Document:

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                                                                   EXHIBIT 10.21

                               SEMCO ENERGY, INC.

                   2004 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                               ARTICLE 1. THE PLAN

      1.1 Establishment of the Plan. SEMCO Energy, Inc., a Michigan corporation
(the "Company") hereby establishes this supplemental retirement plan for
Executives of the Company effective as of July 01, 2004 (the "Effective Date").
This plan shall be known as the SEMCO Energy, Inc. 2004 Supplemental Executive
Retirement Plan (the "Plan").

      1.2 Purpose of the Plan. The Plan supplements retirement income benefits
provided to Executives under the Company's qualified retirement plans and is
intended, in part, to make up for qualified plan benefits that are limited by
Code Section 401(a)(17).

      The Plan is intended to be a plan maintained for the purpose of providing
deferred compensation to a "select group of management or highly compensated
employees" within the meaning of ERISA Section 201(2). Benefits provided under
this Plan shall be paid solely from the general assets of the Company. This
Plan, therefore, is intended to be exempt from the participation, vesting,
funding and fiduciary requirements of Title I of ERISA.

      1.3 Applicability of the Plan. This Plan applies only to Executives who
are in the active employ of the Company on or after the Effective Date. Certain
Executives who were employed by the Company before the Effective Date shall be
credited with Years of Service and Years of Vesting Service as set forth on
EXHIBIT A.

                             ARTICLE 2. DEFINITIONS

      Whenever used in the Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided. When the defined meaning is
intended, the term is capitalized. The definition of any term in the singular
shall also include the plural, whichever is appropriate in the context.

      2.1  "Actuarial  Equivalent"  means a benefit having the same value as the
benefit that it replaces. Actuarial Equivalence shall be based on--

            (a)   the UP-1984 mortality table (unisex); and

            (b)   a 7.5 percent interest rate compounded annually.

      2.2 "Base Salary" means the average of three calendar years of a
Participant's annual base salary (before reduction for any amounts deferred by
the

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Participant pursuant to any 401(k), deferred compensation and/or Section 125
plan of the Company), using the three calendar years of employment which produce
the highest average.

      2.3 "Beneficiary" or "Beneficiaries" means the person or persons
designated by a Participant in a beneficiary designation form for purposes of
this Plan.

      2.4 "Board" means the Company's Board of Directors.

      2.5 "Cause" means an act or omission to act of a Participant constituting
(i) gross misconduct, (ii) material breach of duties or (iii) an act of material
dishonesty or fraud that is injurious to the Company.

      2.6 "Code" means the Internal Revenue Code of 1986, as amended, or as it
may be amended from time to time. A reference to a particular section of the
Code shall also be deemed to refer to the regulations under that section.

      2.7 "Committee" means the SEMCO Energy, Inc. SERP Committee.

      2.8 "Employee" means any person who is in the regular full time active
employment of the Company or its affiliates as determined by the personnel rules
and practices of the Company. Employment by the Company or one of its
subsidiaries shall be deemed to be employment by the Company.

      2.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or as it may be amended from time to time. A reference to a particular
section of ERISA shall also be deemed to refer to the regulations under that
section.

      2.10 "Executive" means the Chief Executive Officer and those officers of
the Company who have a direct reporting relationship with the Chief Executive
Officer.

      2.11 "Participant" means an Executive who has met, and continues to meet,
the eligibility requirements under Section 3.1.

      2.12 "Plan" means this Plan, as amended from time to time.

      2.13 "Plan Administrator" means the Committee, or any successor to the
Committee designated by the Board.

      2.14 "Plan Year" means an initial plan year beginning on the Effective
Date and ending on December 31, 2004, and thereafter means the twelve month
period beginning on January 1 and ending on December 31.

      2.15 "Qualified Plan" means the Company's Non-Union Employees' Retirement
Plan or any successor defined benefit pension plan established by the Company or
one of its subsidiaries or affiliates.

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      2.16 "Retire" and "Retirement" mean severance of employment with the
Company, other than by death and other than for Cause (as defined below), (a) at
or after the attainment of age sixty-five (65), or (b) if the Participant has
not yet attained the age of sixty-five (65) years but is at least fifty-five
(55) years of age, the Executive has completed five or more Years of Vesting
Service while he or she is a Participant in this Plan.

      2.17 "Total Disability" and "Totally Disabled" mean that a Participant has
been determined to be disabled by the insurer or administrator of the Company's
long-term disability plan.

