):

     

    (i) any
      Lien encumbering property interests, rights or proceeds which are subject of
      a
      transfer or encumbrance pursuant to a Permitted Securitization;
      and

     

    10. Section
      11.9 of the Credit Agreement is hereby amended by deleting it in its entirety
      and inserting the following language in its place:

     

    Section
      11.9 Inconsistent
      Agreements.
      Not, and not permit any other Affiliated Party to, enter into any agreement
      containing any provision which would (a) be violated or breached by any
      borrowing by the Company hereunder or by the performance by any Affiliated
      Party
      of any of its Obligations hereunder or under any other Loan Document, or (b)
      create or permit to exist or become effective any encumbrance or restriction
      on
      the ability of any Subsidiary (other than a Special Purpose Subsidiary in
      connection with a Permitted Securitization) to (i) pay dividends or make other
      distributions to the Company or any other Subsidiary, or pay any Debt owed
      to
      the Company or any other Subsidiary, (ii) make loans or advances to any
      Affiliated Party or (iii) transfer any of its assets or properties to any
      Affiliated Party, other than (A) customary restrictions and conditions contained
      in agreements relating to the sale of all or a substantial part of the assets
      of
      any Subsidiary pending such sale, provided
      that
      such restrictions and conditions apply only to the Subsidiary to be sold and
      such sale is permitted hereunder (B) restrictions or conditions imposed by
      any
      agreement relating to purchase money Debt, Capital Leases, Junior Capital and
      other Debt permitted by this Agreement, (C) customary provisions in leases
      and
      other contracts restricting the assignment thereof, (D) Liens securing
      Indebtedness otherwise permitted to be incurred, under the provisions of Section
      11.2 hereof that limit the right of the debtor to dispose of the assets subject
      to such Liens; (E) provisions with respect to the disposition or distribution
      of
      assets or property in joint venture agreements asset sale agreements, stock
      sale
      agreements and other similar agreements entered into in the ordinary course
      of
      business; and (F) restrictions on deposits (to the extent permitted hereunder)
      imposed by customers under contracts entered into in the ordinary course of
      business.

     

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    11. Section
      10.12 of the Credit Agreement is hereby amended by inserting the following
      language at the end of the Section:

     

    Section
      10.12 Guaranty
      Event.
      Within ninety (90) days of the occurrence of a Guaranty Event, the Company
      shall
      cause certain Subsidiaries approved of by the Administrative Agent (which
      approval shall not be unreasonably withheld) to execute and deliver a Guaranty
      (or execute and deliver joinder agreements thereto), together with such
      certificates, resolutions, formation documents and opinions of counsel to the
      Guarantors as the Administrative Agent may reasonably request, such that upon
      execution and delivery of the Guaranty (or the applicable joinder agreements),
      the Guarantors, together with the Company, are the source of at least seventy
      percent (70%) of the Consolidated Operating Income of the Company and all its
      Subsidiaries (excluding any Special Purpose Subsidiaries) for the four Fiscal
      Quarter period most recently ended prior to such date and hold at least seventy
      percent (70%) of the Consolidated total assets of the Company and all its
      Subsidiaries (excluding any Special Purpose Subsidiaries) as of the last day
      of
      the Fiscal Quarter then most recently ended, provided,
      further
      in
      no event shall a Special Purpose Subsidiary be required to become a Guarantor
      hereunder or execute any other Loan Documents.

     

    11. Section
      11.11 of the Credit Agreement is hereby amended by inserting the following
      language as new clause (j) and renumbering existing clause (j) as clause
      (k):

     

    (j) Investments
      in any Subsidiary (including, without limitation, any Special Purpose
      Subsidiary) from and after the date hereof consisting of (x) dispositions of
      specific accounts receivable made pursuant to any Permitted Securitization
      and
      the resultant Debt issued by a Special Purpose Subsidiary as part of such
      Permitted Securitization, in each case to the extent constituting Investments
      hereunder; and (y) the repurchase or replacement from and after the date hereof
      of accounts receivable pursuant to any representations or warranties or clean
      up
      call provisions included in such Permitted Securitization in accordance with
      the
      definition thereof.

     

    12. Section
      11.12 of the Credit Agreement is hereby amended by deleting it in its entirety
      and inserting the following language in its place:

     

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    Section
      11.12 Restriction
      of Amendments to Certain Documents.
      Not
      amend or otherwise modify, or waive any rights under any documents relating
      to
      the Junior Capital or any Permitted Securitization if, in any case, such
      amendment, modification or waiver could be adverse to the interests of the
      Lenders or would reasonably be expected to have a Material Adverse
      Effect.

     

    Except
      as
      expressly set forth herein, this Amendment shall not be deemed to amend or
      alter
      in any respect the terms and conditions of the Credit Agreement (including
      without limitation all conditions and requirements for Advances and any
      financial covenants) or any of the other Loan Documents, or to constitute a
      waiver or release by any of the Lenders or the Agent of any right, remedy,
      Unmatured Event of Default or Event of Default under the Credit Agreement or
      any
      of the other Loan Documents. Furthermore, this Amendment shall not affect in
      any
      manner whatsoever any rights and remedies of the Lenders or the Agent with
      respect to any non-compliance by the Company with the Credit Agreement or the
      other Loan Documents, whether in the nature of an Unmatured Event of Default
      or
      Event of Default, and whether now in existence or subsequently arising, all
      of
      which rights and remedies are expressly reserved.

