Document:

SEMCO  ENERGY,  INC.  DEFERRED  COMPENSATION  PLAN

                                   ARTICLE  I

                                     PURPOSE

     The  purpose  of  the  SEMCO  Energy,  Inc.   Deferred   Compensation  Plan
(hereinafter  referred  to  as the "Plan") is to provide funds for retirement or
death  for  certain executive and management employees (and their beneficiaries)
of SEMCO Energy,  Inc.  It  is  intended that the Plan will aid in retaining and
attracting  employees  of exceptional ability by providing such employees with a
means  to  supplement  their  standard  of  living  at retirement.  This Plan is
intended  to qualify for the exemptions described in sections 201(2), 301(a)(3),
and  401(a)(1)  of  the  Employee  Retirement  Income  Security  Act of 1974, as
amended.

                                  ARTICLE  II

                                  DEFINITIONS

     For  the  purpose  of this Plan, the following words and phrases shall have
the  meanings  indicated,  unless  the  context  clearly  indicates  otherwise:

2.1     BENEFICIARY.   "Beneficiary"   means  the  person,  persons,  or  entity
designated  by  the  Participant, or as provided in Article VIII, to receive any
benefits  payable under the Plan.  Any Participant Beneficiary designation shall
be  made  in  a  written  instrument  filed  with the Committee and shall become
effective  only  when  received  in  writing  by  the  Committee.

2.2     BOARD.  "Board"  means  the  Board  of  Directors  of SEMCO Energy, Inc.

2.3     COMMITTEE.  "Committee"  means  the  Deferred  Compensation  Committee
appointed  by  the  Compensation  Committee  of  the  Board.

2.4     COMPANY.  "Company"  means  SEMCO  Energy,  Inc.,  and its subsidiaries.

2.5     COMPENSATION.  "Compensation"  or  "Total  Compensation"  means the Base
Salary and Incentive Compensation payable to a Participant during the Plan Year.

     (a)     BASE  SALARY.  "Base  Salary"  means  all  regular remuneration for
services,  other  than  such  items  as  Incentive  Compensation, payable by the
Company  to  a  Participant in cash during a Plan Year, but before reduction for
amounts  deferred  pursuant  to this Plan or any other Plan of the Company.  The
Committee  shall determine whether a particular item of income consti-tutes Base
Salary  if  a  question  arises.

     (b)     INCENTIVE  COMPENSATION.  "Incentive  Compensation"  means any cash
bonus  paid  to  a  Participant  in  a  Plan  Year.

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2.6     DECLARED  RATE.  "Declared  Rate" means the rate of interest or earnings
(positive  or  negative)  to  be credited to the Participant's deferral account.
The  participant  shall choose, and indicate in his Participation Agreement, one
of  the  four  following  investment indexes prior to the beginning of each Plan
Year,  and  his  deferral  account  shall  be credited with interest or earnings
(positive  or  negative)  based  on  that  index  for  the subsequent Plan Year.

(a)     Choice One:  S&P 500 RETURN INDEX.  A monthly return equal to the return
of the Standard & Poors 500 stock index, including dividends, for the applicable
month  as  published  by Callan Associates or other such source as determined by
the  Committee.

(b)     Choice  Two:  STABLE VALUE RETURN INDEX.  A monthly return equal to 115%
of the return on short-term Treasury Bills for the applicable month as published
by  Callan  Associates  or  other  such  source  as determined by the Committee.

(c)     Choice Three:  BALANCED RETURN INDEX.  A monthly return derived from the
simple  average of (1) the S&P 500 Return Index, and (2) the Stable Value Return
Index.

(d)     Choice  Four:  SEMCO PHANTOM STOCK INDEX. This "Index" is much different
from  the above 3 indices because earnings or losses in this Phantom Stock Index
are  based  on  the return that an investor would receive by purchasing only one
kind  of  stock:  being  Common  Stock  of  SEMCO  Energy,  Inc.

Actual  shares  of  Common Stock are not purchased. Instead, earnings and losses
are  determined  as  though  all deferred Compensation credited to your deferral
account  were  used  to  purchase  Common  Stock  at  the price, at the time and
otherwise  in the manner consistent with the Company's Direct Stock Purchase and
Dividend  Reinvestment  Plan  ("DRIP").  This phantom purchase will occur at the
earliest  DRIP  investment  date  after  the amount is credited to your account.
Thus,  your  account  will  be  invested  in  "Phantom  Stock".

Further,  your  deferral  account  will  be  credited  with additional shares of
Phantom  Stock  at  the time and otherwise in the manner that an equal number of
actual  shares of Common Stock would be credited to your account if your account
held  actual  Common  Stock  reinvesting  dividends  in  the  DRIP.

2.7     DEFERRAL  BENEFIT.  "Deferral  Benefit"  means  the benefit payable to a
Participant  or  Participant's  Beneficiary  on Participant's retirement, death,
disability,  or  termination  of employment as calculated in Article VII hereof.

2.8     DEFERRED BENEFIT ACCOUNT.  "Deferred Benefit Account" means the accounts
maintained  on the books of account of the Company for each Participant pursuant
to Article VI.  A separate Deferred Benefit Account shall be maintained for each
Participant.  A  Participant's Deferred Benefit Account shall be utilized solely
as  a  device for the measurement and determination of the amounts to be paid to
the  Participant pursuant to the Plan.  A Participant's Deferred Benefit Account
shall  not  constitute  or  be  treated  as  a  trust  fund  of  any  kind.

2.9     DETERMINATION DATE.  "Determination Date" means the date as of which the
amount  of a Participant's Deferred Benefit Account is determined as provided in
Article VI hereof.  The last day of each calendar month shall be a Determination
Date.

2.10     DISABILITY.  "Disability" or "Disabled Participant" means a physical or
mental condition of a Participant resulting in a determination of disability for
purposes  of  receiving  benefits under the Company's Long Term Disability Plan.

2.11     PARTICIPANT.  "Participant" means any individual who is deemed eligible
by  the  Committee  to participate in this Plan and who elects to participate by
filing  a  Participation  Agreement  as  provided  in  Article  IV.