      2.18 "Years of Service" means a Participant's period of service with the
Company, beginning on the date that the Executive becomes a Participant in this
Plan and ending on the earlier of (i) the date that the Participant's employment
with the Company is terminated or (ii) the date that the Executive is no longer
a Participant in this Plan. This period of Years of Service shall be expressed
as years and fractional parts of a year on the basis that 365 days equal one
year.

      2.19 "Years of Vesting Service" means a Participant's completion of at
least 1,000 hours of service in a Plan Year while he or she is a Participant in
this Plan. "Hours of service" are defined in the Qualified Plan.

                            ARTICLE 3. PARTICIPATION

      3.1 Eligibility. An Executive shall become a Participant on the first day
of the month following the date on which he or she becomes the Chief Executive
Officer or an officer with a direct reporting relationship to the Chief
Executive Officer.

      However, notwithstanding the above, an Executive shall not become a
Participant in this Plan unless he or she is a member of a "select group of
management or highly compensated employees" within the meaning of ERISA Section
201(2).

      The Executives listed on EXHIBIT B attached hereto shall be Participants
in the Plan as of the Effective Date.

      3.2 Duration. An Executive who becomes a Participant under Section 3.1
shall remain an active Participant until the earlier of--

      (a)   the Executive's termination of employment with the Company;

      (b)   the Executive's death; or

      (c)   the date on which the the Executive is not the Chief Executive
            Officer or an officer with a direct reporting relationship to the
            Chief Executive Officer.

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      An individual whose active participation has been terminated under this
Section 3.2 shall continue to be an inactive Participant until all benefits to
which he or she is entitled to under this Plan have been paid. An inactive
Participant shall not be credited with Years of Service or Years of Vesting
Service.

                         ARTICLE 4. RETIREMENT BENEFITS

      4.1 Retirement Benefit. If a Participant remains an Employee of the
Company and shall Retire, the Company will pay or cause to be paid to the
Participant a monthly supplemental retirement benefit (the "Retirement Benefit")
equal to one-twelfth (1/12) of (a) times (b) offset by (c):

            (a)   The sum of

                  (i)   4% of the Participant's first five Years of Service;
                        plus

                  (ii)  3% of the Participant's Years of Service in excess of
                        five Years of Service, but not exceeding 15 Years of
                        Service.

            (b)   The  percentage as determined in paragraph (a) [not  exceeding
                  50%] is multiplied by the Participant's Base Salary.

            (c)   The product of (a) times (b) is offset by the monthly benefit
                  accrued by the Participant under the Qualified Plan during the
                  period in which the Executive is a Participant in this Plan
                  and in the Qualified Plan, assuming that the Participant
                  received such benefit in the form of a single life annuity
                  commencing on the date that benefits begin to be paid under
                  this Plan.

      The Retirement Benefit shall be paid, commencing on the later of (1) the
first day of the month following the Participant's termination of employment or
(2) a date specified in an election form prescribed by the Plan Administrator
and executed and submitted by the Participant more than one year prior to the
date in (1) and continuing on the first day of each month thereafter for a total
period of fifteen (15) years (or 180 monthly payments in total).

      4.2 Payments to Beneficiary. If a Participant shall die after becoming
entitled to a Retirement Benefit but before all such payments are made, then any
Retirement Benefit payments remaining unpaid to the Participant shall be paid to
his or her Beneficiary in accordance with his or her beneficiary designation
form.

      4.3 Death After Retirement. If a Participant shall die after becoming
entitled to a Retirement Benefit under the circumstances set forth in Section
4.2 above, then no

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Pre-Retirement Death Benefit as provided for in Article 5 shall be payable to
the Participant's Beneficiary.

      4.4 Transition Benefit. In general, Years of Service and Years of Vesting
Service shall begin accruing on the later of the Effective Date of this Plan or
the date on which the Executive becomes a Participant in this Plan. However,
notwithstanding any provision of this Plan to the contrary, the Participants
listed on EXHIBIT A shall be credited with the number of Years of Service and
Years of Vesting Service set forth on EXHIBIT A as of the Effective Date of this
Plan.

                            ARTICLE 5. DEATH BENEFIT

      5.1 Pre-Retirement Death Benefit. In the event a Participant dies while
this Plan is in effect and prior to the Participant's Retirement, the Company
will pay or cause to be paid to the Participant's Beneficiary a death benefit
(the "Pre-Retirement Death Benefit") equal to 300% of the Participant's Base
Salary as of the date of death.

