UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. __)

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check appropriate box:

o		Preliminary Proxy Statement
o		Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material under Rule 14a-12

AGERE SYSTEMS INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of filing fee (Check the appropriate box):

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		(2) Form, Schedule or Registration Statement No.:
		(3) Filing Party:
		(4) Date Filed:

 

 

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

 

The boards of directors of each of LSI Logic Corporation and Agere Systems Inc. have approved the merger of Agere with a wholly owned subsidiary of LSI. If the proposed merger is completed, Agere stockholders will receive 2.16 shares of LSI common stock for each share of Agere common stock they own at the completion of the merger.

 

Based on the number of shares of LSI and Agere common stock outstanding on January 31, 2007, Agere stockholders are expected to hold approximately 48% of the fully diluted shares of LSI common stock following the completion of the merger. LSI stockholders will continue to own their existing shares, which will not be adjusted by the merger.

 

LSI common stock trades on the New York Stock Exchange under the symbol “LSI.” As of February 2, 2007, the last trading day before the date of this joint proxy statement/prospectus, the last reported sales price of LSI common stock at the end of regular trading hours, as reported on the New York Stock Exchange, was $9.28.

 

LSI and Agere cannot complete the merger unless LSI stockholders approve the issuance of shares of LSI common stock in the merger and Agere stockholders adopt the merger agreement. The obligations of LSI and Agere to complete the merger are also subject to the satisfaction or waiver of several other conditions to the merger. More information about LSI, Agere and the merger is contained in this joint proxy statement/prospectus. We encourage you to read carefully this joint proxy statement/prospectus before voting, including the section entitled “Risk Factors” beginning on page 14.

 

The LSI board of directors recommends that LSI stockholders vote “FOR” the proposal to approve the issuance of shares of LSI common stock in the merger. The Agere board of directors recommends that Agere stockholders vote “FOR” the proposal to adopt the merger agreement.

 

The proposals are being presented to the respective stockholders of each company at their special or annual meetings. The dates, times and places of the meetings are as follows:

 

 

Your vote is very important. Whether or not you plan to attend your respective company’s meeting, please take the time to vote by completing and returning the enclosed proxy card to your respective company or, if the option is available to you, by granting your proxy electronically over the Internet or by telephone. If your shares are held in “street name,” you must instruct your broker in order to vote.

 

 

None of the Securities and Exchange Commission, any state securities regulator or any regulatory authority has approved or disapproved of these transactions or the securities to be issued under this joint proxy statement/prospectus or determined if the disclosure in this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 

This joint proxy statement/prospectus is dated February 5, 2007, and is first being mailed to stockholders of
LSI and Agere on or about February 8, 2007.

LSI Logic Corporation

1621 Barber Lane

Milpitas, California 95035

(408) 433-8000

 

NOTICE OF SPECIAL MEETING OF LSI STOCKHOLDERS

 

To the Stockholders of LSI Logic Corporation:

 

NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of LSI Logic Corporation, a Delaware corporation, will be held on March 29, 2007, at 10:00 a.m., local time, at 1621 Barber Lane, Milpitas, California to consider and vote upon a proposal to approve the issuance of shares of LSI Logic Corporation common stock in connection with a merger of Atlas Acquisition Corp. with and into Agere Systems Inc. contemplated by the Agreement and Plan of Merger among LSI, Atlas Acquisition Corp. and Agere.

 

Any action on the item of business described above may be considered at the special meeting at the time and on the date specified above or at any time and date to which the special meeting may be properly adjourned or postponed.

 

After careful consideration, the LSI board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of the LSI stockholders and has unanimously approved the merger agreement. The LSI board of directors recommends that the LSI stockholders vote “FOR” the proposal to approve the issuance of shares of LSI common stock in connection with the merger.

 

You are entitled to vote only if you were a holder of LSI common stock at the close of business on February 2, 2007.

 

You are entitled to attend the special meeting only if you were an LSI stockholder or joint holder as of the close of business on February 2, 2007 or hold a valid proxy for the special meeting.

 

The special meeting will begin promptly at 10:00 a.m., local time. Check-in will begin at 9:30 a.m., local time, and you should allow ample time for the check-in procedures.

 

Your vote is very important. Whether or not you plan to attend the special meeting, we encourage you to read the joint proxy statement/prospectus and submit your proxy or voting instructions for the special meeting as soon as possible. You may submit your proxy or voting instructions for the special meeting by completing, signing, dating and returning the proxy card or voting instruction card in the pre-addressed envelope provided. For specific instructions on how to vote your shares, please refer to the section entitled “The Special Meeting of LSI Stockholders” beginning on page 27 of the joint proxy statement/prospectus.

 

By Order of the Board of Directors,

 

ANDREW S. HUGHES

Vice President, General Counsel and Corporate Secretary

 

February 5, 2007

Milpitas, California

Agere Systems Inc.

1110 American Parkway NE

Allentown, Pennsylvania 18109

(610) 712-1000

 

NOTICE OF ANNUAL MEETING OF AGERE STOCKHOLDERS

 

Agere Systems Inc. will hold its Annual Meeting of Stockholders at the Edward Nash Theater at the Raritan Valley Community College, Route 28W and Lamington Road, North Branch, New Jersey 08876, on March 29, 2007, 9:00 a.m., local time. We are holding the meeting for the following purposes:

 

1. To consider and vote on the proposal to adopt the Agreement and Plan of Merger, dated as of December 3, 2006 (which we refer to as the merger agreement), by and among Agere, LSI Logic Corporation and Atlas Acquisition Corp.;

 

2. To elect three members of the Agere board of directors for terms described in the joint proxy statement/prospectus;

 

3. To re-approve the Agere Short Term Incentive Plan;

 

4. To ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007; and

 

5. To transact such other business as may properly come before the meeting and any postponement or adjournment thereof.

 

The Agere board of directors has approved the merger agreement and the transactions contemplated by the merger agreement by unanimous vote of the directors present, and recommends that you vote “FOR” the proposal to adopt the merger agreement, which is described in detail in the joint proxy statement/prospectus.  The Agere board of directors also recommends that you vote “FOR” each of the director nominees of Agere listed in this joint proxy statement/prospectus, “FOR” the re-approval of Agere’s Short Term Incentive Plan and “FOR” the ratification of the selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007.

 

Holders of record of Agere common stock at the close of business on February 2, 2007, are entitled to vote at the meeting. A list of stockholders eligible to vote at the Agere annual meeting will be available for inspection at the annual meeting and at the offices of Agere in Allentown, Pennsylvania during regular business hours for a period of no less than ten days prior to the annual meeting.

 

In addition to the joint proxy statement/prospectus, proxy card and voting instructions, Agere stockholders are receiving a copy of the Agere 2006 annual report on Form 10-K.

 

You can vote your shares by completing and returning a proxy card. Most stockholders can also vote over the Internet or by telephone. If Internet and telephone voting are available to you, you can find voting instructions in the materials accompanying the joint proxy statement/prospectus. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the enclosed joint proxy statement/prospectus.

 

By Order of the Board of Directors,

 

JEAN F. RANKIN

Executive Vice President, General

Counsel and Secretary

 

February 5, 2007

Allentown, Pennsylvania

 

TABLE OF CONTENTS

 

 

This joint proxy statement/prospectus incorporates important business and financial information about LSI and Agere from documents that each company has filed with the Securities and Exchange Commission but that have not been included in or delivered with this joint proxy statement/prospectus. For a listing of documents incorporated by reference into this joint proxy statement/prospectus, please see the section entitled “Where You Can Find More Information” beginning on page 134 of this joint proxy statement/prospectus.

 

LSI will provide you with copies of this information relating to LSI, without charge, upon written or oral request to:

LSI Logic Corporation
1621 Barber Lane
Milpitas, California 95035
Attention: Investor Relations
Telephone Number: 1-800-433-8778

 

In addition, you may obtain copies of this information by making a request through LSI’s investor relations by sending an e-mail to investorrelations@lsi.com.

 

Agere will provide you with copies of this information relating to Agere, without charge, upon written or oral request to:

Agere Systems Inc.

1110 American Parkway NE

Allentown, Pennsylvania 18109

Attention: Investor Relations

Telephone Number: 1-800-372-2477

 

In addition, you may obtain copies of this information by making a request through Agere’s investor relations by sending an e-mail to investor@agere.com.

 

In order for you to receive timely delivery of the documents in advance of the LSI special meeting, LSI should receive your request no later than March 22, 2007.

 

In order for you to receive timely delivery of the documents in advance of the Agere annual meeting, Agere should receive your request no later than March 22, 2007.

 

The following questions and answers briefly address some commonly asked questions about the LSI special meeting, the Agere annual meeting and the merger. They may not include all the information that is important to stockholders of LSI and Agere. Agere and LSI urge stockholders to read carefully this entire joint proxy statement/prospectus, including the annexes and the other documents referred to herein. Page references are included in this summary to direct you to more detailed discussions elsewhere in this joint proxy statement/prospectus.

 

 

 

 

Georgeson Inc.
17 State Street, 10th Floor
New York, NY 10004
Toll Free: (866) 783-6820
Banks and Brokerage Firms: (212) 440-9800

 

 

 

 

SUMMARY

 

The Merger and the Merger Agreement (see page 94)

 

Parties to the Merger

 

 

Recommendation of the LSI Board of Directors (see page 69)

 

Opinion of LSI Financial Advisor Regarding the Merger (see page 71)

 

Recommendation of the Agere Board of Directors (see page 81)

 

Opinion of Agere Financial Advisor Regarding the Merger (see page 84)

 

Some Agere Directors and Executive Officers Have Interests in the Merger (see page 90)

	•	Executive officers whose employment is terminated under certain circumstances after the merger will be entitled to severance benefits payable by Agere;
	•	Certain executive officers hold stock options which will become exercisable and restricted stock units which will vest if their employment is terminated under certain circumstances on or after adoption of the merger agreement by Agere stockholders (or, if later, on receipt of necessary governmental agency consent);
	•	Three directors from Agere’s current board of directors will be designated by Agere to serve on the board of directors of the combined company after the effective time of the merger;
	•	Certain of Agere’s current executive officers will be offered continued employment with the combined company after the effective time of the merger;
	•	Certain directors hold stock options which will become exercisable upon adoption of the merger agreement by Agere stockholders (or, if later, upon receipt of necessary governmental agency consent); and
	•	Directors and officers will be indemnified by the combined company with respect to acts or omissions by them in their capacities as such prior to the effective time of the merger.

 

Share Ownership of Directors and Executive Officers of LSI (see page 28)

 

Share Ownership of Directors and Executive Officers of Agere (see page 40)

 

Directors and Certain Officers of LSI Following the Merger (see page 93)

 

What is Needed to Complete the Merger (see page 106)

	•	adoption of the merger agreement by Agere stockholders;
	•	approval by LSI stockholders of the issuance of shares of LSI common stock in the merger;
	•	no order of any court preventing the completion of the merger shall be in effect;
	•	receipt of antitrust approvals from the United States and any other foreign antitrust regulators, except for foreign approvals, which, if not obtained, would not have a material adverse effect on LSI, Agere and their subsidiaries, taken as a whole;
	•	receipt of opinions by LSI and Agere from their respective tax counsel that the merger will qualify as a “reorganization” under the Internal Revenue Code;

	•	accuracy of each party’s respective representations and warranties in the merger agreement, except as would not have a material adverse effect;
	•	material compliance by each party with its covenants in the merger agreement; and
	•	absence of a material adverse effect on LSI or Agere, respectively, from December 3, 2006 to the completion of the merger.

 

LSI and Agere Are Prohibited from Soliciting Other Offers (see page 99)

	•	an acquisition which would result in the person or group acquiring more than 15% of a party’s total outstanding securities;
	•	an acquisition which would result in the person or group acquiring more than 50% of any class of equity securities of a party’s subsidiaries that generate or constitute 15% or more of the net revenues, net income or assets of such party;
	•	a sale or disposition by a party of assets that generate or constitute 15% or more of the net revenues, net income or assets of such party;
	•	a merger or other business combination involving a party or subsidiaries that generate or constitute 15% or more of the net revenues, net income or net assets of such party;
	•	any liquidation, dissolution, recapitalization or reorganization involving a party or subsidiaries that generate or constitute 15% or more of the net revenues, net income or net assets of such party; or
	•	any combination of the transactions described above.