2.12     PARTICIPATION AGREEMENT.  "Participation Agreement" means the agreement
filed  by a Participant prior to the beginning of the first period for which any
of  the  Participant's  Compensation  is to be deferred pursuant to the Plan.  A
form  of  such  Participation  Agreement  is  attached  hereto.

2.13     PLAN  YEAR.  "Plan Year" means a twelve month period commencing January
1  and  ending the following December 31.  The first Plan Year shall commence on
October  1,  1999  and  terminate  on  December  31,  1999.

2.14     RETIREMENT  DATE.  "Retirement  Date"  means the first day of the month
coincidental  with or next following a Participant's actual retirement under the
SEMCO  Energy,  Inc.  Non-Union  Retirement  Plan.

2.15     SPOUSE.  "Spouse"  means  a  Participant's  wife  or  husband  who  was
lawfully  married to the Participant at the time of the Participant's death or a
determination  of  Participant's  incompetency  under  paragraph  10.8.

                                    ARTICLE  III

                                   ADMINISTRATION

3.1     DEFERRED  COMPENSATION  COMMITTEE:  DUTIES.  This  plan  shall  be
administered  by  the  Committee.  Members  of the Committee may be Participants
under  this  Plan.  The  Committee shall also have the authority to make, amend,
interpret,  and  enforce  all  appropriate  rules  and  regulations  for  the
administration  of  this  Plan  and  decide  or  resolve  any and all questions,
including interpretation of this Plan, as may arise in connection with the Plan.

3.2     BINDING  EFFECT  OF  DECISION.  The  decision or action of the Committee
with  respect  to  any  question  arising  out  of  or  in  connection  with the
administration,  interpretation,  and  application of the Plan and the rules and
regulations  promulgated  hereunder shall be final, conclusive, and binding upon
all persons having any interest in the Plan, unless a written appeal is received
by  the  Committee within sixty days of the disputed action.  The appeal will be
reviewed  by  the  Committee  and  the decision of the Committee shall be final,
conclusive, and binding on the Participant and all persons claiming by, through,
or  under  the  Participant.

                                   ARTICLE  IV

                                  PARTICIPATION

4.1     PARTICIPATION.  Participation  in the Plan shall be limited to the class
of those key employees selected by the Committee who elect to participate in the
Plan  by  filing  a Participation Agreement with the Committee.  A Participation
Agreement must be filed prior to December 15 immediately preceding the Plan Year
in  which  the  Participant's  participation  under the Agreement will commence;
provided, however, that the Committee may establish a later date in December for
filing  a  Participation  Agreement  when a change to the form of that Agreement
makes  a later date appropriate.  The election to participate shall be effective
on  the  first  day  of  the  Plan  Year following receipt by the Committee of a
properly  completed  and  executed  Participation  Agreement.

     With  respect  to  the  first  Plan  Year of the Plan or with respect to an
individual  hired or promoted during a Plan Year who thereby becomes eligible to
participate  herein,  an  initial  Participation  Agreement  may be filed within
thirty  days  of  the  Committee's notification to Participant of eligibility to
participate.  Such  election  to  participate shall be effective no earlier than
the  first  day  of  the  pay  period following the Committee's receipt thereof.

4.2     MINIMUM AND MAXIMUM DEFERRAL AND LENGTH OF PARTICIPATION.  A Participant
may  elect in a Participation Agreement to defer a portion of Participant's Base
Salary  or  Incentive Compensation.  The minimum and maximum amounts that may be
deferred  under  a  Participa-tion  Agreement  shall  be  as  follows:

                                   Minimum  Deferral          Maximum  Deferral
                                   -----------------          -----------------

     With respect to Base          2% of Base Salary          50% of Base Salary
     Salary  Deferrals

     With  respect  to             25% of Incentive           100% of Incentive
     Incentive  Compensation       Compensation               Compensation

     (a)     With  respect  to  Base  Salary  deferrals, the deferral percentage
elected  in a Participation Agreement shall be applied to the Participant's Base
Salary  as  established  for  the first pay period of the Plan Year to which the
Participation  Agreement  applies,  and the resulting dollar amount shall be the
amount  of  Base  Salary  that will be deferred in each pay period over the Plan
Year.

          Deferrals  shall commence with the Plan Year immediately following the
Plan  Year  in  which the respective Participation Agreement is filed; provided,
however,  that  an initial Participation Agreement which is effective other than
on January 1 of a Plan Year shall apply to the remainder of the Plan Year and to
the  following  Plan  Year  as  set  forth  above.

     (b)     With  respect  to  Incentive  Compensation  deferrals, the deferral
percentage  selected  in  a  Participation  Agreement  shall  apply  to  the
Participant's  Incentive  Compensation  to  be paid in the Plan Year immediately
following  receipt  of  the  Participation  Agreement.

     (c)     A Participant's election to defer Compensation shall be irrevocable
upon  the  filing  of the respective Participation Agreement; provided, however,
that  the  deferral  of  Compensation  under  any Participation Agreement may be
suspended  or  amended  as  provided  in paragraphs 7.4, 7.8, 9.1, or as further
described  in  this  paragraph.

4.3     ADDITIONAL  PARTICIPATION AGREEMENT.  A Participant may enter into a new
Participation  Agreement  by filing a Participation Agreement with the Committee
prior  to  December  15  of  any  calendar  year,  stating  the  amount that the
Participant  elects to have deferred.  The new agreement shall be effective only
as  to  Compensation paid in Plan Years beginning after the last day of the Plan
Year  in  which  the  respective  agreement  is filed with the Committee.  A new
Participation Agreement is subject to all of the provisions and requirements set
forth  in  paragraph  4.2.

                                    ARTICLE  V

                              DEFERRED  COMPENSATION

5.1     ELECTIVE  DEFERRED  COMPENSATION.  The  amount  of  Compensation  that a
Participant  elects  to  defer  in  a  Participation  Agreement  executed by the
Participant with respect to each Plan Year of participation in the Plan shall be
credited by the Company to the Participant's Deferred Benefit Account throughout
each  Plan  Year  as  the  Participant  is  paid  the  non-deferred  portion  of
Compensation  for  such  Plan  Year.  The  amount  credited  to  a Participant's
Deferred  Benefit  Account  shall equal the amount deferred.  To the extent that
the  Company  is  required  to  withhold  any  taxes  or  other  amounts from an
employee's  deferred  wages  pursuant  to any state, federal, or local law, such
amounts  shall  be  taken  out  of  the Participant's Compensation which is not
deferred  under  this  Plan.