      5.2. Conditions to Payment of Benefit. The Company will pay or cause to be
paid such Pre-Retirement Death Benefit only if at the time of the Participant's
death, (i) he or she was an Employee or (ii) he or she was Totally Disabled and
was deemed to be an Employee of the Company in accordance with Article 6 below.

      5.3. No Retirement Benefit. Payment of the Pre-Retirement Death Benefit to
the Participant's Beneficiary shall eliminate any obligation that the Company
might otherwise have to pay the Retirement Benefit described in Article 4.

      5.4 Beneficiary. Each Participant shall designate the Beneficiary to
receive his or her Retirement Benefit and the Pre-Retirement Death Benefit
provided in this Plan, by completing a beneficiary designation form prescribed
by the Plan Administrator. If more than one Beneficiary is named, the shares
and/or precedence of each Beneficiary shall be indicated and, in the absence of
any such designation, the shares shall be equally divided without precedence to
any one Beneficiary. The Participant shall have the right to change the
Beneficiary by submitting an amended or new beneficiary designation form;
provided, however, no change of Beneficiary shall be effective until
acknowledged in writing by the Company. If the Company has any doubt as to the
proper Beneficiary, then the Participant's estate shall be the Beneficiary. If
the Company has any doubt as to the manner of payment of the Pre-Retirement
Death Benefit to the Beneficiary, or if the Participant shall not have on file a
valid beneficiary designation form regarding the manner of payment of such
Pre-Retirement Death Benefit, then the Company shall have the absolute
discretion to pay such Pre-Retirement Death Benefit in one lump sum payment to
the Participant's estate. Any such lump sum payment made by the Company, in good
faith and in accordance with this Plan, shall fully discharge the Company from
all further obligations with respect to such payment.

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                              ARTICLE 6. DISABILITY

      6.1 Disability Benefit. If a Participant, while an Employee of the
Company, becomes Totally Disabled and, therefore, ceases to be an Employee of
the Company, then the Participant will be 100% vested in his or her Retirement
Benefit, even if the Participant has fewer than five Years of Vesting Service or
is not yet age 55. The Retirement Benefit shall be calculated in accordance with
Section 4.1 above and shall commence on the later of (1) the first day of the
month after the Participant's attainment of age 55 or (2) the date specified in
an election form prescribed by the Plan Administrator and executed and submitted
by the Participant more than one year prior to the date in (1) and continuing on
the first day of each month thereafter for a total of fifteen (15) years (or 180
monthly payments in total). Notwithstanding the foregoing, if the Participant
has fewer than five Years of Vesting Service as of the date of Total Disability,
the Participant may elect to receive his or her Retirement Benefit in the form
of a single lump sum benefit, if such election is made at least one year before
the Participant's attainment of age 55. Any such lump sum benefit will be paid
on the first day of the month after the Participant's attainment of age 55 and
will be the Actuarial Equivalent of the 15-year form of payment.

      6.2 Death Benefit. In the event a Participant dies prior to attaining age
55 while he or she is Totally Disabled, the Participant shall be deemed to
remain an Employee of the Company solely for purposes of Article 5, and the
Pre-Retirement Death Benefit provided in Article 5 will be paid to the
Participant's Beneficiary (and no Retirement Benefit provided in Article 4 or
Article 6 will be paid by the Company). In such circumstances, the Participant's
Base Salary for the Plan Year within which the Participant's death occurs shall
be deemed to be the Participant's Base Salary for the Plan Year within which the
Participant's Total Disability occurred.

      6.3 Disability Determination. The final determination of what constitutes
Total Disability and the continuance thereof for purposes of this Article, shall
be made by the insurer or administrator of the Company's long-term disability
plan, and such determination shall be conclusive.

                              ARTICLE 7. FINANCING

      7.1 Financing. The Plan is intended to constitute an unfunded plan
maintained for a "select group of management or highly compensated employees"
within the meaning of ERISA Section 201(2). The benefits under this Plan shall
be paid solely from the general assets of the Company or from a trust fund whose
assets would remain available to the general creditors of the Company in the
event of its insolvency. Except as otherwise provided in Article 10, the
decision of whether to establish and fund such a trust shall be made by the
Board in its sole and absolute discretion.