 

LSI and Agere May Terminate the Merger Agreement Under Specified Circumstances (see page 108)

	•	the merger is not completed by May 15, 2007 (which date will be extended to August 31, 2007 if the merger has not been completed as a result of a failure to obtain required antitrust approvals and all other conditions to closing have been satisfied or waived on or prior to such time);
	•	a final, non-appealable order of a court or any governmental authority has the effect of permanently prohibiting completion of the merger;
	•	the required approval of the stockholders of LSI of the issuance of shares of LSI common stock in the merger has not been obtained at LSI’s duly held special meeting;
	•	the required approval of the stockholders of Agere to adopt the merger agreement has not been obtained at Agere’s duly held annual meeting;
	•	the board of directors of the other party takes any of the actions in opposition to the merger described as a “triggering event” in the merger agreement;
	•	the other party breaches its representations, warranties or covenants in the merger agreement such that its conditions to completion of the merger regarding representations, warranties or covenants would not be satisfied; or
	•	the other party consents to termination.

 

LSI or Agere May Pay a Termination Fee Under Specified Circumstances (see page 109)

 

The Merger is Intended to Qualify as a Reorganization for United States Federal Income Tax Purposes (see page 110)

 

Accounting Treatment of the Merger (see page 112)

 

LSI and Agere Have Not Yet Obtained All Required Regulatory Approvals to Complete the Merger (see page 112)

 

LSI Will List Shares of LSI Common Stock on the New York Stock Exchange (see page 112)

 

No Appraisal Rights (see page 113)

 

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LSI

		Nine Months
		Ended Oct. 1,				Year Ended December 31,
		2006(1)				2005				2004				2003(2)				2002(3)				2001(4)
		(In thousands, except per share amounts)
Consolidated Statement of Operations Data:
Revenues		$	1,458,497			$	1,919,250			$	1,700,164			$	1,693,070			$	1,816,938			$	1,784,923
Gross profit		$	628,230			$	832,436			$	735,608			$	677,205			$	648,716			$	413,927
Net income/(loss)		$	110,625			$	(5,623	)		$	(463,531	)		$	(308,547	)		$	(292,440	)		$	(991,955	)
Net income/(loss) per share:
Basic		$	0.28			$	(0.01	)		$	(1.21	)		$	(0.82	)		$	(0.79	)		$	(2.84	)
Diluted		$	0.27			$	(0.01	)		$	(1.21	)		$	(0.82	)		$	(0.79	)		$	(2.84	)
Shares used in computing per share amounts:
Basic			397,408				390,135				384,070				377,781				370,529				349,280
Diluted			403,779				390,135				384,070				377,781				370,529				349,280

		At October 1,				At December 31,
		2006				2005				2004				2003				2002				2001
		(In thousands)
Consolidated Balance Sheet Data:
Total assets		$	2,978,910			$	2,796,066			$	2,874,001			$	3,447,901			$	4,012,736			$	4,525,077
Total current liabilities		$	742,228			$	742,769			$	396,280			$	391,251			$	390,679			$	509,985
Long-term debt		$	350,000			$	350,000			$	781,846			$	865,606			$	1,241,217			$	1,335,806
Total stockholders’ equity		$	1,803,978			$	1,627,950			$	1,618,046			$	2,042,450			$	2,300,355			$	2,479,885

(1)	On January 1, 2006, LSI adopted SFAS 123-R “Share-Based Payments” using the modified prospective transition method. During the nine months ended October 1, 2006, LSI completed the sale of the Gresham, Oregon semiconductor manufacturing facility to ON Semiconductor for approximately $105.0 million in cash.
(2)	On January 1, 2003, LSI adopted SFAS No. 146, “Accounting for Exit or Disposal Activities.” SFAS No. 146 has been applied to restructuring activities initiated after December 31, 2002 and changes the timing of when restructuring charges are recorded to the date when the liabilities are incurred.
(3)	During 2002, LSI recorded $46 million in additional excess inventory and related charges and $67 million in charges for restructuring of operations and other items, net. LSI adopted SFAS No. 142 “Goodwill and Other Intangible Assets” on January 1, 2002, as a result of which goodwill is no longer amortized.
(4)	During 2001, LSI recorded $211 million in additional excess inventory and related charges, a $97 million in-process research and development charge associated with the acquisitions of C-Cube and AMI, which were effective on May 11, 2001 and August 31, 2001, respectively. In addition, LSI recorded charges of $220 million for restructuring of operations and other items, net.

 

LSI RECENT DEVELOPMENTS

 

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF AGERE

		Year Ended September 30,
		2006(1)				2005(2)				2004(2)				2003				2002
		(In millions, except per share amounts)
Statement of operations information:
Revenues		$	1,570			$	1,676			$	1,912			$	1,839			$	1,923
Gross profit		$	762			$	664			$	866			$	579			$	494
Income (loss) from continuing operations		$	17			$	(8	)		$	(90	)		$	(371	)		$	(803	)
Basic and diluted income (loss) per share:(3)
Income (loss) from continuing operations		$	0.10			$	(0.04	)		$	(0.52	)		$	(2.23	)		$	(4.90	)
Weighted average shares outstanding — basic (in thousands)			174,525				177,775				171,248				166,699				163,720
Weighted average shares outstanding — diluted (in thousands)			175,432				177,775				171,248				166,699				163,720

		At September 30,
		2006(1)				2005(2)				2004(2)				2003				2002
		(In millions)
Balance sheet information:
Total assets		$	1,497			$	1,881			$	2,272			$	2,388			$	2,864
Short-term debt		$	—			$	—			$	147			$	195			$	197
Long-term debt		$	362			$	372			$	420			$	451			$	486

(1)		During fiscal 2006 Agere recorded a tax benefit of $24 million as a result of a $66 million reduction in its pension benefit obligations. This benefit was offset by a $24 million tax charge recorded against the minimum pension liability adjustment reflected in other comprehensive loss. Also, the decrease in Agere’s total assets reflects the repurchase of 17,681,198 shares of Agere common stock for $255 million of cash. On October 1, 2005, Agere adopted SFAS 123-R “Share-Based Payments” using the modified prospective transition method.
(2)		During fiscal 2005 and fiscal 2004 Agere recorded reversals of tax and interest contingencies of $120 million and $86 million, respectively, resulting from settlements of certain prior year tax audits. The settlements relate to Agere’s tax sharing agreement with Lucent Technologies Inc. and cover periods Agere operated as either a division of AT&T Corp. or Lucent. In fiscal 2005, Agere also recorded a reversal of $22 million for tax and interest contingencies related to non-U.S. income tax.
(3)		On May 27, 2005, Agere reclassified its Class A common stock and Class B common stock into a new, single class of common stock, and effected a 1-for-10 reverse stock split. The weighted average number of common shares outstanding and income (loss) per share from continuing operations on a historical basis were adjusted to give retroactive effect to Agere’s reverse stock split. Basic income (loss) per common share is calculated by dividing income (loss) from continuing operations by the weighted average number of common shares outstanding during

		the period. Diluted income (loss) per common share is calculated by dividing income (loss) from continuing operations by the adjusted outstanding shares for all dilutive potential common shares outstanding.

 

AGERE RECENT DEVELOPMENTS

		Nine months ended				Year ended
		October 1, 2006				December 31, 2005
		(In thousands, except
		per share amounts)
Statement of Operations Data:
Revenues		$	2,640,049			$	3,595,613
Gross profit			1,204,945				1,414,824
Income/(loss) from continuing operations			20,222				(270,137	)
Income/(loss) from continuing operations per share:
Basic		$	0.03			$	(0.36	)
Diluted		$	0.03			$	(0.36	)
Shares used in computing per share amounts:
Basic			760,594				753,321
Diluted			777,752				753,321

		At
		October 1, 2006
		(In thousands)
Balance Sheet Data:
Total assets		$	7,909,087
Total current liabilities		$	1,157,232
Long-term obligations		$	1,687,450
Total stockholders’ equity		$	5,064,171

 

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

														Pro Forma
		Historical				Historical				Pro Forma				Equivalent of One
		LSI				Agere(2)				Combined				Agere Share(1)
Income/(loss) from continuing operations per share-diluted:
Year ended December 31, 2005		$	(0.01	)		$	(0.04	)		$	(0.36	)		$	(0.78	)
Nine months ended October 1, 2006		$	0.27			$	0.02			$	0.03			$	0.06
Book value per share:
October 1, 2006		$	4.51			$	1.82			$	6.67			$	14.41
Outstanding shares (in millions)
December 31, 2005			394				182				787
October 1, 2006			400				166				759

(1)	The Pro Forma Equivalent of One Agere Share amounts were calculated by multiplying the exchange ratio in the merger of 2.16 and the pro forma combined diluted income/(loss) from continuing operations and book value per share, respectively.
(2)	The historical Agere income/(loss) from continuing operations per share diluted data is for the year ended September 30, 2005 and nine months ended June 30, 2006. The book value per share is as of September 30, 2006 and the outstanding shares are as of September 30, 2005 and September 30, 2006.

 

COMPARATIVE PER SHARE MARKET PRICE DATA

																		Equivalent Price
		LSI Common Stock								Agere Common Stock								per Share
		High				Low				High				Low				High				Low
December 1, 2006		$	10.70			$	10.37			$	17.96			$	17.40			$	23.11			$	22.40
February 2, 2007		$	9.51			$	9.27			$	20.39			$	19.87			$	20.54			$	20.02

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

In addition to the other information included or incorporated by reference in this joint proxy statement/prospectus, including the matters addressed under “Cautionary Statement Regarding Forward-Looking Information,” LSI stockholders should carefully consider the following risks before deciding whether to vote for approval of the issuance of the shares of LSI common stock in the merger and Agere stockholders should carefully consider the following risks before deciding whether to vote for adoption of the merger agreement. In addition, stockholders of LSI and Agere should read and consider the risks associated with each of the businesses of LSI and Agere because these risks will relate to the combined company. Certain of these risks can be found in LSI’s annual report on Form 10-K for the fiscal year ended December 31, 2005, and in LSI’s quarterly report on Form 10-Q for the period ended October 1, 2006, each of which is incorporated by reference into this joint proxy statement/prospectus, and in Agere’s annual report on Form 10-K for the fiscal year ended September 30, 2006, which is incorporated by reference into this joint proxy statement/prospectus. You should also consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information.”

 

Agere stockholders will receive a fixed ratio of 2.16 shares of LSI common stock for each share of Agere common stock regardless of any changes in market value of Agere common stock or LSI common stock before the completion of the merger.

 

Upon completion of the merger, each share of Agere common stock will be converted into the right to receive 2.16 shares of LSI common stock. There will be no adjustment to the exchange ratio (except for adjustments to reflect the effect of any stock split or other recapitalization of LSI common stock or Agere common stock), and the parties do not have a right to terminate the merger agreement based upon changes in the market price of either LSI common stock or Agere common stock. Accordingly, the dollar value of LSI common stock that Agere stockholders will receive upon completion of the merger will depend upon the market value of LSI common stock at the time of completion of the merger, which may be different from, and lower than, the closing price of LSI common stock on the last full trading day preceding public announcement that LSI and Agere entered into the merger agreement, the last full trading day prior to the date of this joint proxy statement/prospectus or the date of the stockholder meetings. Moreover, completion of the merger may occur some time after the requisite stockholder approvals have been obtained. The market values of LSI common stock and Agere common stock have varied since LSI and Agere entered into the merger agreement and will continue to vary in the future due to changes in the business, operations or prospects of LSI and Agere, market assessments of the merger, regulatory considerations, market and economic considerations, and other factors both within and beyond the control of LSI and Agere.

 

The issuance of shares of LSI common stock to Agere stockholders in the merger will substantially reduce the percentage interests of LSI stockholders.

 

If the merger is completed, LSI and Agere expect that (i) approximately 365.8 million shares of LSI common stock would be issued to Agere stockholders, (ii) upon exercise of assumed equity awards, up to approximately 59.7 million shares will be issued to holders of assumed options and restricted stock units and (iii) an additional 23.6 million shares will be issuable upon conversion of Agere’s outstanding convertible notes. Based on the number of shares of LSI and Agere common stock outstanding on January 31, 2007, Agere stockholders before the merger will own, in the aggregate, approximately 48% of the fully diluted shares of LSI common stock immediately after the merger, excluding shares issuable upon conversion of Agere’s outstanding convertible notes. The issuance of shares of LSI common stock to Agere stockholders in the merger and to holders of assumed options and restricted stock units will cause a significant reduction in the relative percentage interest of current LSI stockholders in earnings, voting, liquidation value and book and market value.

The merger is subject to the receipt of consents and approvals from government entities that may impose conditions that could have an adverse effect on LSI or Agere or could cause abandonment of the merger.

 

Completion of the merger is conditioned upon the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which has now expired, and also the making of certain filings with and notices to, and the receipt of consents, orders and approvals from, various local, state, federal and foreign governmental entities. Certain of these consents, orders and approvals will involve the relevant governmental entity’s consideration of the effect of the merger on competition in various jurisdictions.