5.2     EFFECT  ON  OTHER  PLANS.  To  the  extent  to  which  deferrals  by  a
Participant  under  this  Plan  cause  a  reduction  in  pension  benefits for a
Participant  under  the SEMCO, Inc. Non-Union Retirement Plan, the Company shall
provide  supplementary  benefits to the extent of such reduction.  The amount of
such  reduction  shall  be  determined,  as  of  the  time  of the Participant's
termination  of  employment  or  retirement  under said Retirement Plan, by said
Plan's  administrator  based upon the form of pension benefit applicable to such
Participant,  which  determination  shall  be  binding  and  conclusive  on such
participant.

     To  the  extent to which deferrals by a Participant under this Plan cause a
reduction  in  matching  contributions  made  by  the  Company  on behalf of the
Participant  under  the SEMCO Energy, Inc. 401(k) Plan, the Company shall credit
the  amount  of any such reduction to the Participant's Deferred Benefit Account
under  this Plan. Such amount will be credited as of the December 31 of the year
in  which  such  reduction  of  contributions  occurs,  or  upon  termination of
employment,  if  earlier.

     The  Company shall compute life insurance and disability benefits under any
Company  plan based on Compensation without reduction for amounts deferred under
this  Plan.

5.3     Vesting of Deferred Benefit Account.  A Participant shall be 100% vested
in  the  Participant's  Deferred  Benefit  Account.

                                   ARTICLE  VI

                            DEFERRED  BENEFIT  ACCOUNT

6.1     DETERMINATION  OF  ACCOUNT.  Each Participant's Deferred Benefit Account
as  of  each  Determination  Date  shall  consist  of  (1)  the  balance  of the
Participant's  Deferred  Benefit  Account  as  of  the  immediately  preceding
Determination  Date,  plus  (2) the Participant's elective deferred Compensation
withheld  since  the  immediately  preceding  Determination  Date  pursuant  to
paragraph  5.1, less (3) the amount of all distributions, if any, made from such
Deferred  Benefit  Account since the preceding Determination Date, plus or minus
(4)  any interest or earnings adjustment as determined under paragraph 6.2, plus
(5)  a  credit  for  any reduced 401(k) plan matching contributions as described
under paragraph 5.2.  In addition, the amount of any benefits foregone under the
Retirement  Plan  as  described  in  paragraph  5.2  shall  also  be included in
determining  the  value  of  the  Deferred  Benefit  Account upon termination of
employment.

6.2     CREDITING  OF ACCOUNT.  As of each Determination Date, the Participant's
Deferred Benefit Account shall be adjusted by the amount of interest or earnings
computed since the preceding Determination Date.  This adjustment shall be based
on  the  Declared  Rate  as  defined  in  paragraph  2.6  or as determined under
paragraph  7.5(a)(2)  as applicable.   Any such adjustment shall be based on the
average of the month end and month beginning balances excluding this adjustment.

6.3     STATEMENT  OF  ACCOUNTS.  The  Company shall submit to each Participant,
within  120  days after the close of each Plan Year, a statement in such form as
the  Company  deems  desirable,  setting forth the balance to the credit of each
Participant's  Deferred  Benefit  Account  as of the last day of such Plan Year.

                                 ARTICLE  VII

                                   BENEFITS

7.1     BENEFIT  FOR  RETIREMENT  OR  TERMINATION  OF  EMPLOYMENT.  Subject  to
paragraph  7.6  below,  upon  a  Participant's  retirement  after  reaching  the
Retirement  Date,  or any termination of employment for reasons other than death
or  disability, the Participant shall be entitled to a Deferral Benefit equal to
the amount of Participant's Deferred Benefit Account determined under paragraphs
6.1 and 6.2 hereof as of the Determination Date coincidental with or immediately
following  such  event.

7.2     DEATH.  Upon  the death of a Participant, such Participant's Beneficiary
shall  receive  a  Deferral  Benefit  equal  to  the  remaining  balance in such
Participant's  Deferred  Benefit  Account.

     The  Deferral Benefit shall be payable as provided for in paragraph 7.5(a).

     The  Deferral Benefit provided above shall be in lieu of all other benefits
under  this  Plan.

7.3     DISABILITY.  In  the  event of Disability, as defined in paragraph 2.10,
while  employed  by  the Company, payments shall commence upon attainment of the
Participant's  Normal  Retirement  Date  in  the  form  specified  in  paragraph
7.5(a)(2)  over  a  period from 2 to 360 months.  Before payments commence under
the  preceding  sentence,  a  Disabled Participant may elect:  (i) to accelerate
commencement  of  the payments until the date not earlier than 60 days after the
onset  of  Disability, and/or (ii) to change the form of payment to another form
permitted  under  paragraph  7.5(a).

7.4     SUSPENSION  OF  PARTICIPATION/DISTRIBUTION/FAILURE  TO  CONTINUE
PARTICIPATION.  The  Committee, in its sole discretion, may suspend the deferral
of a Participant's Base Salary during a Plan Year, and may also authorize a lump
sum  distribution  from  the  Participant's  Deferred  Benefit Account, upon the
advance  written  request  of  a  Participant  on  account of financial hardship
suffered  by  that  Participant.  A  Participant  must file any request for such
suspension  or  distribution  on  or  before  the 15th day preceding the regular
payday  on  which  the  suspension or distribution is to take effect.  Incentive
Compensation  deferrals  may  not  be  suspended  during  the  Plan  Year.

     Financial  hardship  shall  mean an unexpected need for cash resulting from
conditions  in  the  nature  of  any  of  the  following:

     (a)     An  accident, illness, or disability suffered by a Participant or a
family  member  or  dependent;

     (b)     A  casualty  or  theft  loss  suffered by a Participant or a family
member  or  dependent;

     (c)     The  rendering  of  a  judgment  against  a Participant or a family
member  or  dependent;

     (d)     A sudden financial reversal or curtailment of income experienced by
a  Participant  or  a  family  member  or  dependent;  or,

     (e)     The  transfer  of  a  Participant's  place  of  employment.