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      7.2 No Fiduciary Relationship. Nothing contained in this Plan, and no
action taken pursuant to the provisions of this Plan, shall create a trust or
fiduciary relationship between an Employer and any Participant or Beneficiary.
However, in accordance with Section 7.1, the Company may establish and fund a
trust for the purpose of paying benefits under this Plan, provided the assets of
such trust shall be available to the general creditors of the Company in the
event of its insolvency.

      7.3 Unsecured Interest. No Participant or Beneficiary shall have any
interest whatsoever in any specific asset of the Company or any affiliate of the
Company. To the extent that any person acquires a right to receive payments
under this Plan, such right shall be no greater than the right of any unsecured
general creditor of the Company.

                      ARTICLE 8. TERMINATION OF EMPLOYMENT

      8.1 Termination Other than for Death, Disability or Cause. Termination of
a Participant's employment with the Company for any reason, other than for:

            (a)   death which is provided for in Article 5 above;

            (b)   Total Disability, which is provided for in Article 6 above;
                  and

            (c)   Cause which is provided for in Section 8.2 below,

            whether by action of the Company or a Participant, (i) shall
immediately result in the Participant's Retirement as provided in this Plan,
provided that such termination of employment meets the definition of Retirement
set forth in Section 2.16(a) or 2.16(b), and in such event the Company shall pay
a benefit to such Participant in accordance with the terms of this Plan, or
(ii), if such termination does not meet such definition, the Participant's
participation under this Plan shall immediately terminate and no benefits shall
be payable hereunder, unless such termination is a termination described in
Section 10.3 below, in which event the obligations described therein shall
continue in full force and effect.

      8.2 Termination for Cause. If the Participant's employment with the
Company is terminated for Cause, then notwithstanding that the Participant would
otherwise qualify as having Retired, the Participant shall not be entitled to
receive any Retirement Benefit provided in this Plan.

      8.3 Company's Rights. This Plan does not in any way obligate the Company
to continue the employment of any Participant with the Company, nor does this
Plan limit the right of the Company to terminate a Participant's employment with
the Company at any time and for any reason. In no event shall this Plan by its
terms or implications constitute an employment contract of any nature between
the Company and any Participant.

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      8.4 Change of Control. All of the foregoing provisions of this Article 8
are subject to the provisions of Article 10 of this Plan.

                        ARTICLE 9. RESTRICTIVE COVENANTS

      During the term of this Plan (including any time during which a
Participant is determined to be Totally Disabled, as described in Article 6
above), and during the time a Participant is receiving any benefits provided for
under Article 4 hereof, unless the Participant's employment with the Company has
been terminated and the Participant paid a Severance Amount under such
Participant's Change of Control Employment Agreement or Change in Control
Agreement, a Participant will not, without the written consent of the Board
directly or indirectly own, manage, operate, control or participate in the
ownership, management, operation or control of, or be connected as an officer,
employee, partner, director or otherwise with, or have any financial interest
in, or aid or assist anyone else in the conduct of any business which competes
with any business conducted by the Company (or any of its subsidiary or
affiliated companies) in any area where such business of the Company (or any of
its subsidiary or affiliated companies) is being conducted. Ownership of five
percent (5%) or less of the voting stock of any publicly-held corporation shall
not constitute a violation hereof.

                          ARTICLE 10. CHANGE OF CONTROL

      10.1 Definition. For purposes of this Plan, the term "Change of Control"
shall have the meaning provided in a Participant's Change of Control Employment
Agreement or Change in Control Agreement, as the case may be.

      10.2 Funding. The Company shall within ten (10) days following a Change of
Control make an irrevocable contribution to an Executive Security Trust
("Trust") by and between the Company and an established Trustee in a lump sum
amount that equals--

            (a)   the amount needed to fully fund all remaining payments that
                  are then being made to a Participant if the Participant has
                  before that time begun receiving payments pursuant to this
                  Plan; or

            (b)   in the event that before that time a Participant has not begun
                  receiving payments pursuant to this Plan, the lump sum amount
                  that would be required, as of the projected future Retirement
                  at age 65 of the Participant, to provide such Participant with
                  the age 65 Retirement Benefit described in Article 4, assuming
                  the Participant remains an Employee of the Company until age
                  65 and then Retires and assuming the Participant's Base Salary
                  immediately prior to the occurrence of the Change of Control.