 

The reviewing authorities may not permit the merger at all or may impose restrictions or conditions on the merger that may seriously harm the combined company if the merger is completed. These conditions could include a complete or partial license, divestiture, spin-off or the holding separate of assets or businesses. Either LSI or Agere may refuse to complete the merger if restrictions or conditions are required by governmental authorities that would materially adversely impact the combined company’s results of operations or the benefits anticipated to be derived by the combined company. Any delay in the completion of the merger could diminish the anticipated benefits of the merger or result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the transaction.

 

LSI and Agere also may agree to restrictions or conditions imposed by antitrust authorities in order to obtain regulatory approval, and these restrictions or conditions could harm the combined company’s operations. No additional stockholder approvals are expected to be required for any decision by LSI or Agere, after the annual meeting of Agere stockholders and the special meeting of LSI stockholders, to agree to any terms and conditions necessary to resolve any regulatory objections to the merger.

 

In addition, during or after the statutory waiting periods, and even after completion of the merger, governmental authorities could seek to block or challenge the merger as they deem necessary or desirable in the public interest. In addition, in some jurisdictions, a competitor, customer or other third party could initiate a private action under the antitrust laws challenging or seeking to enjoin the merger, before or after it is completed. LSI, Agere or the combined company may not prevail, or may incur significant costs, in defending or settling any action under antitrust laws. See “The Merger Agreement — Conditions to Obligations to Complete the Merger” and “The Merger Agreement — Regulatory Filings and Approvals Required to Complete the Merger.”

 

Any delay in completing the merger may significantly reduce the benefits expected to be obtained from the merger.

 

In addition to the required regulatory clearances and approvals, the merger is subject to a number of other conditions beyond the control of LSI and Agere that may prevent, delay or otherwise materially adversely affect its completion. See “The Merger Agreement — Conditions to Obligations to Complete the Merger.” LSI and Agere cannot predict whether and when these other conditions will be satisfied. Further, the requirements for obtaining the required clearances and approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger may significantly reduce the synergies and other benefits that LSI and Agere expect to achieve if they successfully complete the merger within the expected timeframe and integrate their respective businesses.

 

Customer uncertainties related to the merger could adversely affect the businesses, revenues and gross margins of LSI, Agere and the combined company.

 

In response to the announcement of the merger or due to ongoing uncertainty about the merger, customers of LSI or Agere may delay or defer purchasing decisions or elect to switch to other suppliers. In particular, prospective customers could be reluctant to purchase the products and services of LSI, Agere or the combined company due to uncertainty about the direction of the combined company’s offerings and willingness to support existing products. To the extent that the merger creates uncertainty among those persons and organizations contemplating purchases such that one large customer, or a significant group of smaller customers, delays, defers or changes purchases in connection with the planned merger, the revenues of LSI, Agere or the combined company would be adversely affected. Customer assurances may be made by LSI and Agere to address their customers’ uncertainty about the direction of the combined company’s product and related support offerings, which may result in additional

obligations of LSI, Agere or the combined company. In addition, the announcement of the merger may cause prospective licensees of Agere’s intellectual property to delay or defer licensing decisions resulting in a decline in Agere’s licensing revenues which could have a significant impact on the profitability of Agere and the combined company. Quarterly revenues and net earnings of LSI, Agere or the combined company could be substantially below expectations of market analysts and a decline in the companies’ respective stock prices could result.

 

Certain directors and executive officers of LSI and Agere have interests in the merger that may be different from, or in addition to, the interests of LSI stockholders and Agere stockholders.

 

Executive officers of LSI and Agere negotiated the terms of the merger agreement under the direction of the boards of directors of LSI and Agere, respectively. The board of directors of LSI approved the merger agreement and unanimously recommended that LSI stockholders vote in favor of the issuance of shares of LSI common stock in the merger, and the board of directors of Agere by unanimous vote of the directors present approved the merger agreement and recommended that Agere stockholders vote in favor of the of the adoption of the merger agreement. These directors and executive officers may have interests in the merger that are different from, or in addition to or may be deemed to conflict with, yours. These interests include the continued employment of certain executive officers of LSI and Agere by the combined company, the continued positions of certain directors of LSI and Agere as directors of the combined company and the indemnification of former LSI and Agere directors and officers by the combined company. With respect to Agere directors and executive officers, these interests also include the treatment in the merger of employment agreements, severance policies, restricted stock units, stock options and other rights held by these directors and executive officers. LSI stockholders should be aware of these interests when they consider the LSI board of directors’ recommendation that LSI stockholders vote in favor of the proposal to issue shares of LSI common stock in the merger, and Agere stockholders should be aware of these interests when they consider the Agere board of directors’ recommendation that they vote in favor of the proposal to adopt the merger agreement. For a discussion of the interests of directors and executive officers in the merger, see “The Merger — Interests of the Directors and Executive Officers of Agere in the Merger.”

 

Provisions of the merger agreement may deter alternative business combinations and could negatively impact the stock prices of LSI and Agere if the merger agreement is terminated in certain circumstances.

 

The merger agreement prohibits LSI and Agere from soliciting, initiating, encouraging or facilitating certain alternative acquisition proposals with any third party, subject to exceptions set forth in the merger agreement. The merger agreement also provides for the payment by LSI or Agere of a termination fee of $120 million if the merger agreement is terminated in certain circumstances in connection with a competing third-party acquisition proposal for one of the companies. See “The Merger Agreement — LSI and Agere Are Prohibited from Soliciting Other Offers” and “The Merger Agreement — Termination; Fees and Expenses.” These provisions limit LSI’s and Agere’s ability to pursue offers from third parties that could result in greater value to the LSI stockholders or the Agere stockholders, as the case may be. The obligation to pay the termination fee also may discourage a third party from pursuing an alternative acquisition proposal. If the merger is terminated and LSI or Agere determine to seek another business combination, neither LSI nor Agere can assure its stockholders that they will be able to negotiate a transaction with another company on terms comparable to the terms of the merger, or that they will avoid incurrence of any fees associated with the termination of the merger agreement.

 

In the event the merger is terminated by LSI or Agere in circumstances that obligate either party to pay the termination fee to the other party, including where either party terminates the merger agreement because the other party’s board of directors withdraws its support of the merger, LSI’s and/or Agere’s stock prices may decline.

 

If the proposed merger is not completed, LSI and Agere will have incurred substantial costs that may adversely affect LSI’s and Agere’s financial results and operations and the market price of LSI and Agere common stock.

 

If the merger is not completed, the price of LSI common stock and Agere common stock may decline to the extent that the current market prices of LSI common stock and Agere common stock reflect a market assumption that the merger will be completed. In addition, LSI and Agere have incurred and will incur substantial costs in connection with the proposed merger. These costs are primarily associated with the fees of attorneys, accountants

and LSI’s and Agere’s financial advisors. In addition, LSI and Agere have each diverted significant management resources in an effort to complete the merger and are each subject to restrictions contained in the merger agreement on the conduct of its business. If the merger is not completed, LSI and Agere will have incurred significant costs, including the diversion of management resources, for which each will have received little or no benefit. Also, if the merger is not completed under certain circumstances specified in the merger agreement, LSI or Agere may be required to pay a termination fee of $120 million. See “The Merger Agreement — Termination; Fees and Expenses.”

 

In addition, if the merger is not completed, LSI and Agere may experience negative reactions from the financial markets and LSI’s and Agere’s suppliers, customers and employees. Each of these factors may adversely affect the trading price of LSI and/or Agere common stock and LSI’s and/or Agere’s financial results and operations.

 

The combined company may fail to realize the benefits expected from the merger, which could adversely affect the value of LSI’s common stock.

 

The merger involves the integration of LSI and Agere, two companies that have previously operated independently. LSI and Agere entered into the merger agreement with the expectation that, among other things, the merger would enable the combined company to consolidate support functions, leverage its research and development, patents and services across a larger base, and integrate its workforce to create opportunities to achieve cost savings and to become a stronger and more competitive company. Although LSI and Agere expect significant benefits to result from the merger, there can be no assurance that the combined company will actually realize these or any other anticipated benefits of the merger.

 

The value of LSI’s common stock following completion of the merger may be affected by the ability of the combined company to achieve the benefits expected to result from the merger. LSI and Agere currently operate in 20 countries, with a combined workforce of approximately 9,100 employees. Achieving the benefits of the merger will depend in part upon meeting the challenges inherent in the successful combination and integration of global business enterprises of the size and scope of LSI and Agere. The challenges involved in this integration include the following:

 

 

If the combined company does not successfully manage these issues and the other challenges inherent in integrating businesses of the size and complexity of LSI and Agere, then the combined company may not achieve the anticipated benefits of the merger and the revenues, expenses, operating results and financial condition of the combined company could be materially adversely effected. For example, goodwill and other intangible assets could be determined to be impaired which could adversely impact the company’s financial results. The successful integration of the LSI and Agere businesses is likely to require significant management attention both before and after the completion of the merger, and may divert the attention of management from business and operational issues of LSI, Agere and the combined company.

Uncertainties associated with the merger may cause a loss of employees and may otherwise materially adversely affect the businesses of LSI and Agere, and the future business and operations of the combined company.

 

The combined company’s success after the merger will depend in part upon the ability of the combined company to retain key employees of LSI and Agere. In some of the fields in which LSI and Agere operate, there are only a limited number of people in the job market who possess the requisite skills. Each of LSI and Agere has experienced difficulty in hiring and retaining sufficient numbers of qualified engineers in parts of their respective businesses. Current and prospective employees of LSI and Agere may experience uncertainty about their post-merger roles with the combined company following the merger. This may materially adversely affect the ability of each of LSI and Agere to attract and retain key management, sales, marketing, technical and other personnel. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the merger. The loss of services of any key personnel or the inability to hire new personnel with the requisite skills could restrict the ability of LSI, Agere and the combined company to develop new products or enhance existing products in a timely matter, to sell products to customers or to manage the business of LSI, Agere and the combined company effectively.

 

The industries in which LSI and Agere operate are highly cyclical, and operating results of the combined company may fluctuate.

 

LSI and Agere operate in the highly cyclical semiconductor device and storage systems industries. These industries are characterized by wide fluctuations in product supply and demand. In the past, the semiconductor industry has experienced significant downturns, often in connection with, or in anticipation of, excess manufacturing capacity worldwide, maturing product cycles and declines in general economic conditions. Even if demand for the products of LSI or Agere remains constant after the completion of the merger, the availability of additional excess production capacity in the semiconductor industry may create competitive pressures that can degrade pricing levels and reduce revenues of the combined company.

 

General economic weakness and geopolitical factors may harm the combined company’s operating results and financial condition.

 

The results of operations of the combined company will be dependent to a large extent upon the global economy. Geopolitical factors such as terrorist activities, armed conflict or global health conditions that adversely affect the global economy may adversely affect the operating results and financial condition of the combined company.

 

The combined company will be dependent upon a limited number of customers.

 

A limited number of customers will account for a substantial portion of the combined company’s revenues. For LSI’s most recent fiscal year ended December 31, 2005, International Business Machines Corporation and Seagate Technology represented approximately 16% and 11%, respectively, of LSI’s consolidated revenues. For Agere’s most recent fiscal year ended September 30, 2006, Seagate Technology, Inc. and Samsung Electronics Co., Ltd. represented approximately 24% and 18%, respectively, of Agere’s revenues. If any of the key customers of LSI or Agere were to decide to significantly reduce or cancel its existing business, the operating results and the financial condition of the combined company could be adversely affected. Because many of the products of the combined company will have long product design and development cycles, it may be difficult for the combined company to replace key customers who reduce or cancel existing business. In addition, the combined company may not win new product designs from major existing customers, major customers may make significant changes in scheduled deliveries, or there may be declines in the prices of products sold to these customers, and the business of the combined company may be adversely affected if any of these events were to occur.

The combined company will depend to a large extent upon independent foundry subcontractors to manufacture its semiconductor products; accordingly, any failure to secure and maintain sufficient foundry capacity could materially and adversely affect the combined company’s business.

 

Since selling its Gresham, Oregon semiconductor manufacturing facility in May 2006, LSI has relied entirely on independent foundry subcontractors to manufacture its semiconductor products. Agere owns an interest in a joint venture that operates a semiconductor wafer manufacturing facility, but also relies on independent foundry subcontractors to manufacture a significant portion of its semiconductor products. Because the combined company will rely on joint ventures and third party manufacturing relationships, the combined company will face the following risks:

 

 

If any of these risks were to be realized, the combined company could experience an interruption in supply or an increase in costs, which could adversely affect results of operations.