     The  suspension  of  any  deferrals  under  this paragraph shall not affect
amounts  deferred  with  respect  to  periods prior to the effective date of the
suspension  except  as  otherwise  permitted  by  the  Committee.

     In  the  event  the  Participant  ceases to remain a member of the class of
employees who are eligible to participate in the Plan, the Participant may elect
to suspend the amount of any remaining deferral commitment in the same manner as
described for other suspensions in the paragraph, except that Committee approval
shall  not  be  required.

7.5     FORM  OF  BENEFIT  PAYMENT.

     (a)     Upon  retirement,  death, or termination of employment, the Company
shall  pay  to  the  Participant or Participant's Beneficiary the balance in the
Participant's Deferred Benefit Account in one of the following forms, as elected
in  the  Participation  Agreement  filed  by  the  Participant:

          (1)     A  lump  sum  payment.

          (2)     A  monthly  payment of a fixed amount which shall amortize the
Deferred  Benefit  Account  balance  in  equal monthly payments of principal and
interest  over  a  period from 2 to 360 months.  For purposes of determining the
amount  of the monthly payment, the rate of interest shall be the average of the
Stable  Value  Return  Index for the shorter of (i) the last five (5) Plan Years
preceding  the initial monthly installment payment, or (ii) the actual number of
Plan  Years  of  participation  by  the  Participant.

     (b)     A  Participant  may change the form in which benefits shall be paid
by filing a new Participation Agreement indicating such change any time prior to
the  date  payments  are  to commence.  Such new Participation Agreement may not
change  the  provisions  of  any  previous  Participation  Agreement to which it
related  for purposes of complying with the provisions of paragraphs 4.2 and 4.3
relating  to the minimum and maximum deferrals and duration of the Participation
Agreement.  No  such new Participation Agreement shall change the amount elected
to  be  deferred  in  a  prior  Participation  Agreement.

     (c)     In  the  absence  of  a  Participant's  election under subparagraph
7.5(a),  benefits  shall be paid in the form specified in subparagraph 7.5(a)(2)
over  a 180-month period.  In the event of a Disabled Participant, payment shall
be  in  the  form  described  in  paragraph  7.3.

7.6     WITHHOLDING:  PAYROLL  TAXES.  To  the  extent  required  by  the law in
effect  at  the time payments are made, the Company shall withhold from payments
made  hereunder  any taxes required to be withheld from any employee's wages for
the  federal  or  any  state  or  local  government.

7.7     COMMENCEMENT  OF  PAYMENTS.  Commencement  of  payments  under this Plan
shall  begin  within  sixty days following receipt of notice by the Committee of
any event which entitles a Participant (or a Beneficiary) to payments under this
Plan, or at such earlier date as may be determined by the Company.  All payments
shall  be  made  as  of  the  first  day  of  the  month.

7.8     EARLY  DISTRIBUTION  OF  DEFERRED  ACCOUNT  BALANCE.  A  participant who
remains  employed  by  the Company may elect to receive a distribution of all or
any  part  of  the  Participant's  Account  Balance  prior  to  the  date(s)  of
distribution  specified  in  the Participant's Participation Agreement(s).  Each
Participant  shall  be limited to one such distribution per calendar year.  Such
election, however, will involve a substantial penalty, as each such distribution
from  the Participant's Deferred Benefit Account made under this provision shall
be  reduced  by  a  penalty equal to six percent (6%) of the total amount of the
distribution.  The  amount of the penalty shall be forfeited by the Participant.
In  addition,  the Participant must continue to defer Compensation subsequent to
such  withdrawal  in  accordance with the Participant's election and will not be
permitted  to  elect  to  defer  Compensation  attributable to the calendar year
subsequent  to  the  calendar  year  of  the  distribution.

                                  ARTICLE  VIII

                             BENEFICIARY  DESIGNATION

8.1     BENEFICIARY  DESIGNATION.  Each Participant shall have the right, at any
time,  to  designate any person or persons as Beneficiary or Beneficiaries (both
principal  as  well as contingent) to whom payment under this Plan shall be made
in  the  event  of  Participant's  death  prior  to complete distribution of the
benefits  due  to the Participant under the Plan.  In any beneficiary dies while
receiving  payments,  the  remaining  value of future payments will be paid in a
lump  sum  to  the  decedent's  estate.

8.2     AMENDMENTS.  Any Beneficiary designation may be changed by a Participant
by the written filing of such change on a form prescribed by the Committee.  The
filing  of  a  new  Beneficiary  Designation  form  will  cancel all Beneficiary
designations  previously  filed.

8.3     NO  BENEFICIARY  DESIGNATION.  If  a  Participant  fails  to designate a
Beneficiary as provided above, or if all designated Beneficiaries predecease the
participant, then the Participant's designated Beneficiary shall be deemed to be
the  surviving  Spouse.  Otherwise, the value of the Participant's account shall
be  paid as a lump sum to the Participant's personal representative (executor or
administrator).

8.4     EFFECT  OF  PAYMENT.  The  payment  to  the  deemed  Beneficiary  shall
completely  discharge  the  Company's  obligations  under  this  Plan.

                                  ARTICLE  IX

                     AMENDMENT  AND  TERMINATION  OF  PLAN

9.1     AMENDMENT.  The  Board  may  at  any  time amend the Plan in whole or in
part;  provided,  however,  that  no amendment shall be effective to decrease or
restrict  any  Deferred  Benefit Account at the time of such amendment or reduce
any  additional benefits provided under paragraph 5.2.  In the event the Plan is
amended,  the Participation Agreement shall be subject to the provisions of such
amendment  as  if set forth in full therein, without further action or amendment
to  the  Participation  Agreement.  The  parties shall be bound by, and have the
benefit  of, each and every provision of the Plan, as amended from time to time.