     

     

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    This
      Amendment shall not become effective unless (and until) the Company has
      countersigned and returned to the Agent (which
      shall occur within five (5) Business Days from the date hereof or, after which
      date, unless extended in writing by the Agent, this Amendment shall be deemed
      to
      have lapsed) a
      duplicate original of this letter and the Company has satisfied any other
      conditions to effectiveness contained herein.

     

    
      	 	 	 
	 	
              Very
                truly yours,

               

            
	 	
              LASALLE
                BANK MIDWEST NATIONAL

              ASSOCIATION,
                as Agent

            
	 
 	 
 	 
 
	 	By:  	/s/ Gregory
              E. Castle
	 	 	
              

            
	 	Its: 	First
              Vice President
	 	
              

            


    

     

    
       

      
        	 	 	 
	 	
                Acknowledged
                  and agreed:

                 

              
	 	
                SEMCO
                  ENERGY, INC.

              
	 
 	 
 	 
 
	 	By:  	/s/ Michael
                V. Palmeri
	 	 	
                

              
	 	 	
                Michael
                  V. Palmeri 

                 

              
	 	Its: 	SVP
                & Chief Financial Officer
	 	 	
                

              
	 	 	 
	 	Date:	 
                November 2, 2006 
	 	
                

              


      

       

    

    


     

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    AUTHORIZATION
      OF AMENDMENT

     

    


     

    The
      undersigned Lender hereby confirms its approval of the foregoing Amendment
      on
      the terms and conditions set forth therein.

     

    
      
         

        
          	 	 	 
	 	
                  /s/
                    Gregory E. Castle

                
	 	
                  

                
	 	
                  LaSalle
                    Bank Midwest National Association

                
	 
 	 
 	 
 
	 	By:  	/s/ Gregory
                  E. Castle
	 	 	
                  

                
	 	 	
                
	 	Its: 	First
                  Vice President
	 	 	
                  

                
	 	 	 
	 	Date:	 
                  November 2, 2006 
	 	
                  

                


        

         

         

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          AUTHORIZATION
            OF AMENDMENT

           

          


           

          The
            undersigned Lender hereby confirms its approval of the foregoing Amendment
            on
            the terms and conditions set forth therein.

           

          
            
               

              
                	 	 	 
	 	
                        FIFTH
                          THIRD BANK

                      
	 
 	 
 	 
 
	 	By:  	/s/ David
                        J. Mannarino
	 	 	
                        

                      
	 	 	
                      
	 	Its: 	Officer
	 	 	 
	 	Date:	 
                        October 31, 2006 


              

               

               

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          AUTHORIZATION
            OF AMENDMENT

           

          


           

          The
            undersigned Lender hereby confirms its approval of the foregoing Amendment
            on
            the terms and conditions set forth therein.

           

          
            
               

              
                	 	 	 
	 	
                        Huntington
                          National Bank

                      
	 	
                        

                      
	 	
                        [Lender]

                      
	 
 	 
 	 
 
	 	By:  	/s/ Kevin
                        D. Szachta
	 	 	
                        

                      
	 	 	
                        Kevin
                          D. Szachta

                         

                      
	 	Its: 	Vice
                        President
	 	 	
                        

                      
	 	 	 
	 	Date:	 
                        November 02, 2006 
	 	
                        

                      


              

               

               

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          AUTHORIZATION
            OF AMENDMENT

           

          


           

          The
            undersigned Lender hereby confirms its approval of the foregoing Amendment
            on
            the terms and conditions set forth therein.

           

          
            
               

              
                	 	 	 
	 	
                         

                      
	 	
                        

                      
	 	
                        U.S.
                          BANK NATIONAL ASSOCIATION

                      
	 
 	 
 	 
 
	 	By:  	/s/ Matthew
                        J. Schulz
	 	 	
                        

                      
	 	 	
                      
	 	Its: 	Vice
                        President
	 	 	
                        

                      
	 	 	 
	 	Date:	 
                        November 1, 2006 
	 	
                        

                      


              

               

               

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                AUTHORIZATION
                  OF AMENDMENT

                 

                


                 

                The
                  undersigned Lender hereby confirms its approval of the foregoing
                  Amendment on
                  the terms and conditions set forth therein.

                 

                
                  
                     

                    
                      	 	 	 
	 	
                              Comerica
                                Bank

                            
	 	
                              

                            
	 	
                              [Lender]

                            
	 
 	 
 	 
 
	 	By:  	/s/ Blake
                              W. Arnett
	 	 	
                              

                            
	 	 	
                            
	 	Its: 	Assistant
                              Vice President
	 	 	
                              

                            
	 	 	 
	 	Date:	 
                              November 2, 2006 
	 	
                              

                            


                    

                     

                     

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      AUTHORIZATION
        OF AMENDMENT

       

      


       

      The
        undersigned Lender hereby confirms its approval of the foregoing Amendment
        on
        the terms and conditions set forth therein.

       

      
        
           

          
            	 	 	 
	 	
                    National
                      City Bank

                  
	 	
                    

                  
	 	
                    [Lender]

                  
	 
 	 
 	 
 
	 	By:  	/s/ Kim
                    Gorman
	 	 	
                    

                  
	 	 	
                  
	 	Its: 	Vice
                    President
	 	 	
                    

                  
	 	 	 
	 	Date:	 
                    November 2, 2006 
	 	
                    

                  


          

           

           

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