 

The ability of an independent foundry subcontractor to provide the combined company with semiconductor devices is limited by its available capacity and existing obligations. Availability of foundry capacity has in the recent past been reduced from time to time due to strong demand. Although each of LSI and Agere have entered into contractual commitments to supply specified levels of products to certain of their respective customers, neither LSI nor Agere have long-term volume purchase agreements or significant guaranteed level of production capacity with any of their third-party foundry suppliers. Foundry capacity may not be available when needed at reasonable prices. Each of LSI and Agere places orders on the basis of its customers’ purchase orders or its forecast of customer demand, and the foundries can allocate capacity to the production of other companies’ products and reduce deliveries to LSI and Agere on short notice. It is possible that other foundry customers that are larger and better financed than the combined company, or that have long-term agreements with the foundry suppliers, may induce foundries to reallocate capacity to them. This reallocation could impair the ability of the combined company to secure the supply of components that they need. Also, the foundry suppliers to LSI and Agere migrate capacity to newer, state-of-the-art manufacturing processes on a regular basis, which may create capacity shortages for products designed to be manufactured on older processes. In addition, the occurrence of a public health emergency or natural disaster could further affect the production capabilities of the combined company’s manufacturers by resulting in quarantines or closures. If any of the foundry suppliers to the combined company experiences a shortage in capacity, suffers any damage to its facilities due to earthquakes or other natural disasters, experiences power outages, encounters financial difficulties or experiences any other disruption of foundry capacity, the combined company may need to qualify an alternative foundry supplier, which may require several months. As a result of all of these factors and risks, neither LSI nor Agere can provide any assurances that any foundries will be able to produce integrated circuits with acceptable manufacturing yields, or that foundries will be able to deliver enough semiconductor devices to the combined company on a timely basis, or at reasonable prices.

 

The combined company will operate in intensely competitive markets.

 

Each of LSI and Agere derive significant revenue from the sale of integrated circuits, and LSI also operates in the storage systems segment. These industry segments are intensely competitive and competition is expected to increase as existing competitors enhance their product offerings and as new participants enter the market. The

competitors of LSI and Agere include many large domestic and foreign companies that have substantially greater financial, technical and management resources than LSI or Agere. Several major diversified electronics companies offer custom solutions and/or other standard products that are competitive with the products of LSI and Agere. Other competitors are specialized, rapidly growing companies that sell products into the same markets that LSI or Agere target or that the combined company will target. Some of the customers of LSI, Agere or the combined company may also design and manufacture products that will compete with the products of the combined company. Neither LSI nor Agere can provide any assurances that the price and performance of their products will be superior relative to the products of their competitors.

 

Increased competition may negatively affect the pricing, margins and revenues of the combined company. For example, competitors with greater financial resources may be able to offer lower prices than the combined company, or they may offer additional products, services or other incentives that the combined company may not be able to match. Competitors may be in a stronger position than the combined company to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns. They may also make strategic acquisitions or establish cooperative relationships among themselves or with third parties to increase their ability to gain market share. In addition, competitors may sell commercial quantities of products before the combined company does so, establishing market share and creating a market position that the combined company may not be able to overcome once it introduces similar products in commercial quantities.

 

The combined company’s target markets are characterized by rapid technological change.

 

The industry segments in which each of LSI and Agere currently operate, and in which the combined company will operate, are characterized by rapid technological change, changes in customer requirements, limited ability to accurately forecast future customer orders, frequent new product introductions and enhancements, short product cycles and evolving industry standards. LSI and Agere believe that the combined company’s future success will depend, in part, upon its ability to improve on existing technologies and to develop and implement new ones, as well as upon its ability to adopt and implement emerging industry standards in a timely manner and to adapt products and processes to technological changes. If the combined company is not able to successfully implement new process technologies or to achieve volume production of new products at acceptable yields, the operating results and financial condition of the combined company may be adversely affected. In addition, if the combined company fails to make sufficient investments in research and development programs in order to develop new and enhanced products and technologies, or if it focuses on technologies that do not become widely adopted, new technologies could render the current and planned products of LSI, Agere and the combined company obsolete, resulting in the need to change the focus of the combined company’s research and development and product strategies and disrupting its business significantly.

 

In addition, the emergence of markets for integrated circuits may be affected by factors beyond the control of LSI, Agere or the combined company. In particular, products are designed to conform to current specific industry standards. Customers of LSI, Agere or the combined company may not adopt or continue to follow these standards, which would make the combined company’s products less desirable to customers, and could negatively affect sales. Also, competing standards may emerge that are preferred by customers of LSI, Agere or the combined company, which could reduce sales and require the combined company to make significant expenditures to develop new products. To the extent that the combined company is not able to effectively and expeditiously adapt to new standards, the business of the combined company may be negatively affected.

 

Order or shipment cancellations or deferrals could cause the combined company’s revenue to decline or fluctuate.

 

Each of LSI and Agere sell, and the combined company is expected to sell, a significant amount of products pursuant to purchase orders that customers may cancel or defer on short notice without incurring a significant penalty. Cancellations or deferrals could cause the combined company to hold excess inventory, which could adversely affect its results of operations. If a customer cancels or defers product shipments or refuses to accept shipped products, the combined company may incur unanticipated reductions or delays in revenue. If a customer does not pay for products in a timely manner, the combined company could incur significant charges against income, which could materially and adversely affect its results of operations.

The combined company will design and develop highly complex products that will require significant investments.

 

The products of Agere and LSI are, and the products of the combined company will be, highly complex and significant time and expense are expected to be associated with the design, development and manufacture of the products of the combined company. The combined company is expected to incur substantial research and development costs to confirm the technical feasibility and commercial viability of products, which in the end may not be successful.

 

The combined company’s products may contain defects.

 

The products of LSI, Agere and the combined company may contain undetected defects, errors or failures. These products can only be fully tested when deployed in commercial applications and other equipment. Consequently, customers may discover errors after the products have been deployed. The occurrence of any defects, errors or failures could result in:

 

 

Any of these occurrences could also result in the loss of or delay in market acceptance of products and loss of sales, which could negatively affect the business and results of operations of the combined company. As the combined company’s products become even more complex in the future, this risk may intensify over time and may result in increased expenses.

 

The manufacturing facilities of the combined company will have high fixed costs and will involve highly complex and precise processes.

 

Agere owns assembly and test facilities and has a joint venture fabrication facility and LSI has a storage systems manufacturing facility. Operations at these facilities may be disrupted for reasons beyond the control of LSI, Agere or the combined company, including work stoppages, supply shortages, fire, earthquake, tornado, floods or other natural disasters, any of which could have a material adverse effect on the results of operations or financial position of the combined company. In addition, if the combined company does not experience adequate utilization of, or adequate yields at, its manufacturing facilities, its results of operations may be adversely affected. The manufacture of LSI’s and Agere’s products involves highly complex and precise processes, requiring production in a clean and tightly controlled environment. In addition, the manufacture of integrated circuits is a highly complex and technologically demanding process. Although each of LSI and Agere work closely with its foundry suppliers to minimize the likelihood of reduced manufacturing yields, such foundries have, from time to time, experienced lower than anticipated manufacturing yields. This often occurs during the production of new products or the installation and start-up of new process technologies. Poor yields from the foundry suppliers to the combined company could result in product shortages or delays in product shipments, which could seriously harm relationships with customers and materially and adversely affect the business and results of operations of the combined company.

 

Failure of the combined company to qualify products or its suppliers’ manufacturing lines may adversely affect results of operations.

 

Some customers will not purchase any products, other than limited numbers of evaluation units, until they qualify the manufacturing line for the product. The combined company may not always be able to satisfy the qualification requirements of these customers. Delays in qualification may cause a customer to discontinue use of non-qualified products and result in a significant loss of revenue.

The combined company will depend to a certain extent upon third-party subcontractors to assemble, obtain packaging materials for and test certain products.

 

Third-party subcontractors located in Asia assemble, obtain packaging materials for and test certain products of LSI. Although Agere owns and operates its own semiconductor assembly and test facilities, the combined company will continue to depend upon third-party subcontractors to assemble and test some of the combined company’s semiconductor products or to perform other services for the combined company. To the extent that the combined company does rely upon third-party subcontractors to perform these functions, it will not be able to control directly product delivery schedules and quality assurance. This lack of control may result in product shortages or quality assurance problems that could delay shipments of products or increase manufacturing, assembly, testing or other costs. In addition, if these third-party subcontractors are unable to obtain sufficient packaging materials for products in a timely manner, the combined company may experience product shortages or delays in product shipments, which could materially and adversely affect customer relationships and results of operations. If any of these subcontractors experiences capacity constraints or financial difficulties, suffers any damage to its facilities, experiences power outages or any other disruption of assembly or testing capacity, the combined company may not be able to obtain alternative assembly and testing services in a timely manner. Due to the amount of time that it usually takes to qualify assemblers and testers, the combined company could experience significant delays in product shipments if it is required to find alternative assemblers or testers for such components.

 

A widespread outbreak of an illness or other health issue could negatively affect the combined company’s manufacturing, assembly and test, design or other operations.

 

A widespread outbreak of an illness such as avian influenza, or bird flu, or severe acute respiratory syndrome, or SARS, could adversely affect the combined company’s operations as well as demand from customers. A number of countries in the Asia/Pacific region have experienced outbreaks of bird flu and/or SARS. As a result of such an outbreak, businesses can be shut down temporarily and individuals can become ill or quarantined. The combined company will have operations in Singapore, Thailand and China, countries where outbreaks of bird flu and/or SARS have occurred. If operations are curtailed because of health issues, the combined company may need to seek alternate sources of supply for manufacturing or other services and alternate sources can be more expensive. Alternate sources may not be available or may result in delays in shipments to customers which would affect results of operations. In addition, a curtailment of design operations could result in delays in the development of new products. If customers’ businesses are affected by health issues, they might delay or reduce purchases, which could adversely affect results of operations.

 

The combined company will procure parts and raw materials from a limited number of domestic and foreign sources.

 

LSI does not maintain an extensive inventory of parts and materials for manufacturing storage systems at its Wichita, Kansas facility. LSI purchases, and expects that the combined company will continue to purchase, a portion of its requirements for parts and raw materials from a limited number of sources, primarily from suppliers in Japan and their U.S. subsidiaries, and obtain other material inputs on a local basis. If the combined company has difficulty in obtaining parts or materials in the future from their existing suppliers, alternative suppliers may not be available, or suppliers may not provide parts and materials in a timely manner or on favorable terms. As a result, the combined company may be adversely affected by delays in product shipments. If the combined company cannot obtain adequate materials for manufacture of its products, or if such materials are not available at reasonable prices, there could be a material adverse impact on operating results and financial condition.

 

If the combined company’s new product development and expansion efforts are not successful, results of operations may be adversely affected.

 

Each of LSI and Agere is currently developing, and LSI expects that the combined company will continue to develop, products in new areas and the combined company may seek to expand into additional areas in the future. The efforts of the combined company to develop products and expand into new areas may not result in sales that are sufficient to recoup its investment, and it may experience higher costs than anticipated. For example, the combined company may not be able to manufacture products at a competitive cost, may need to rely on new suppliers or may

find that the development efforts are more costly or time consuming than anticipated. Development of new products often requires long-term forecasting of market trends, development and implementation of new or changing technologies and a substantial capital commitment. There can be no assurance that the products that the combined company selects for investment of its financial and engineering resources will be developed or acquired in a timely manner or will enjoy market acceptance. In addition, the combined company’s products may support protocols that are not widely adopted and it may have difficulties entering markets where competitors have strong market positions.

 

The combined company may engage in acquisitions and alliances giving rise to financial and technological risks.

 

The combined company may explore strategic acquisitions that build upon or expand its library of intellectual property, human capital and engineering talent, and increase its ability to fully address the needs of its customers. For example, in November 2006, LSI acquired StoreAge Networking Technologies Ltd., a privately held software company based in Nesher, Israel, for approximately $50 million in cash. Mergers and acquisitions of high-technology companies bear inherent risks. No assurance can be given that previous acquisitions of LSI or Agere or future acquisitions by the combined company will be successful and will not materially adversely affect the combined company’s business, operating results or financial condition. Failure to manage growth effectively or to integrate acquisitions could adversely affect the combined company’s operating results and financial condition.

 

In addition, the combined company may make investments in companies, products and technologies through strategic alliances and otherwise. Investment activities often involve risks, including the need for timely access to needed capital for investments and to invest in companies and technologies that will contribute to the growth of the combined company’s business.

 

The semiconductor industry is prone to intellectual property litigation.