9.2     COMPANY'S  RIGHT  TO TERMINATE.  The Board may at any time terminate the
Plan with respect to new elections to defer if, in its judgment, the continuance
of  the  Plan,  the  tax,  accounting,  or  other  effects thereof, or potential
payments  thereunder  would  not  be  in the best interests of the Company.  The
Board may also terminate the Plan in its entirety at any time, and upon any such
termination,  all Participants under the Plan shall be paid the balance in their
Deferred  Benefit  Accounts  in  a  lump  sum,  or  over  such period of time as
determined  by  the  Board.

9.3     PREMATURE  PLAN TERMINATIONS AND PREMATURE DISTRIBUTIONS.  The Committee
shall  have  the  right  (but  shall not be obligated) to require premature Plan
termination  and  premature  Plan  distributions to Participants, as outlined in
paragraph 9.2, upon the occurrence of any of the following conditions or events:

     (a)     If  any  rating  on any debt securities of the Company, as rated by
Moody's  or  Standard & Poor's, is downgraded to a rating lower than that rating
as  of  the  date  of  this  Plan;

     (b)     If  the  shareholders  of  the  Company  approve  the  merger  or
consolidation  of  the  Company with or into any other corporation (other than a
corporation  wholly-owned by the Company immediately prior to such event) or the
acquisition of substantially all of the business or assets of the Company by any
other  person  or  entity  (other than a corporation wholly-owned by the Company
immediately  prior  to  such  event);

     (c)     If a change occurs in the Board of Directors of the Company whereby
Directors  comprising  a majority of the Board of Directors immediately prior to
such  change  do not continue to comprise such a majority immediately after such
change,  provided  that  incremental  and/or  related changes (including but not
limited  to  resignations  from  the  Board  of  Directors) which occur within a
relatively  brief  period  of time shall be considered to be but a single change
for  purposes  of  this  Subparagraph;

     (d)     If,  as  a  result  of any tender offer or otherwise, any person or
entity  or  affiliated group becomes the beneficial or record owner of more than
10%  of  the  outstanding  voting  securities  of  the  Company;  or

     (e)     If,  in  the  Board's  sole  judgment  and  discretion, a change in
circumstances  has  occurred  (including but not limited to a change in taxation
laws  or regulations, securities laws or regulations, accounting requirements or
the  events in Subparagraphs (a), (b), (c), and (d) of this Paragraph 9.3) which
causes  the Plan to be undesirable to a significant portion of the Participants.

                                   ARTICLE  X

                                 MISCELLANEOUS

10.1     UNSECURED GENERAL CREDITOR.  Participants and their Beneficiaries shall
have no legal or equitable rights, interest, or claims in any property or assets
of  the Company. The Company's obligation under the Plan shall be merely that of
an  unfunded  and  unsecured  promise of the Company to pay money in the future.

10.2     NON-ASSIGNABILITY.  Neither  a  Participant  nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage,
or  otherwise  encumber,  transfer,  hypothecate, or convey in advance of actual
receipt  the amounts, if any, payable hereunder, or any part thereof, which are,
and  all  rights  to  which  are,  expressly  declared  to  be  unassignable and
non-transferable.  No  part  of  the  amounts  payable  shall,  prior  to actual
payment,  be  subject  to seizure or sequestration for the payment of any debts,
judgments,  alimony,  or separate maintenance owed by a Participant or any other
person,  nor be transferable by operation of law in the event of a Participant's
or  any  other  person's  bankruptcy  or  insolvency.

10.3     NOT  A  CONTRACT  OF EMPLOYMENT.  The terms and conditions of this Plan
shall  not  be deemed to constitute a contract of employment between the Company
and  the  Participant,  and the Participant (or Participant's Beneficiary) shall
have  no  rights  against  the  Company  except as may otherwise be specifically
provided  herein.  Moreover,  nothing  in  this  Plan  shall be deemed to give a
Participant  the  right  to  be  retained  in  the  service of the Company or to
interfere  with  the right of the Company to discipline or discharge Participant
at  any  time.

10.4     PROTECTIVE  PROVISIONS.  A  Participant will cooperate with the Company
by  furnishing  any  and  all  information  requested by the Company in order to
facilitate  the  payment  of  benefits  hereunder.

10.5     GOVERNING  LAW.  The  provisions  of  this  Plan shall be construed and
interpreted  according  to  the  laws  of  the  State  of  Michigan.

10.6     SUCCESSORS.  The  provisions  of  this Plan shall bind and inure to the
benefit  of  the  Company  and  its  successors  and  assigns.

10.7     EFFECTIVE  DATE.  This  Plan  shall  become  effective as of October 1,
1999.

10.8     INCOMPETENT.  In  the  event  that  it  shall  be  found  upon evidence
satisfactory  to  the  Committee  that  any Participant or Beneficiary to whom a
benefit  is  payable under this Plan is unable to care for such Participant's or
such  Beneficiary's  affairs  because  of  illness  or accident, any payment due
(unless  prior claim therefor shall have been made by a duly authorized guardian
or  other legal representative) may be paid, upon appropriate indemnification of
the  Company,  to  the  Spouse  or  other person deemed by the Committee to have
incurred  any  expense  for such Participant or a Beneficiary.  Any such payment
shall be a payment for the account of the Participant or a Beneficiary and shall
be  a  complete  discharge  of  any  liability  of  the  Company  therefor.

----------------------------------            ----------------------------------
Participant's  Signature                      Date

----------------------------------            ----------------------------------
Committee  Acknowledgement                    DateFORECAST AND OPTION AGREEMENT
Between
PMC-Sierra Corporation
And
PMC-Sierra Ltd.
And
Taiwan Semiconductor Manufacturing Co., Ltd.
October 14, 1999

*Confidential  portions have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Commission.
<PAGE>

                                TABLE OF CONTENTS

1.   TERMINATION OF THE OPTION AGREEMENTS..............................3
2.   DEFINITIONS.......................................................4
3.   VOLUME and forecast COMMITMENT....................................4
4.   WAFER PRICE.......................................................5
5.   OTHER PURCHASE TERMS AND CONDITIONS...............................5
6.   FAILURE TO PURCHASE THE CUSTOMERS COMMITTED CAPACITY;
     FIRST RIGHT OF REFUSAL............................................6
7.   TERM AND TERMINATION..............................................6
8.  LIMITATION OF LIABILITY............................................7
9.      NOTICE.........................................................7
10.     ENTIRE AGREEMENT...............................................8
11.     GOVERNING LAW..................................................8
12.     ARBITRATION....................................................8
13.     ASSIGNMENT.....................................................9
14.     CONFIDENTIALITY................................................9
15.     FORCE MAJEURE..................................................9
16.     OBLIGATION OF FUTURE PURCHASE..................................9
Exhibit A.............................................................11
Exhibit B.............................................................12