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However, notwithstanding anything to the contrary contained herein, the
Company's irrevocable contribution to the Trust in the manner provided herein
shall not in and of itself entitle any Participant to the Retirement Benefit
provided hereunder and/or to receive any immediate payments from the Trust; each
Participant's right to the Retirement Benefit provided hereunder shall be
determined in accordance with the terms and provisions of the other Articles of
this Plan, and the Participant's right to receive payments from the Trust shall
be determined in accordance with the terms and provisions of the Trust.

      10.3 Termination Following Change in Control. If within two years after a
Change of Control, the employment of a Participant with the Company is
terminated by the Company for reasons other than Cause or is terminated by a
Participant for Good Reason (as defined below), then the Participant shall be
100% vested in his Retirement Benefit. In this event, the Company shall pay the
Participant a benefit commencing on the later of (1) the first day of the month
following the Participant's termination of employment or (2) a date specified in
an election form prescribed by the Plan Administrator and executed and submitted
by the Participant more than one year prior to the date in (1). The benefit
shall be calculated and paid pursuant to Article 4 hereof. For purposes of this
Plan, the term "Good Reason" shall have the meaning provided in a Participant's
Change of Control Employment Agreement or Change in Control Agreement, as the
case may be.

                    ARTICLE 11. OTHER BENEFITS AND AGREEMENTS

      The benefits provided for each Participant and his or her Beneficiary
under this Plan are in addition to any other benefits available to a Participant
under any other plan or program of the Company for its employees, and, except as
may otherwise be expressly provided for, this Plan shall supplement and shall
not supersede, modify or amend any other plan, agreement or program between the
Company and a Participant.

               ARTICLE 12. RESTRICTIONS ON ALIENATION OF BENEFITS

      No right or benefit under this Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be liable for or subject
to the debts, contracts, liabilities or torts of the person entitled to such
benefit. If a Participant or any Beneficiary shall become bankrupt or attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge any benefit
hereunder, then such person's benefit, in the discretion of the Plan
Administrator, shall cease and, in such event, the Plan Administrator may hold
or apply the same or any part thereof for the benefit of the Participant or such
Beneficiary, his or her spouse, children, or other dependents, or any of them,
in such manner and in such portions as the Plan Administrator may deem proper.

                                       9
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                           ARTICLE 13. ADMINISTRATION

      13.1 Administration. The Plan shall be administered by the Plan
Administrator. The Plan Administrator shall have all powers necessary or
appropriate to carry out the provisions of the Plan. It may, from time to time,
establish rules for the administration of the Plan and the transaction of the
Plan's business.

      The Plan Administrator shall have the exclusive right to make any finding
of fact necessary or appropriate for any purpose under the Plan including, but
not limited to, determination of eligibility for and amount of any benefit.

      Benefits under this Plan shall be paid only if the Plan Administrator
decides in its discretion that a Participant or Beneficiary is entitled to them.

      The Plan Administrator shall have the exclusive right to interpret the
terms and provisions of the Plan and to determine any and all questions arising
under the Plan or in connection with its administration, including, without
limitation, the right to remedy or resolve possible ambiguities, inconsistencies
or omissions by general rule or particular decision, all in its sole and
absolute discretion.

      To the extent permitted by law, all findings of fact, determinations,
interpretations and decisions of the Plan Administrator shall be conclusive and
binding under all persons having or claiming to have any interest or right under
the Plan.

      13.2 Assistance. The Plan Administrator may, in its sole and absolute
discretion, delegate any of its powers and duties under this Plan to one or more
individuals. In such a case, every reference in the Plan to the Plan
Administrator shall be deemed to include such individuals with respect to
matters within their jurisdiction.

      13.3 Appeals From Denial of Claims. If any claim for benefits under the
Plan is wholly or partially denied, the claimant shall be given notice of the
denial. The Plan Administrator shall give this notice in writing within a
reasonable period of time after receipt of the claim. This period will not
exceed 90 days after receipt of the claim, except that if the Plan Administrator
determines that special circumstances require an extension of time, the period
may be extended up to an additional 90 days. Written notice of the extension
shall be furnished to the claimant prior to termination of the initial 90-day
period, and it shall indicate the special circumstances requiring an extension
of time and the date by which the benefit determination is expected.