 

As is typical in the semiconductor industry, each of LSI and Agere is frequently involved in disputes regarding patent and other intellectual property rights. Each of LSI and Agere has in the past received, and the combined company may in the future receive, communications from third parties asserting that certain of its products, processes or technologies infringe upon their patent rights, copyrights, trademark rights or other intellectual property rights, and the combined company may also receive claims of potential infringement if it attempts to license intellectual property to others. Defending these claims may be costly and time consuming, and may divert the attention of management and key personnel from other business issues. Claims of intellectual property infringement also might require the combined company to enter into costly royalty or license agreements. The combined company may be unable to obtain royalty or license agreements on acceptable terms. Resolution of whether any of the products or intellectual property of the combined company has infringed on valid rights held by others could have a material adverse effect on results of operations or financial position and may require material changes in production processes and products.

 

The combined company may not be able to adequately protect or enforce its intellectual property rights, which could harm its competitive position.

 

The combined company’s success and future revenue growth will depend, in part, on its ability to protect its intellectual property. The combined company will primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect its proprietary technologies and processes. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose proprietary technologies and processes, despite efforts by the combined company to protect its proprietary technologies and processes. While the combined company will hold a significant number of patents, there can be no assurances that any additional patents will be issued. Even if new patents are issued, the claims allowed may not be sufficiently broad to protect the combined company’s technology. In addition, any of LSI or Agere’s existing patents, and any future patents issued to the combined company, may be challenged, invalidated or circumvented. As such, any rights granted under these patents may not provide the combined company with meaningful protection. LSI and Agere may not have, and in the future the combined company may not have, foreign patents or pending applications corresponding to its U.S. patents and applications. Even if foreign patents are granted, effective enforcement in

foreign countries may not be available. If the combined company’s patents do not adequately protect its technology, competitors may be able to offer products similar to the combined company’s products. The combined company’s competitors may also be able to develop similar technology independently or design around its patents. Some or all of LSI’s and Agere’s patents have in the past been licensed and likely will in the future be licensed to certain of the combined company’s competitors through cross-license agreements.

 

A decline in the revenue that the combined company expects to derive from the licensing of its intellectual property could have a significant impact on net income.

 

Agere generates significant revenue from, and the combined company expects to generate significant revenue from, the licensing of its intellectual property. The revenue generated from the licensing of Agere’s intellectual property has a high gross margin compared to the revenue generated from the sale of other products currently sold by Agere, and a decline in this licensing revenue could have a significant impact on the profitability of the combined company. The combined company’s licensing revenue is expected to come from a limited number of transactions and the failure to complete one or more transactions in a quarter could have a material adverse impact on revenue and profitability.

 

The combined company will conduct a significant amount of activity outside of the United States, and will be exposed to legal, business, political and economic risks associated with its international operations.

 

Each of LSI and Agere derive, and it is expected that the combined company will derive, a substantial portion of its revenue from sales of products shipped to locations outside of the United States. In addition, each of LSI and Agere manufacture, and the combined company will manufacture, a significant portion of its products outside of the United States and will be dependent on non-U.S. suppliers for many parts and services. The combined company may also pursue growth opportunities in sales, design and manufacturing outside of the United States. Operations outside of the United States are subject to a number of risks and potential costs that could adversely affect revenue and results of operations, including:

 

 

The combined company may rely on the capital markets and/or bank markets to provide financing.

 

The combined company may rely on the capital markets and/or bank markets to provide financing for strategic acquisitions, capital assets needed in manufacturing facilities and other general corporate needs. As of

December 31, 2006, Agere had approximately $362 million of convertible notes outstanding and LSI had approximately $350 million of convertible notes outstanding. The combined company may need to seek additional equity financing or debt financing from time to time. Historically, each of LSI and Agere has been able to access the capital markets and the bank markets when deemed appropriate, but the combined company may not be able to access these markets in the future on acceptable terms. The availability of capital in these markets may be affected by several factors, including geopolitical risk, the interest rate environment and the condition of the economy as a whole. Moreover, any future equity or equity-linked financing may dilute the equity ownership of existing shareholders. In addition, the operating performance, capital structure and expected future performance of the combined company will affect the combined company’s ability to raise capital. LSI and Agere believe that the combined company’s cash, cash equivalents, short-term investments and expected future cash from operations will be sufficient to fund its needs in the foreseeable future.

 

The combined company will utilize indirect channels of distribution over which it will have limited control.

 

Financial results could be adversely affected if the combined company’s relationships with resellers or distributors were to deteriorate or if the financial condition of these resellers or distributors were to decline. In addition, as the combined company’s business grows, there may be an increased reliance on indirect channels of distribution. There can be no assurance that the combined company will be successful in maintaining or expanding these indirect channels of distribution. This could result in the loss of certain sales opportunities. Furthermore, the partial reliance on indirect channels of distribution may reduce visibility with respect to future business, thereby making it more difficult to accurately forecast orders.

 

The combined company may not be able to collect all of its accounts receivable from customers.

 

A majority of the trade receivables of LSI and Agere have been, and it is expected that a majority of the trade receivables of the combined company will be, derived from sales of products to large multinational computer, communication, networking, storage and consumer electronics manufacturers. None of LSI, Agere or the combined company can provide any assurances that its accounts receivable balances will be paid on time or at all.

 

The trading price of the combined company’s stock may be affected by factors different from those currently affecting the prices of LSI and Agere common stock.

 

Upon completion of the merger, holders of Agere common stock will become holders of the common stock of LSI. The results of operations of the combined company, as well as the trading price of LSI’s common stock after the merger, may be affected by factors different from those currently affecting Agere’s results of operations and the trading price of Agere’s common stock. For a discussion of the businesses of LSI and Agere and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this joint proxy statement/prospectus and referred to under “Where You Can Find More Information.”

 

The price of the combined company’s securities may be subject to wide fluctuations.

 

The stock of both LSI and Agere has experienced substantial price volatility, particularly as a result of quarterly variations in results, the published expectations of analysts and announcements by LSI, Agere and their respective competitors, and the stock of LSI after completion of the merger is likely to be subject to similar volatility. Many of the markets from which the combined company expects to derive a substantial portion of revenues are highly cyclical, and the combined company may experience declines in its revenue that are primarily related to industry conditions and not its products. In addition, the stock market has experienced price and volume fluctuations that have affected the market price of many technology companies and that have often been unrelated to the operating performance of such companies. The price of LSI’s securities may also be affected by general global, economic and market conditions. While LSI and Agere cannot predict the individual effect that these and other factors may have on the price of the LSI’s securities following completion of the merger, these factors, either individually or in the aggregate, could result in significant variations in LSI’s stock price during any given period of time. Fluctuations in LSI’s stock price after the completion of the merger may also affect the price of outstanding convertible securities of Agere and LSI, and the likelihood of the convertible securities being converted into cash or equity. If LSI’s stock price is below the conversion price of the Agere or LSI convertible notes on the date of maturity, they may not convert into equity and LSI may be required to redeem the outstanding convertible securities

for cash. However, in the event they do not convert to equity, LSI and Agere believe that the combined company’s cash position and expected future operating cash flows will be adequate to meet these obligations as they mature.

 

In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. Companies in technology industries are particularly vulnerable to this kind of litigation due to the high volatility of their stock prices. Accordingly, the combined company may in the future be the target of securities litigation. Any securities litigation could result in substantial costs and could divert the attention and resources of the combined company’s management.

 

Future changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse unexpected fluctuations and affect reported results of operations.

 

Financial accounting standards in the United States are constantly under review and may be changed from time to time. The combined company would be required to apply these changes. Once implemented, these changes could result in material fluctuations in the results of operations of the combined company and/or the way in which such results of operations are reported. For example, on January 1, 2006, LSI adopted SFAS 123-R. In accordance with the modified prospective transition method, LSI began recognizing compensation expense for all share-based awards granted on or after January 1, 2006, plus unvested awards granted prior to January 1, 2006. The adoption of SFAS 123-R had a significant impact on LSI’s operating results as share-based compensation expense is charged directly against reported earnings. Numerous judgments and estimates are involved in the calculation of this expense and changes to those estimates or different judgments could have a significant effect on LSI’s reported earnings.

 

Similarly, the combined company will be subject to taxation in the United States and a number of foreign jurisdictions. Rates of taxation, definitions of income, exclusions from income, and other tax policies are subject to change over time. Changes in tax laws in a jurisdiction in which the combined company has reporting obligations could have a material impact on results of operations.

 

The combined company will face uncertainties related to the effectiveness of internal controls.

 

Public companies in the United States are required to review their internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will achieve its stated goal under all potential future conditions, regardless of how remote.

 

Although each of LSI’s and Agere’s management has determined, and each of their respective independent registered public accounting firms have attested, that their respective internal controls were effective as of as of the end of their most recent fiscal years, there can be no assurance that the integration of LSI and Agere, and their respective internal control systems and procedures, will not result in or lead to a future material weakness in the combined company’s internal controls, or that the combined company or its independent registered public accounting firm will not identify a material weakness in the combined company’s internal controls in the future. A material weakness in internal controls over financial reporting would require management and the combined company’s independent public accounting firm to evaluate its internal controls as ineffective. If internal controls over financial reporting are not considered adequate, the combined company may experience a loss of public confidence, which could have an adverse effect on its business and stock price.

 

Internal control deficiencies or weaknesses that are not yet identified could emerge.

 

Over time the combined company may identify and correct deficiencies or weaknesses in its internal controls and, where and when appropriate, report on the identification and correction of these deficiencies or weaknesses. However, the internal control procedures can provide only reasonable, and not absolute, assurance that deficiencies or weaknesses are identified. Deficiencies or weaknesses that are not yet identified by LSI or Agere could emerge and the identification and correction of these deficiencies or weaknesses could have a material impact on the results of operations for the combined company.

 

The LSI special meeting of LSI stockholders will be held at 10:00 a.m., local time, on March 29, 2007 at 1621 Barber Lane, Milpitas, California.

 

Check-in will begin at 9:30 a.m. and LSI stockholders should allow ample time for the check-in procedures.

 

At the LSI special meeting, LSI stockholders will be asked to consider and vote upon a proposal to approve the issuance of shares of LSI common stock in connection with the merger as more fully described in this joint proxy statement/prospectus. LSI currently does not contemplate that any other matters will be presented at the LSI special meeting.

 

After careful consideration, the LSI board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of the LSI stockholders and has unanimously approved the merger agreement. The LSI board of directors recommends that the LSI stockholders vote “FOR” the proposal to approve the issuance of shares of LSI common stock in connection with the merger.

 

Only LSI stockholders, including joint holders, as of the close of business on February 2, 2007, and other persons holding valid proxies for the special meeting are entitled to attend the LSI special meeting. LSI stockholders and their proxies should be prepared to present photo identification. In addition, LSI stockholders who are record holders will have their ownership verified against the list of record holders as of the record date prior to being admitted to the meeting. LSI stockholders who are not record holders but hold shares through a broker or nominee (i.e., in street name) should provide proof of beneficial ownership on the record date, such as their most recent account statement prior to February 2, 2007, or other similar evidence of ownership. Anyone who does not provide photo identification or comply with the other procedures outlined above upon request will not be admitted to the special meeting.

 

LSI stockholders are being asked to vote both shares held directly in their name as stockholders of record and any shares they hold in “street name” as beneficial owners. Shares held in “street name” are shares held in a stock brokerage account or shares held by a bank or other nominee.

 

The method of voting differs for shares held as a record holder and shares held in street name. Record holders will receive proxy cards. Holders of shares in “street name” will receive voting instruction cards in order to instruct their brokers or nominees how to vote.

 

Proxy cards and voting instruction cards are being solicited on behalf of the LSI board of directors from LSI stockholders in favor of the proposal to approve the issuance of shares of LSI common stock in connection with the merger.

 

Stockholders may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, stockholders who hold shares in more than one brokerage account may receive a separate voting instruction card for each brokerage account in which shares are held. Stockholders of record whose shares are registered in more than one name will receive more than one proxy card. In addition, Agere is also soliciting votes for its annual meeting and stockholders who own shares of both LSI and Agere will also receive a proxy or voting instruction card from Agere. Please note that a vote for the issuance of shares in connection with the merger for the LSI special meeting will not constitute a vote for the proposal to adopt the merger agreement for the Agere special meeting, and vice versa. Therefore, the LSI board of directors urges LSI stockholders to complete, sign, date and return each proxy card and voting instruction card for the LSI special meeting they receive.

Only stockholders of LSI at the close of business on February 2, 2007, the record date for the LSI special meeting, are entitled to receive notice of, and vote at, the LSI special meeting. On the record date, approximately 404,235,335 shares of LSI common stock were issued and outstanding. Stockholders of LSI common stock on the record date are each entitled to one vote per share of LSI common stock on the proposal to approve the issuance of shares of LSI common stock in connection with the merger.