<PAGE>

                          FORECAST AND OPTION AGREEMENT

      THIS TRI-PARTY  AGREEMENT is made and becomes  effective as of October 14,
1999(the "Effective Date") between:

     1.  Taiwan  Semiconductor  Manufacturing  Co.,  Ltd.  ("TSMC"),  a  company
         organized  under the laws of the Republic of China with its  registered
         address  at No.  121,  Park  Ave.  3,  Science-Based  Industrial  Park,
         Hsinchu, Taiwan;

     2.  PMC-Sierra Inc.  ("PMC-Sierra"),  a company organized under the laws of
         Delaware,  with  its  registered  address  at  105-8555  Baxter  Place,
         Burnaby,  British Columbia,  Canada,  V5A 4V7, formerly known as Sierra
         Semiconductor  Corporation,  a  company  organized  under  the  laws of
         California,  with the registered  address at 2222 Qume Drive, San Jose,
         CA 95131; and

     3.  PMC-Sierra Ltd, a company organized under the laws of British Columbia,
         with its registered address at 105-8555 Baxter Place, Burnaby,  British
         Columbia, Canada V5A 4V7, formerly known as PMC-Sierra, Inc., a company
         organized under the laws of Canada, with the same registered address as
         PMC-Sierra Ltd.

RECITALS

      WHEREAS  PMC-Sierra and PMC-Sierra Ltd.  understand that both entities are
jointly and  severally  obligated to all terms and  conditions  specified  under
"Customers" and are collectively referred to as "Customers" herein;

      WHEREAS TSMC currently  supplies  Customers with wafers and Customers wish
to increase the volume of wafers to be purchased from TSMC;

       WHEREAS  the  parties  wish to  terminate  the Option  Agreement  and the
Amendment  to  Option  Agreement  dated  November  6,  1996 and  July  21,  1997
respectively.

AGREEMENT

      NOW,  THEREFORE,  in  consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:

1.    TERMINATION OF THE OPTION AGREEMENTS

The parties  agree to  terminate  the Option  Agreement  dated  November 6, 1996
between  Sierra  Semiconductor  Corporation  and  PMC-Sierra  and  TSMC  and the
Amendment to Option  Agreement  dated July 21, 1997 upon the Effective Date. The
Parties agree that any rights and  obligations  accrued prior to the termination
shall remain in effective except the option fees due thereunder.

<PAGE>

2.    DEFINITIONS

    (a)  "Base  Capacity"  used in this  Agreement  shall mean the capacity that
         TSMC agrees to provide, and Customers agree to purchase, in addition to
         the Option Capacity, pursuant to this Agreement.

    (b)  "Customers Committed Capacity" used this Agreement shall mean the total
         capacity  that  Customers  agree to purchase from TSMC pursuant to this
         Agreement, and is set forth in Exhibit A.

    (c)  "Option  Capacity" used in this Agreement  shall mean the firm capacity
         commitment  made by  Customers  pursuant to this  Agreement,  for which
         Capacity  Customers agrees to pay TSMC a deposit in the amount of * per
         physical Wafer.

    (d)  "Option Fee" used in this Agreement shall mean the deposit, * in total,
         that Customers have placed with TSMC.

    (e)  "TSMC  Committed  Capacity" used in this Agreement shall mean the total
         capacity  that TSMC  agrees to provide to  Customers  pursuant  to this
         Agreement, and is set forth in Exhibit A.

    (f)  "Wafer"  used in this  Agreement  shall  mean the  number  of  physical
         wafers. Any and all capacity  commitments referred to in this Agreement
         shall be measured in physical Wafers.

3. VOLUME AND FORECAST COMMITMENT

(a)      Monthly Forecast. Customers agree to provide to TSMC on a monthly basis
         a six-month  rolling  forecast  of the number of wafers that  Customers
         will  purchase,  with the  committed  volume  for the  first  three (3)
         months.  That is, Customers must purchase all of the quantity  forecast
         for the  delivery  in the first three (3) months of the  forecast.  The
         forecast must be based on wafers out or deliveries  expected to be made
         by TSMC.

(b)      Quarterly  Forecast.  Customers agree to provide to TSMC on a quarterly
         basis an  eighteen-month (6 quarters) rolling forecast of the number of
         wafers that  Customers  will  purchase.  Customers  shall commit to the
         volume quantity stated in the first quarter.  Customers shall commit to
         plus or minus ten percent (+10%) of the volume  quantity  stated in the
         second quarter.  - Customers  future forecasts shall be limited to plus
         or minus  twenty-five  percent (+25%) of the volume  quantity stated in
         the - previous forecast for next two (2) quarters.  Customer may modify
         its commitment on the remaining two (2) quarters at anytime  subject to
         TSMC's  acceptance.  The  forecast  must  be  based  on  wafers  out or
         deliveries  expected to be made by TSMC.  The last  quarterly  forecast
         preceding the end of any year,  subject to acceptance by TSMC, shall be
         used to  determine  the final  values of the Base  Capacity  and Option
         Capacity for the next calendar year for Exhibits A.

<PAGE>

(c)      Semi-Annual  Forecast.   Customers  agree  to  provide  to  TSMC  on  a
         semi-annual  basis a three (3) year  rolling  forecast of the number of
         wafers that Customers will purchase.  The parties understand that there
         is no volume commitment tied to this semi-annual  forecast and it shall
         be used for planning purposes only.

4.    WAFER PRICE

(a)      The wafer prices for the Option  Capacity shall not be more than TSMC's
         average wafer prices to other TSMC customers that are parties to option
         agreements similar to this Agreement) for the same technology, the same
         fab and the same period of time. In the event that the wafer prices for
         the  Customers  Committed  Capacity  do not comply  with the  preceding
         sentence,  TSMC will make proper price changes for the unfilled orders,
         upon Customers' notice in writing.