      Notice of any claim denial shall be written in a manner calculated to be
understood by the claimant and shall set forth the following information:

      (a)   specific reason or reasons for the denial;

      (b)   reference to specific Plan provisions on which the denial is based;

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      (c)   a description of any additional material or information necessary
            for the claimant to perfect the claim and an explanation of why this
            material or information is necessary;

      (d)   an explanation that a full and fair review by the Plan Administrator
            of the decision denying the claim may be requested by the claimant
            or his authorized representative by filing with the Plan
            Administrator, within 60 days after such notice has been received, a
            written request for review; and

      (e)   a statement of the claimant's right to bring a civil action under
            ERISA Section 502(a) following an adverse decision upon review.

      If a claimant, files a written request for review of a denied claim, the
claimant or his or her authorized representative may request, free of charge,
reasonable access to and copies of all documents, records, and other information
relevant to the claim and may submit written comments, documents, records, and
other information relevant to the claim within the 60-day period specified
above. The notice of claim denial shall include a statement of the claimants
rights to review and submit information pursuant to this paragraph.

      The review by the Plan Administrator shall take into account all comments,
documents, records, and other information submitted by the claimant relating to
the claim without regard to whether such material was submitted or considered as
part of the initial determination. The decision of the Plan Administrator upon
review shall be made promptly, and not later than 60 days after the Plan
Administrator's receipt of the request for review. However, if the Plan
Administrator determines that special circumstances require an extension of
time, this period may be extended up to an additional 60 days. Written notice of
the extension shall be furnished to the claimant prior to termination of the
initial 60-day period, and it shall indicate the special circumstances requiring
an extension of time and the date by which the decision on review is expected.

      If the claim is denied, wholly or in part, the claimant shall be given a
copy of the decision promptly. The decision shall be in writing and shall be
written in a manner calculated to be understood by the claimant. The decision
shall include specific reasons for the denial; references to specific Plan
provisions on which the denial is based; a statement that the claimant may
request, free of charge, reasonable access to and copies of all documents,
record, and other information relevant to the claim; and a statement of the
claimant's right to bring a civil action nder ERISA Section 502(a).

      13.4 Tax Withholding. The Company may withhold from any payment under this
Plan any federal, state, or local taxes required by law to be withheld with
respect to the payment and any sum the Company may reasonably estimate as
necessary to

                                       11
<PAGE>

cover any taxes for which it may be liable and that may be assessed with regard
to the payment.

      13.5 Expenses. The Company shall pay all expenses incurred in the
administration of the Plan.

      13.6 Right of Offset. The Company shall have the right to offset any
amounts payable to a Participant under the Plan by any amount necessary to
reimburse the Company for liabilities or obligations of the Participant to the
Company, including for amounts misappropriated by the Participant.

                      ARTICLE 14. AMENDMENT AND TERMINATION

      The Company hereby reserves the right to amend, modify, or terminate the
Plan at any time, and for any reason, by action of the Board. However, no
amendment or termination shall have the effect of reducing the benefits accrued
by a Participant prior to the date of the amendment or termination.

                            ARTICLE 15. MISCELLANEOUS

      15.1 Notices. Any notice given under this Plan shall be in writing and
shall be mailed by United States certified mail, postage prepaid. If notice is
to be given to the Company, such notice shall be addressed to the Committee at
the Company's principal place of business or, if notice to a Participant,
addressed to the Participant at the most recent address shown on the Company's
records. The Company or a Participant may, from time to time, change the address
to which notices shall be mailed by giving written notice of such new address.

      15.2 Severability. If any provisions of this Plan shall be held illegal or
invalid, the illegality or invalidity shall not affect its remaining parts. The
Plan shall be construed and enforced as if it did not contain the illegal or
invalid provision.

      15.3 Successors and Assigns. This Plan shall be binding upon the Company
and its successors and assigns.

      15.4 Governing Law. This Agreement shall be governed and construed under
the laws of the State of Michigan.

      15.5 Receipt and Release. Any payment to any Participant or Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Company and the Plan Administrator
under the Plan, and the Plan Administrator may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect. If any Participant or Beneficiary is determined by the
Plan Administrator to be legally

                                       12
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incapacitated by reason or physical or mental disability (including minority) to
give a valid receipt and release, the Plan Administrator may cause the payment
or payments becoming due to such person to be made to another person for his or
her benefit without responsibility on the part of the Plan Administrator or the
Company to follow the application of such funds.

      15.6 Entire Agreement. This Plan sets forth the entire agreement of the
Company pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written.

      IN WITNESS WHEREOF, an authorized officer has signed this document on
behalf of the Company, effective as of July 1, 2004.