 

A quorum of stockholders is necessary to have a valid meeting of LSI stockholders. A majority of the shares of LSI common stock issued and outstanding and entitled to vote on the record date must be present in person or by proxy at the LSI special meeting in order for a quorum to be established.

 

Abstentions and broker “non-votes” count as present for establishing the quorum described above. A broker “non-vote” may occur on an item when a broker is not permitted to vote on that item without instructions from the beneficial owner of the shares. Shares held by LSI in its treasury do not count toward the quorum.

 

LSI’s bylaws provide that any adjournment or postponement of the LSI special meeting may be made at any time by the chairman of the meeting or a vote of stockholders holding a majority of shares of LSI common stock represented at the LSI special meeting, either in person or by proxy, whether or not a quorum exists, without further notice other than by an announcement made at the special meeting. LSI’s bylaws also provide that no matter may be brought before a special meeting which is not stated in the notice of the special meeting.

 

Under the applicable rules of the New York Stock Exchange, the issuance of shares of LSI common stock in connection with the merger requires an affirmative vote of a majority of the votes cast at the LSI special meeting, provided that the total votes cast on the proposal represent over 50% of all shares of LSI common stock entitled to vote on the proposal.

 

Under the applicable rules of the New York Stock Exchange, brokers and other nominees are prohibited from giving a proxy to vote their customers’ shares with respect to the proposal to be voted on at the LSI special meeting in the absence of instructions from their customers. For purposes of determining whether LSI has received the affirmative vote of a majority of the votes cast at the LSI special meeting, broker “non-votes” and abstentions will not be considered votes cast and will therefore have no effect on the outcome of the proposal.

 

For purposes of determining whether the total votes cast represent over 50% of all shares of LSI common stock entitled to vote on the proposal, broker “non-votes” and abstentions will be considered entitled to vote and will therefore make it more difficult to meet this requirement.

 

At the close of business on the record date for the LSI special meeting, directors and executive officers of LSI beneficially owned and were entitled to vote approximately 1.8% of the shares of LSI common stock outstanding on that date.

 

Submitting Proxies or Voting Instructions

 

Whether LSI stockholders hold shares of LSI common stock directly as stockholders of record or in “street name”, LSI stockholders may direct the voting of their shares without attending the LSI special meeting. LSI stockholders may vote by granting proxies or, for shares held in street name, by submitting voting instructions to their brokers or nominees.

 

Record holders of shares of LSI common stock may submit proxies by completing, signing and dating their proxy cards for the LSI special meeting and mailing them in the accompanying pre-addressed envelopes. LSI stockholders who hold shares in “street name” may vote by mail by completing, signing and dating the voting instruction cards for the LSI special meeting provided by their brokers or nominees and mailing them in the accompanying pre-addressed envelopes.

If LSI stockholders of record do not include instructions on how to vote their properly signed proxy cards for the LSI special meeting, their shares will be voted “FOR” the proposal to approve the issuance of shares of LSI common stock in connection with the merger, and in the discretion of the proxy holders on any other business that may properly come before the LSI special meeting or any adjournment or postponement thereof.

 

If LSI stockholders holding shares of LSI common stock in “street name” do not provide voting instructions, their shares will not be considered to be votes cast on the proposal.

 

Stockholders of record of LSI common stock may also vote in person at the LSI special meeting by submitting their proxy cards or by filling out a ballot at the special meeting.

 

If shares of LSI common stock are held by LSI stockholders in “street name”, those LSI stockholders may not vote their shares in person at the LSI special meeting unless they bring a signed proxy from the record holder giving them the right to vote their shares and fill out a ballot at the special meeting.

 

Revoking Proxies or Voting Instructions

 

LSI stockholders may change their votes at any time prior to the vote at the LSI special meeting. LSI stockholders of record may change their votes by granting new proxies bearing a later date (which automatically revoke the earlier proxies) or by attending the LSI special meeting and voting in person. Attendance at the LSI special meeting will not cause previously granted proxies to be revoked, unless LSI stockholders specifically so request. For shares held in “street name”, LSI stockholders may change their votes by submitting new voting instructions to their brokers or nominees or by attending the LSI special meeting and voting in person, provided that they have obtained a signed proxy from the record holder giving them the right to vote their shares.

 

Proxy Solicitation

 

LSI is soliciting proxies for the LSI special meeting from LSI stockholders and Agere is soliciting proxies for the Agere annual meeting from its stockholders. Each company will bear its own fees and costs associated with printing and filing this joint proxy statement/prospectus and the registration statement on Form S-4, of which it forms a part, that has been filed by LSI with the Securities and Exchange Commission.

 

Other than the costs shared with Agere, the cost of soliciting proxies from LSI stockholders will be paid by LSI.

 

In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person or by telephone, facsimile, telegram or electronic means by LSI’s directors, officers and employees, who will not receive any additional compensation for such solicitation activities.

 

LSI has retained Georgeson Inc. to assist it in the solicitation of proxies.

 

Contact for Questions and Assistance in Voting

 

Any LSI stockholder who has a question about the merger, the issuance of shares in connection with the merger, or how to vote or revoke a proxy, or who wishes to obtain additional copies of this joint proxy statement/prospectus, should contact:

 

Georgeson Inc.

17 State Street, 10th Floor

New York, NY 10004

Toll Free: (866) 783-6820

Banks and Brokerage Firms: (212) 440-9800

 

If you need additional copies of this joint proxy statement/prospectus or voting materials, you should contact Georgeson Inc. as described above or send an e-mail to investorrelations@lsi.com.

 

LSI is not aware of any other business to be acted upon at the LSI special meeting. LSI’s bylaws also provide that no matter may be brought before a special meeting which is not stated in the notice of the special meeting. If, however, other matters are properly brought before the LSI special meeting or any adjournment or postponement of the LSI special meeting, the persons named as proxy holders, Abhijit Y. Talwalkar, Bryon Look and Andrew S. Hughes, will have discretion to act on those matters, or to adjourn or postpone the LSI special meeting.

 

The Agere annual meeting is scheduled to be held at the Edward Nash Theater at the Raritan Valley Community College, Route 28W and Lamington Road, North Branch, New Jersey 08876, on March 29, 2007, at 9:00 a.m., local time.

 

Agere will also webcast its annual meeting. Stockholders can access the webcast at http://www.agere.com/webcast. Information on the Agere website, other than this joint registration statement/prospectus and form of proxy, is not part of the proxy soliciting materials.

 

The purpose of the annual meeting is to:

 

 

The Agere board of directors recommends that Agere stockholders vote “FOR” the proposal to adopt the merger agreement. For the reasons for this recommendation, see “The Merger — Consideration of the Merger by the Agere Board of Directors — Recommendation of the Agere Board of Directors.” The Agere board of directors also recommends that you vote “FOR” each of the director nominees listed under the heading “Election of Agere Directors,” “FOR” the re-approval of Agere’s Short Term Incentive Plan and “FOR” the ratification of the selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007 at the annual meeting.

 

Only Agere stockholders of record at the close of business on February 2, 2007, the record date for the Agere annual meeting, will be entitled to notice of, and to vote at, the Agere annual meeting or any adjournments or postponements of the Agere annual meeting.

 

On the record date, there were 169,422,222 shares of common stock outstanding. Each share of common stock is entitled to one vote on each matter properly brought before the meeting. Shares that are held in Agere’s treasury are not considered outstanding or entitled to vote at the Agere annual meeting.

 

In accordance with Delaware law, a list of stockholders entitled to vote at the meeting will be available at the meeting, and for 10 days prior to the meeting, at 1110 American Parkway NE, Allentown, Pennsylvania 18109, between the hours of 9 a.m. and 4 p.m., local time.

 

Agere stockholders will be admitted to the Agere annual meeting beginning at 8:00 a.m., local time, on March 29, 2007. You will need your admission ticket as well as a form of personal identification to enter the meeting. The procedure for obtaining an admission ticket depends on whether you are a “record holder” of Agere stock or if your Agere shares are held in “street name.” You are a record holder if you hold your Agere shares in an account with Agere’s transfer agent, Computershare Investor Services, LLC, or if you have an Agere stock certificate. Your Agere shares are held in “street name” if you hold them in an account with a bank, broker or other record holder.

 

If you are an Agere stockholder of record and received this joint proxy statement/prospectus by mail, you will find an admission ticket in the proxy materials that were sent to you. If you are an Agere stockholder of

record and received an e-mail describing how to view this joint proxy statement/prospectus over the Internet and want to attend the meeting in person, please write to Agere Systems Inc., 1110 American Parkway NE, Room 10A-301C, Allentown, Pennsylvania 18109, Attention: Response Center, or call 1-800-372-2447, to obtain an admission ticket.

 

If your Agere shares are held in street name (in the name of a bank, broker or other nominee) and you plan to attend the Agere annual meeting, you can obtain an admission ticket in advance by sending a written request, along with proof of ownership, such as a recent bank or brokerage account statement, to Agere Systems Inc., 1110 American Parkway NE, Room 10A-301C, Allentown, Pennsylvania 18109, Attention: Response Center.

 

If you plan to attend the Agere annual meeting, please retain the admission ticket. The admission ticket will admit you to the meeting. If you arrive at the meeting without an admission ticket, Agere will admit you if it is able to verify that you are an Agere stockholder.

 

Quorum

 

The holders of shares possessing a majority of all the votes that could be cast on every matter that is to be voted on must be present, in person or by proxy, in order to transact business at the meeting.

 

Required Vote for Adoption of Merger Agreement (Proposal 1)

 

The affirmative vote of the holders of a majority of the outstanding shares of Agere common stock is required to adopt the merger agreement.

 

Required Vote for Election of Directors (Proposal 2)

 

Directors will be elected by a plurality of votes cast. That is, the nominees receiving the greatest number of votes will be elected.

 

Required Vote for All Other Matters (Proposals 3 and 4)

 

The affirmative vote of the holders of a majority of the common stock present in person or represented by proxy and entitled to vote at the Agere annual meeting is required to re-approve the Short Term Incentive Plan and to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007.

 

Effect of Withheld Votes and Abstentions

 

All shares of Agere common stock represented at the Agere annual meeting, but not voting, including abstentions and broker non-votes, will be treated as present for purposes of determining the presence or absence of a quorum for all matters for consideration at the Agere annual meeting.

 

In the election of directors, Agere stockholders may withhold their vote. Withheld votes will be excluded from the vote and will have no effect on the outcome. Agere stockholders may vote to “abstain” on each of the other proposals. If you vote to “abstain,” or do not vote, it will have the same effect as a vote against the proposal to adopt the merger agreement. If you vote to “abstain” it will have the same effect as a vote against the proposal to re-approve the Agere Short Term Incentive Plan and the proposal to ratify the selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007. Broker “non-votes”, if any, will not be counted for purposes of the proposal to re-approve the Agere Short-Term Incentive Plan or the proposal to ratify the selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007.

 

If Agere stockholders return a proxy but do not indicate how to vote, the Agere common stock represented by such proxy will be voted in favor of all matters for consideration at the Agere annual meeting.

 

If a quorum is not present at the Agere annual meeting, the meeting may be adjourned from time to time until a quorum is present. In addition, adjournments of the Agere annual meeting may be made for the purpose of soliciting additional proxies in favor of the proposals. However, no proxy that is voted against a proposal described in this joint proxy statement/prospectus will be voted in favor of adjournment of the Agere annual meeting for the purpose of soliciting additional proxies.

 

You can vote your shares by completing and returning a proxy card or, if your shares are held in street name, a voting instruction form. Most stockholders can also vote over the Internet or by telephone. If Internet and telephone voting are available to you, you can find voting instructions in the materials accompanying this joint proxy statement/prospectus. The Internet and telephone voting facilities will close at 11:59 p.m. Eastern Daylight Time on March 28, 2007. Please be aware that if you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. If you are a participant in Agere’s 401(k) plan, your voting instructions must be received by 11:59 p.m. Eastern Daylight Time on March 26, 2007.

 

You can revoke your proxy (including an Internet or telephone vote) at any time before it is exercised by timely delivery of a properly executed, later-dated proxy or by voting in person at the meeting.

 

The method by which you vote will in no way limit your right to vote at the meeting if you later decide to attend in person. If your shares are held in street name, you must obtain a proxy, executed in your favor, from your broker or other holder of record, to be able to vote at the meeting.

 

All shares entitled to vote and represented by properly completed proxies received prior to the meeting and not revoked will be voted at the meeting in accordance with your instructions. If you return a signed proxy card without indicating how your shares should be voted on a matter and do not revoke your proxy, the shares represented by your proxy will be voted as the Agere board of directors recommends and therefore “FOR” the adoption of the merger agreement, “FOR” each of the director nominees listed under the heading “Election of Agere Directors,” “FOR” the re-approval of Agere’s Short Term Incentive Plan and “FOR” the ratification of the selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007.