(b)      The parties  shall  negotiate  in good faith each year the wafer prices
         for the Option Capacity for the following year, and if no agreement may
         be reached by the parties  before  October each year, the parties agree
         to submit the dispute to the binding arbitration pursuant to Section 13
         below, and under such circumstances, neither party shall have the right
         to terminate this Agreement under Section 7 below.

5.    OTHER PURCHASE TERMS AND CONDITIONS

(a)      Customers agree to purchase from TSMC the Customers Committed Capacity.
         TSMC agrees to provide to Customers the TSMC Committed Capacity, as set
         forth in Exhibit A. The  parties  agree  that the  Customers  Committed
         Capacity and TSMC Committed  Capacity shall be apportioned as set forth
         in Exhibit A.  Customers  agree that in any calendar  year,  the orders
         placed by  Customers  shall first  apply to fulfill  the Base  Capacity
         portion  of the  Customers  Committed  Capacity,  and then  the  Option
         Capacity portion thereof

(b)      Customers have deposited a total sum of * with TSMC as set forth in the
         Option Agreement.  TSMC hereby acknowledged receipt of the total sum as
         an Option Fee.

(c)      TSMC will use commercially  reasonable  efforts to cause its fabs to be
         capable of producing  wafers of more  advanced  specifications,  as set
         forth in the TSMC Technology Road Map attached as Exhibit B.

<PAGE>

(d)      The Option Fee shall be repaid to  Customers  at the rate of * for each
         physical Wafer  purchased in excess of 70% of the Base Capacity up to a
         maximum of 100% of the Base Capacity in any given twelve months of this
         Agreement, as shown in Exhibit A. The repayment of the Option Fee shall
         terminate  upon (1)  depletion  of the  amount of the Option  Fee;  (2)
         termination of this  Agreement.  Upon  termination  of this  Agreement,
         except for cause,  TSMC shall return to Customers any remaining  amount
         of the Option Fee,  or,  Customers  may at their option and with TSMC's
         agreement roll over any remaining  amount of the Option Fee in any year
         to secure Wafer  capacity in the year  following  the then last year of
         this Agreement.  TSMC shall make  applicable  repayment on annual basis
         sixty (60) days after the year-end.

6.  FAILURE TO PURCHASE THE CUSTOMERS COMMITTED CAPACITY; FIRST RIGHT OF REFUSAL

(a)      Customers  shall notify TSMC of any changes from the annual total wafer
         requirement  during the  applicable  year.  TSMC has the right to use a
         third  party  to  conduct  audits  on  Customers'  annual  total  wafer
         requirements with a thirty (30) days written notice to Customers.

(b)      Customers  have the right to carry forward any portion of the Customers
         Committed Capacity in the years 1998 through 2003 to the year 2004 with
         a three month written  notice;  provided that,  the  Customers'  annual
         orders to TSMC  represents at least 60% of the  Customers  total annual
         wafer requirement from outside sources.  If Customers are unable to use
         any of the Customers Committed Capacity or TSMC's Committed Capacity in
         any year,  Customers  shall so notify TSMC  immediately  and TSMC shall
         have the right to sell such unneeded Capacity to third parties and such
         sale  shall not result in or be  construed  as a breach of the terms of
         this Agreement.

7.    TERM AND TERMINATION

(a)      The term of this Agreement  shall commence from the Effective Date, and
         continue until December 31, 2003. Subject to TSMC's approval, Customers
         may  elect to extend  this  Agreement  for a full  five year  period by
         giving  notice to TSMC at least  thirty  days prior to the  anniversary
         date or the expiration date of this Agreement. In the event that any of
         the Customers Committed Capacity is carried forward to the year of 2004
         pursuant to Subsection 6, this Agreement  shall be extended to December
         31, 2004 or until the full  amount of the Option Fee has been  refunded
         under the terms of this Agreement, whichever is the later.

(b)      The parties  shall review this  Agreement  annually  within thirty days
         preceding  the  anniversary  of this  Agreement  or at such  time as is
         mutually  agreed  between  TSMC and  Customers.  At such  review,  this
         Agreement  may  be  amended  by  mutual  agreement   between  TSMC  and
         Customers,  such amendment  being reduced to writing and signed by both
         TSMC and Customers.

<PAGE>

(c)      TERMINATION FOR OTHER BREACH OR FOR BANKRUPTCY
         Either  party may  terminate  this  Agreement  if (i) the  other  party
         breaches any material  provisions of this Agreement,  and does not cure
         such breach  within sixty (60) days from the date the  breaching  party
         receives a written  notice of such breach,  or (ii) becomes the subject
         of a voluntary or involuntary  petition in bankruptcy or any proceeding
         relating to insolvency,  receivership or liquidation,  if such petition
         or proceeding is not dismissed  with  prejudice  within sixty (60) days
         after filing.

(d)      EFFECT OF TERMINATION
         The parties shall remain liable to the other party for any  outstanding
         and  matured  rights and  obligations  at the time of  termination.  If
         termination is not for cause, or if customers terminate for cause, TSMC
         shall  return   applicable  Option  Fee  pro-rated  for  that  year  in
         accordance  to Section  5(d) of this  Agreement  within sixty (60) days
         following the date of  termination.  If TSMC  terminates this Agreement
         due to  material  breach,  TSMC  shall  have  the  sole  discretion  in
         determining either to refund the outstanding part of the Option Fee (i)
         in  accordance  to  Section  5(d) of  this  Agreement  or (ii)  without
         interest within a period to be determined by TSMC but no later than two
         (2) years from the date of such material breach.

8.  LIMITATION OF LIABILITY

         In no event  shall  any  party be  liable  for any  indirect,  special,
         incidental or consequential damages (including loss of profits and loss
         of use)  resulting  from,  arising out of or in connection  with either
         party's  performance  or failure to perform  under this  Agreement,  or
         resulting  from,  arising out of or in connection  with either  party's
         producing,  supplying,  and/or  sale of the  wafers,  whether  due to a
         breach of contract, breach of warranty, tort, negligence, or otherwise.