                                         SEMCO Energy, Inc.

                                         By: /s/George A. Schreiber, Jr.
                                             ---------------------------

                                         Its: President and CEO

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                                    EXHIBIT A

                  Executive Employed Before the Effective Date;

 Years of Service and Years of Vesting Service Credited as of the Effective Date

<TABLE>
<CAPTION>
                                      Years of
   Name        Years of Service    Vesting Service
------------   ----------------    ----------------
<S>            <C>                 <C>
Eugene Dubay     1.75 years           1.75 years
               (October 1, 2002)   (October 1, 2002)
</TABLE>

                                    EXHIBIT B

                Participants in the Plan as of the Effective Date

<TABLE>
<CAPTION>
      Name          Effective Date
----------------    --------------
<S>                 <C>
George Schreiber     July 1, 2004
</TABLE>

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<TABLE>
<S>                 <C>
                    Participant Tracking

Eugene Dubay        October 1, 2002
George Schreiber    July 1, 2004
Doris Galvin        August 1, 2004
Michael Palmeri     August 1, 2004
Peter Clark         October 1, 2004
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                                       15<PAGE>

                                                                    Exhibit 10.1

                                                                   March 4, 2005

Peter J. Ungaro
Senior Vice President
Cray Inc.
411 First Avenue South, Suite 600
Seattle, WA 98104

Dear Peter:

      Subject to final approval of and appointment by the Board of Directors, we
wish to offer to you the position as President of Cray Inc.

      As President, you will be the second most senior executive at Cray, and
will report directly to me, as Chief Executive Officer. The President is
responsible for directing the overall company in the attainment of Cray's
revenue and profit goals, and participates with the Chief Executive Officer in
major corporate functions such as preparation of annual plans, long-term
strategy, corporate policies, financing and investor relations.

      As President you will have overall responsibility for the following
functions, which shall report directly to you: sales, marketing, service,
engineering, manufacturing and other functions that do not report directly to
the Chief Executive Officer. The functions that will continue to report directly
to me as Chief Executive Officer are finance (Kenneth Johnson as chief finance
officer until the new chief financial officer is hired), legal (Kenneth Johnson
as general counsel), government relations (Christopher Jehn) and of course you
as President.

      With this appointment, your annual base salary will be increased to
$350,000 effective March 1, 2005. You will also receive a one-time appointment
bonus of $300,000 that, in part, is in lieu of any remaining 2004 compensation.
Under our executive bonus plan, your bonus percentage will be 75% of base
salary, so that at target (to be established by the Compensation Committee and
the Board for each year), your bonus would be $262,500, pending any subsequent
increases in base salary and changes in bonus percentage. You would also receive
a sales override bonus based on gross margin of our total revenue, as the gross
margin is reported in our public financial statements. The bonus would be .0035
of the gross margin up to the gross margin target in the plan approved by the
Board for such year, and .006 of gross margin in excess of such approved gross
margin target. We would pay this sales override bonus quarterly, after filing of
the applicable Reports on Forms10-Q or 10-K with the Securities and

<PAGE>

Exchange Commission, with any true-up necessary in the payment for the fourth
quarter of each fiscal year.

      Concurrently with the Board action to appoint you as President, the Board
would amend our Executive Severance Policy for executive officers. For the Chief
Executive Officer and for the President, the Salary portion of the Severance
Payment would be defined as based on our target compensation rather than solely
base salary. For the Chief Executive Officer, the target compensation would be
defined as the total of base salary and the executive bonus based on the target
for the year, and the Salary portion of the Severance Payment would be 100% of
such target compensation. For the President, the target compensation would be
defined as the total of base salary, the percentage of salary executive bonus
based on the target for the applicable year, and the override bonus based on the
Board approved plan for the year; the Salary portion of the Severance Payment
would be 200% of target compensation for each twelve months through the end of
March 2008 and then revert to 100% thereafter. The other terms of the Executive
Severance Policy would not be changed in connection with your appointment as
President.

      If the following sets forth our understanding regarding your position as
President of Cray Inc., including role, functions and compensation, please so
acknowledge by signing below in the space indicated. I will then forward this to
the Board for its prompt action.

                                    Yours truly,

                                    /s/ James E. Rottsolk

                                    James E. Rottsolk,
                                    Chief Executive Officer

Agreed to this 4th day of March, 2005.

/s/ Peter J. Ungaro

Peter J. Ungaro

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