 

If you hold your shares through a broker, your shares may be voted even if you do not vote or attend the annual meeting. Under the rules of the New York Stock Exchange, member brokers who do not receive instructions from beneficial owners will be allowed to vote on (1) the proposal to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007 and (2) the proposal to re-approve the Short Term Incentive Plan. Broker “non-votes,” if any, will have the same effect as votes cast against the proposal to adopt the merger agreement.

 

If you hold shares through Agere’s 401(k) plan and do not vote, those shares will be voted in the same proportion as shares in the plan that are voted by plan participants.

 

If any other matters are properly presented at the annual meeting for consideration, including, among other things, consideration of a motion to adjourn the meeting to another time or place, the individuals named as proxies will have discretion to vote on those matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. If the annual meeting is postponed or adjourned, your proxy will remain valid and may be voted at the postponed or adjourned meeting. You still will be able to revoke your proxy until it is voted. At the date this joint proxy statement/prospectus went to press, Agere did not know of any matters to be presented at the annual meeting other than those described in this joint proxy statement/prospectus.

 

You may revoke your proxy at any time before it is exercised by timely delivering a properly executed, later-dated proxy (including by voting over the Internet or telephone) or by voting by ballot at the Agere annual meeting. Simply attending the Agere annual meeting without voting will not revoke your proxy.

 

If your shares of Agere common stock are held in an account at a broker, bank or other nominee and you wish to vote, you must return your instructions to the broker, bank or other nominee.

 

If you own shares of Agere common stock through a broker, bank or other nominee and attend and vote at the Agere annual meeting, you should bring a letter from your broker, bank or other nominee identifying you as the beneficial owner of such shares of Agere common stock and authorizing you to vote.

 

Agere has appointed IVS Associates, Inc. to serve as Inspector of Election for the Agere annual meeting. Automatic Data Processing, Inc. will independently tabulate affirmative and negative votes and abstentions.

 

Holders of Agere common stock will not have any appraisal rights under the Delaware General Corporation Law or under Agere’s certificate of incorporation in connection with the merger, and neither Agere nor LSI will independently provide holders of Agere common stock with any such rights.

 

The Securities and Exchange Commission has rules that permit us to deliver a single copy of our proxy statement and annual report on Form 10-K to stockholders sharing the same address. This process, called householding, allows Agere to reduce the amount of material printed and mail.

 

Agere has implemented householding for all stockholders who share the same last name and address and, for shares held in “street name,” where the shares are held through the same nominee (that is, all accounts are at the same brokerage firm), so that they are receiving only one copy of Agere’s proxy statement and annual report on Form 10-K per address. If you would like to receive a separate copy of this year’s proxy statement and annual report on Form 10-K, please write to Agere Systems Inc., 1110 American Parkway NE, Room 10A-301C, Allentown, Pennsylvania 18109, Attention: Response Center, or call at 1-800-372-2447.

 

If you share the same last name and address with other Agere stockholders and would like to start or stop householding for your account, you can call 1-800-542-1061 or write to Householding Department, 51 Mercedes Way, Edgewood, NY 11717, including your name, the name of your broker or other holder of record and your account number(s). If you consent to householding, your election will remain in effect until you revoke it. If you revoke your consent, Agere will send you separate copies of documents mailed at least 30 days after receipt of your revocation.

 

If you would like to view future proxy statements and annual reports over the Internet instead of receiving paper copies, you can elect to do so either by voting at http://www.proxyvote.com or by visiting http://www.investordelivery.com. Your election to view these documents over the Internet will remain in effect until you revoke it. Please be aware that if you choose to access these materials over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. If you choose to view future proxy statements and annual reports over the Internet, next year you will receive an e-mail with instructions on how to view those materials and vote.

 

Allowing Agere to household annual meeting materials or electing to view them electronically will help save on the cost of printing and distributing these materials.

 

Agere will pay the expenses of the preparation of the proxy materials and the solicitation of proxies. Proxies may be solicited on behalf Agere in person or by telephone, e-mail, facsimile or other electronic means by directors, officers or employees of Agere, who will receive no additional compensation for soliciting. Agere has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and to provide related informational support, for a fee of $20,000 plus reimbursement of expenses. In accordance with the regulations of the Securities and Exchange Commission and the New York Stock Exchange, Agere will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of Agere Systems stock.

 

Agere’s fiscal year begins on October 1 and ends on September 30. References in this joint proxy statement/prospectus to the year 2006 or fiscal 2006 with respect to Agere refer to the 12-month period from October 1, 2005 through September 30, 2006. In May 2005, Agere reclassified its Class A common stock and Class B common stock into a new, single class of common stock, and effected a 1-for-10 reverse stock split. Information regarding Agere in this joint proxy statement/prospectus has been adjusted to reflect these transactions.

 

Pursuant to the Delaware General Corporation Law and Agere’s by-laws, Agere’s business, property and affairs are managed by or under the direction of the Agere board of directors. The Agere board of directors currently has eight members.

 

The Agere board of directors has three standing committees:

 

 

The Agere board of directors has determined that all the directors other than Mr. Clemmer, including those who serve on these committees, are “independent” for purposes of Section 303A of the Listed Company Manual of the New York Stock Exchange, and that the members of the Audit Committee are also “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934. The Agere board of directors based these determinations primarily on a review of the responses of the directors and executive officers to questions regarding employment and compensation history, affiliations and family and other relationships and on discussions with the directors. The Agere board of directors also reviewed the relationships between Agere and companies with which its directors are affiliated.

 

The Agere board of directors has adopted a charter for each of the three standing committees and corporate governance guidelines that address the make-up and functioning of the Agere board of directors. The Agere board of directors has also adopted a code of conduct that applies to all of its employees, officers and directors. Agere stockholders can find links to these materials on the Agere website at: http://www.agere.com/governance. Agere stockholders can also obtain this information in print by writing to Agere Systems Inc., 1110 American Parkway NE, Room 10A-301C, Allentown, Pennsylvania 18109, Attention: Response Center, or by calling 1-800-372-2447.

 

During fiscal 2006, the Agere board of directors held twelve meetings and the committees held a total of twenty-two meetings. None of the directors attended fewer than 75% of the total number of meetings of the Agere board of directors and committees of the Agere board of directors of which he or she was a member during fiscal 2006. At least quarterly, the non-management directors meet in private session without members of management. These sessions are presided over by the Chairman of Agere’s board of directors, Mr. Wagner. If Agere stockholders would like to communicate directly with Mr. Wagner or any of the other non-management directors, follow the instructions set forth in the section below entitled “Communications with Directors.”

 

The Audit Committee focuses its efforts on the following three areas:

 

 

The Audit Committee meets periodically with management to consider the adequacy of Agere’s internal controls and the financial reporting process. It also discusses these matters with Agere’s independent auditors and with appropriate company financial personnel. The committee reviews Agere’s financial statements and discusses them with management and the independent auditors before those financial statements are filed with the Securities and Exchange Commission. The committee met ten times in fiscal 2006.

The committee regularly meets privately with the independent auditors, has the sole authority to retain and dismiss the independent auditors and periodically reviews their performance and independence from management. The independent auditors have unrestricted access and report directly to the committee.

 

Audit Committee Financial Expert.  The Agere board of directors has determined that the Chairman of the committee, Mr. Salice, is an “audit committee financial expert,” as that term is defined in Item 401(h) of Regulation S-K under the Securities Exchange Act of 1934. In making this determination, the Agere board of directors considered Mr. Salice’s educational background and his business experience, which is described below under “Election of Directors.” The Agere board of directors has also determined that Mr. Salice is “independent” for purposes of Section 303A of the New York Stock Exchange Listed Company Manual and Section 10A(m)(3) of the Securities Exchange Act of 1934.

 

The responsibilities of the Nominating/Corporate Governance Committee include:

 

 

The committee met five times in fiscal 2006.

 

The Agere board of directors believes that it should be comprised of directors with varied, complementary backgrounds, and that directors should, at a minimum, have expertise that may be useful to the company. Directors should also possess the highest personal and professional ethics and should be willing and able to devote the required amount of time to company business.

 

When considering candidates for director, the committee takes into account a number of factors, including the following:

 

 

The committee will consider candidates for director suggested by stockholders applying the criteria for candidates described above and considering the additional information referred to below. Stockholders wishing to suggest a candidate for director should write to the Corporate Secretary, at the address indicated below, and include:

 

 

Before nominating a sitting director for re-election at an annual meeting, the committee will also consider the director’s performance on the Agere board of directors.

 

When seeking candidates for director, the committee may solicit suggestions from incumbent directors, management or others. In fiscal 2006, the committee also retained an unaffiliated search firm to identify additional director candidates and to provide the committee background information on those candidates. After conducting an initial evaluation of a candidate, the committee will interview the candidate if it believes the candidate might be suitable to be a director. The committee may also ask the candidate to meet with management. If the committee believes a candidate would be a valuable addition to the Agere board of directors, it will recommend to the full board that candidate’s election.

 

This year, Mr. Mancuso, who was appointed a director by the Agere board of directors in July 2006 and Mr. Wilska, who was appointed a director by the Agere board of directors in December 2005, are standing for election by the stockholders for the first time. Mr. Mancuso was recommended to the Agere board of directors by an executive search firm that the Nominating/Corporate Governance Committee had retained to help it identify individuals whose skills and experience might make them valuable additions to the Agere board of directors. The Nominating/Corporate Governance committee believed that the Agere board of directors would benefit from Mr. Mancuso’s experience as the chief financial officer of a public company. Mr. Wilska was recommended to the Agere board of directors by a non-management director, who believed that the Agere board of directors would benefit from Mr. Wilska’s experience in the mobile phone industry.

 

Under Agere’s by-laws, nominations for Director may be made only by or at the direction of the Agere board of directors, or by a stockholder of record at the time of giving notice who is entitled to vote and delivers written notice along with the additional information and materials required by the by-laws to Agere’s Corporate Secretary not less than 45 days nor more than 75 days prior to the first anniversary of the record date for the preceding year’s annual meeting. For the annual meeting in the year 2008, in the event the merger is not completed, Agere must receive this notice on or after November 19, 2007, and on or before December 19, 2007. Agere stockholders can obtain a copy of the full text of the by-law provision by writing to Agere’s Corporate Secretary, 1110 American Parkway NE, Allentown, Pennsylvania 18109.

 

The Compensation Committee is responsible for setting executive officer compensation, for making recommendations to the full Agere board of directors concerning director compensation and for general oversight for the compensation and benefit programs for other employees. The committee met seven times in fiscal 2006.

 

Each of Agere’s outside directors, that is, any director who is not an employee of Agere, receives annually a retainer of $45,000 and an option to purchase 10,000 shares of Agere common stock. Each new outside director receives an option to purchase 10,000 shares of Agere common stock when first elected to the Agere board of

directors. The exercise price per share for these options, which are granted under our Non-Employee Director Stock Plan, is the fair market value of a share on the date of grant. Options granted under the plan generally have a seven-year term and become exercisable on the first anniversary of the date of grant.

 

Agere also provides outside directors with travel accident insurance when on company business.

 

The members of the Compensation Committee in fiscal 2006 were Richard S. Hill (through January 2006), Arun Netravali (from January 2006), Thomas P. Salice, Rae F. Sedel and Harold A. Wagner. None of the members has ever been an officer or employee of Agere or any of its subsidiaries, and no “compensation committee interlocks” existed during fiscal 2006.

 

Individuals who want to communicate with the Agere board of directors or any individual director can write to:

 

Agere Systems Inc.
Board Administration
Room 4U-541
400 Connell Drive
Berkeley Heights, NJ 07922

 

Your letter should indicate that you are an Agere stockholder. The Corporate Secretary’s office will review each letter. Depending on the subject matter, that office will:

 

 

At each Agere board meeting, the Corporate Secretary presents a summary of all communications received since the last meeting that were not forwarded and makes those communications available to the directors on request. The Agere board of directors has approved this process.

 

We typically schedule an Agere board meeting in conjunction with the Agere annual meeting and expect that Agere’s directors will attend absent a valid reason, such as a schedule conflict. Last year, all of the individuals then serving as directors, other than Mr. Wilska, attended Agere’s annual meeting. Mr. Wilska had recently joined Agere’s Board and had a pre-existing conflict.

 

Agere believes that, under the Securities and Exchange Commission’s rules for reporting of securities transactions by executive officers, directors and beneficial owners of more than 10% of our common stock, all required reports for fiscal 2006 were timely filed.