9.  NOTICE

         All notices  required or  permitted  to be sent by either  party to the
         other  party  under this  Agreement  shall be sent by  registered  mail
         postage  prepaid,  or by personal  delivery,  or by fax. A confirmation
         copy shall follow any notice given by fax within ten (10) days.  Unless
         changed  by written  notice  given by either  party to the  other,  the
         addresses  and  fax  numbers  of the  respective  parties  shall  be as
         follows:

         To TSMC:
         TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY, LTD.
         No. 121, Park Avenue 3
         Science-Based Industrial Park
         Hsinchu, Taiwan
         Republic of China                           FAX: 886-35-781545

<PAGE>

         To Customers:
         PMC-Sierra Ltd.
         105-8555 Baxter Place
         Burnaby, BC Canada V5A 4V7                  FAX: 604-415-6207

         PMC-Sierra Inc.
         105-8555 Baxter Place
         Burnaby, BC Canada V5A 4V7                  FAX: 604-415-6207

10.  ENTIRE AGREEMENT

         This  Agreement,  including  Exhibits A and B,  constitutes  the entire
         agreement  between  the  parties  with  respect to the  subject  matter
         hereof,  and  supersedes  and  replaces  all  prior or  contemporaneous
         understandings, agreements, dealings and negotiations, oral or written,
         regarding the subject matter  hereof.  No  modification,  alteration or
         amendment of this  Agreement  shall be effective  unless in writing and
         signed by all  parties.  No waiver of any  breach or  failure by either
         party to enforce  any  provision  of this  Agreement  shall be deemed a
         waiver  of any  other  or  subsequent  breach,  or a waiver  of  future
         enforcement of that or any other provision.

11.  GOVERNING LAW

         This Agreement will be governed by and  interpreted in accordance  with
         the laws of the Republic of China.

12.  ARBITRATION

         Each party will make best  efforts to resolve  amicably any disputes or
         claims  under this  Agreement  among the  parties.  In the event that a
         resolution  is not reached  among the parties  within  thirty (30) days
         after written notice by any party of the dispute or claim,  the dispute
         or claim  shall be finally  settled by  binding  arbitration  in Taipei
         under The Rules of Arbitration of the International Chamber of Commerce
         by three (3) arbitrators  appointed in accordance with such rules.  The
         arbitration  proceeding  shall be  conducted  in  Republic  of China in
         English.  Judgment  on the  award  rendered  by the  arbitrator  may be
         entered in any court having jurisdiction thereof.

<PAGE>

13.  ASSIGNMENT

      This Agreement  shall be binding on and inure to the benefit of each party
      and its successors. No party shall assign any of its rights hereunder, nor
      delegate its obligations hereunder,  to any third party, without the prior
      written consent of the other.

14.  CONFIDENTIALITY

      The parties shall keep in strict  confidence the existence and contents of
      this  Agreement,  and  take  every  precaution  possible  to  prevent  any
      unauthorized  disclosure  or use  thereof.  In  the  event  disclosure  is
      required by laws or governmental  regulations,  the disclosing party shall
      provide the opportunity to protest, participate in preparing disclosure or
      make reasonable changes hereto.  Notwithstanding  anything to the contrary
      stated in this  Paragraph 14 Customers may disclose to their  customer the
      general terms of this Agreement without quantifying the volumes, prices or
      delivery terms in this Agreement.  All such  disclosures by Customer shall
      be covered by a  non-disclosure  agreement  between the  Customer  and its
      customer of substantially  similar force and effect as the  non-disclosure
      agreement  signed  between  Customer and TSMC.  Both parties agree that no
      disclosure  of this  Agreement or any matter  relating  hereto may be made
      without the disclosing  party first  providing the proposed  disclosure to
      the other party two weeks in advance for written consent.

      Further, Customer may disclose to Customer's investors the fact that TSMC
      and  Customer  have  amended and  extended  the former  contract  existing
      between  them  whereby  TSMC has  contracted  to  supply  Customer  which,
      according to Customers forecast and estimates,  should  substantially meet
      the needs of Customer  through the calendar  year 2003.  In no event shall
      any  specific  quantities  be  disclosed  to anyone  without  TSMC's prior
      written consent.

15.  FORCE MAJEURE

      Neither party shall be  responsible  for delays nor failure in performance
      resulting from acts beyond the reasonable control of such party. Such acts
      shall include but not limited to acts of God, war, riot,  labor stoppages,
      governmental actions, fires, typhoons, floods, and earthquakes.

16.  OBLIGATION OF FUTURE PURCHASE

      Customers  agree  to tape  out one  hundred  per  cent  (100%)  of all new
      tapeouts until  Customers  purchase 60% of their total Wafer  requirements
      from TSMC,  including the Customers Committed Capacity requirement of this
      Agreement.  Notwithstanding anything to the contrary in this Agreement, in
      the year prior to the expiration hereof, the parties agree to negotiate in
      good faith to enter into a new agreement  under which  Customers  agree to
      contract  TSMC to  provide  a minimum  of 60% of  Customers'  total  wafer
      requirements,  provided that TSMC is able to continue to offer competitive
      technology, pricing, quality and delivery.
<PAGE>

     IN WITNESS  WHEREOF,  the parties,  have executed this  Agreement as of the
date first stated above.

TAIWAN SEMICONDUCTOR                                 PMC-SIERRA CORPORATION
MANUFACTURING CO., LTD.

BY:____________________                                 BY:____________________
     Ron Norris                                         Name:
     Sr. Vice President                                 Title:
     TSMC Ltd

                                                     PMC-SIERRA Ltd.
                                                        BY:_________________
                                                        Name:
                                                        Title:

<PAGE>
               Exhibit A
            CUSTOMERS'/TSMC
          COMMITTED CAPACITY *

                                                  Unit:  K Physical Wafers
                                1998  1999  2000   2001  2002   2003  2004
                                ----  ----  ----   ----  ----   ----  ----

Base Capacity
(For Options)

% of Base Commit

% X Base Capacity

Option Capacity

TSMC Committed Capacity
(Base Capacity +
Option Capacity)

Customers Committed
Capacity
(X % Base Capacity +
Option Capacity)

*Confidential  portions have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Commission.

<PAGE>

          EXHIBIT B *

*Confidential  portions have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Commission.

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