 

The following table sets forth information concerning the beneficial ownership of Agere common stock for each person or group of persons known to Agere, as of January 31, 2007, that beneficially owned more than 5% the shares of Agere common stock. The information below is based on public filings made with the Securities and Exchange Commission. These filings contain information as of particular dates and may not reflect current holdings of Agere common stock. To Agere’s knowledge, other than as described below, the named person or group of persons has sole voting and investment power with respect to these securities.

 

 

 

 

The following table sets forth information concerning the beneficial ownership of Agere common stock as of January 31, 2007 for Agere directors, the individuals named in the Summary Compensation Table and the directors and executive officers as a group. To Agere’s knowledge, except as otherwise noted, the named individual had sole voting and investment power with respect to these securities.

 

 

 

 

 

 

As discussed elsewhere in this joint proxy statement/prospectus, Agere stockholders are considering and voting to adopt the merger agreement. Agere stockholders should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement and the merger. In particular, Agere stockholders are directed to the merger agreement which is attached as Annex A to this joint proxy statement/prospectus.

 

The Agere board of directors recommends a vote “FOR” the proposal to adopt the merger agreement.

 

The Agere board of directors is divided into three classes. One class is elected each year for a term of three years.

 

Three directors will be elected at the annual meeting of stockholders and until their successors are elected and qualified for a three-year term expiring at the Agere annual meeting in 2010 or until the consummation of the merger. The Agere board of directors has nominated Richard L. Clemmer, Michael J. Mancuso and Kari-Pekka Wilska for the positions. Agere stockholders can find information about Messrs. Clemmer, Mancuso and Wilska below. Upon consummation of the merger, each of the directors of Agere will be replaced by the directors of Atlas Acquisition Corp. as the board of directors of the surviving corporation.

 

The persons named in the Agere proxy card will vote such proxy for the election of Messrs. Clemmer, Mancuso and Wilska, unless you indicate that your vote should be withheld. If elected, Messrs. Clemmer, Mancuso and Wilska will each continue in office until his successor has been duly elected and qualified, or until the earliest of his death, resignation or retirement. Messrs. Clemmer, Mancuso and Wilska have each indicated to the company that he will serve if elected. Agere does not anticipate that any of the nominees will be unable to stand for election, but, if that happens, your proxy will be voted in favor of another person nominated by the Agere board of directors.

 

The Agere board of directors recommends a vote “FOR” the election of Messrs. Clemmer, Mancuso and Wilska as Agere directors.

 

Richard L. Clemmer, Director since October 2002.  Mr. Clemmer has been Agere’s President and Chief Executive Officer since October 2005. Mr. Clemmer has over 30 years of experience in the technology industry, where he has held a variety of executive, financial and management positions. Between June 2004 and October 2005, he was an active partner at Shelter Capital Partners, a private investment fund. Between 2003 and October 2005, he was Chairman and President of Venture Capital Technology LLC, which was focused on investing in and consulting for technology companies, primarily involved as Chairman of uNav Microelectronics, an emerging global positioning systems chipset company. Between May 2001 and January 2003, he was on the board of directors and served as an executive at PurchasePro.com, Inc., a provider of electronic procurement and strategic sourcing solutions. Between 1996 and May 2001, Mr. Clemmer was Executive Vice President, Finance and Chief Financial Officer of Quantum Corp., which was a provider of hard disk drives and other storage solutions. Prior to Quantum, Mr. Clemmer served at Texas Instruments Incorporated for over 20 years, including between 1988 and 1996 as Senior Vice President and Chief Financial Officer of Texas Instruments Incorporated’s Semiconductor Group. Mr. Clemmer is a director of i2 Technologies, Inc. Age: 54.

 

In September 2002, while Mr. Clemmer was Chairman, Chief Executive Officer and Chief Financial Officer of PurchasePro, having been asked to take over from prior management, PurchasePro filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in connection with an agreement to sell substantially all of its assets.

 

Michael J. Mancuso, Director since July 2006.  From 1994 to 2006, Mr. Mancuso was chief financial officer of General Dynamics, a supplier of business aviation and aircraft services, land and amphibious combat systems and shipbuilding and marine systems. Prior to joining General Dynamics in 1993, he was vice president and controller of United Technologies Corporation’s Pratt and Whitney Commercial Engine business unit. He also served 21 years with General Electric in various financial management positions. Mr. Mancuso is a director of SPX Corporation and The Shaw Group. Age: 64.

 

Kari-Pekka Wilska, Director since December 2005.  Since October 2005, Mr. Wilska has been a partner at Austin Ventures, a venture capital firm. Prior to joining Austin Ventures, Mr. Wilska was President of Vertu Ltd., a subsidiary of Nokia Corporation and a provider of luxury mobile phones. From 1993 to 2004, Mr. Wilska held a variety of leadership positions in Nokia’s U.S. mobile phone operations. Mr. Wilska is also a director of Brightpoint, Inc. and Mavenir Systems. Age: 59.

 

Richard S. Hill, Director since July 2003.  Mr. Hill has been Chief Executive Officer and a director of Novellus Systems, Inc., a supplier of integrated circuit manufacturing equipment, since 1993 and has been Chairman of its board of directors since 1996. Before joining Novellus, Mr. Hill spent 12 years at Tektronix, Inc., where he held a variety of positions, including President of Tektronix Development Company, Vice President of the Test and Measurement Group and President of Tektronix Components Corporation. Prior to joining Tektronix, he held engineering management and engineering positions at General Electric, Motorola and Hughes Aircraft Company. Mr. Hill is a director of Arrow Electronics, Inc. and the University of Illinois Foundation. Age: 54.

 

Arun Netravali, Director since July 2004.  Since November 2004, Mr. Netravali has been managing partner of OmniCapital Group LLC, a venture capital firm. From January 2002 to April 2003, Mr. Netravali was Chief Scientist for Lucent Technologies Inc., a provider of services, systems and software for communications networks, working with academic and investment communities to identify and implement new networking technologies. From 1999 to January 2002, Mr. Netravali was President of Bell Labs as well as Lucent’s Chief Technology Officer and Chief Network Architect. Mr. Netravali currently serves on the board of Level 3 Communications Inc. and on the advisory board of Veridicom International Inc. Age: 60.

 

Harold A. Wagner, Director since March 2001 and Chairman of the Agere board of directors since December 2001.  In December 2000, Mr. Wagner retired from his position as Chairman and Chief Executive Officer of Air Products and Chemicals, Inc., a multi-national chemicals manufacturing company, a position he had held since 1998. From 1992 to 1998, Mr. Wagner served as Chairman, President and Chief Executive Officer of Air Products and Chemicals. He is also a director of CIGNA Corporation, United Technologies Corporation and PACCAR Inc. He is a trustee of the Eisenhower Exchange Fellowships, Inc. and is a member of the Business Advisory Committee of A.P. Møller. Age: 71.

 

Thomas P. Salice, Director since July 2003.  Mr. Salice is a co-founder and has been a managing member of SFW Capital Partners, LLC, a private equity firm, since January 2005. Prior to his current position, he served as Vice Chairman of AEA Investors LLC, a private equity firm, and had served at AEA Investors since 1989. Mr. Salice is a director of Mettler-Toledo International Inc. and Waters Corporation and is a trustee of Fordham University. Age: 47.

 

Rae F. Sedel, Director since March 2001.  Ms. Sedel has been a Managing Director since 1987, and a member of the board of directors since October 2005, of Russell Reynolds Associates, Inc., an executive recruiting firm. From 1991 until October 2005, she was the lead partner on sector verticals and, from 1991 until December 2004, she was head of the technology sector at Russell Reynolds. Before joining Russell Reynolds, Ms. Sedel spent fifteen years with Pacific Telesis Group, where she was Vice President-Consumer Markets. Age: 57.

 

Agere is asking its stockholders to re-approve the Short Term Incentive Plan to preserve the federal income tax deduction for compensation it pays to its chief executive officer and the four other most highly compensated executive officers. These individuals are our “covered employees.” Section 162(m) of the Internal Revenue Code limits the federal income tax deduction for compensation paid to each of the “covered employees” of a publicly held corporation to $1 million per fiscal year, with exceptions for performance-based compensation made under qualifying plans. Under Section 162(m), Agere must periodically seek stockholder approval of the plan; the plan was last approved by stockholders in 2002. Agere is not proposing any changes to the plan. A summary of the principal features of the plan is provided below. Agere stockholders can find a complete copy of the plan attached to the proxy statement available over the Internet through the Securities and Exchange Commission’s EDGAR service.

 

Awards.  Agere pays annual bonuses to officers under the Short Term Incentive Plan. The plan provides for the payment of cash bonuses for executive officers after performance periods selected by the Compensation Committee, in accordance with targets established at or near the beginning of the performance periods. Each fiscal year is typically a performance period, although other periods of time could be selected.

 

Typically, the committee makes any award payments subject to Agere having a minimum level of net income for the performance period. If that level of net income is met, the committee will consider additional factors in setting each individual’s bonus (with respect to “covered employees” the additional factors may only work to reduce the bonus amount). Factors that may be considered in determining the amount of individual bonuses may include the executive officer’s individual performance, which may be measured by the quality of strategic plans, organizational and management development, special project leadership and similar indicators of individual performance or other measures, and the company’s financial performance, which may be measured by revenue, operating income, cash flow, earnings per share, return on equity, total return to stockholders in the form of stock price appreciation and dividends, if paid, or other measures. Net income for these purposes is defined as our net income before taxes for a specified period of time, excluding the following items:

 

 

Agere believes that it is not appropriate for these items to have an impact on the level of executive compensation paid. Agere uses the net income test so that awards to “covered employees” can be deducted by Agere for federal income tax purposes. Subject to this limitation and the maximum award under the plan, the amount of each executive officer’s award is determined in the sole discretion of the committee or, in the case of an award to an officer who is not a “covered employee,” in the sole discretion of the committee or a person or committee to whom the committee has delegated that authority. With respect to a “covered employee,” the committee may reduce, but may not increase, the amount of a bonus that otherwise would be payable.

 

When it determined officer bonuses for fiscal 2006, the committee also took into account the extent to which the company met revenue and non-GAAP operating margin targets.

 

The maximum amount that may be paid under the plan to any participant in any fiscal year is $9 million. In fiscal 2006, there were nine participants in the plan.

Plan Administration.  The Compensation Committee administers the Short Term Incentive Plan.

 

Other Provisions.  The Agere board of directors may modify or terminate the Short Term Incentive Plan at any time.

 

Tax Rules.  The following is a brief summary of the federal income tax consequences of payments made under the Short Term Incentive Plan based on current federal income tax laws. This summary is not intended to be exhaustive and does not describe state or local tax consequences. In general, ordinary income will be recognized by participants in the plan at the time that awards are paid or made available to them. At the time that a participant recognizes ordinary income, Agere will be entitled to a corresponding deduction if, among other things, (i) the income meets the test of reasonableness, is an ordinary and necessary business expense and is not an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code and is not disallowed by the $1 million limitation on compensation paid to “covered employees” and (ii) any applicable reporting obligations are satisfied.

 

Awards made in the future to any officer will be based on the officer’s individual performance and the company’s future performance. Accordingly, the amount of cash bonuses to be paid in the future to current or future participating officers cannot be determined at this time. Actual amounts will depend on the individual’s and Agere’s actual performance. Agere stockholders can find the amounts Agere paid to certain participants for bonuses under the plan in fiscal 2006 in the Agere Summary Compensation Table below.

 

The Agere board of directors recommends a vote “FOR” the re-approval of the Agere Systems Inc. Short Term Incentive Plan.

 

Information about Agere’s equity compensation plans.  The following table summarizes information about Agere’s equity compensation plans as of September 30, 2006. For additional information about Agere’s equity compensation plans, see note 4 to the financial statements in Item 8 of Agere’s 2006 annual report on Form 10-K.

 

 

 

 

The Agere Audit Committee has selected PricewaterhouseCoopers LLP to serve as Agere’s independent registered public accounting firm for fiscal 2007. Representatives of PricewaterhouseCooopers LLP will be at the annual meeting to answer questions. They will also have the opportunity to make a statement if they desire to do so.

 

While not required by law or Agere’s governing documents, the Agere board of directors is asking our stockholders to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007. The Agere board of directors is doing this as a matter of good corporate practice. If Agere stockholders do not ratify the selection of PricewaterhouseCoopers LLP, the Audit Committee will consider whether to select an alternate firm as Agere’s independent registered public accounting firm. Even if stockholders do ratify the selection of PricewaterhouseCoopers LLP, the Audit Committee may, in its discretion, select a different firm if it believes doing so is in the interest of the company and its stockholders.

 

The fees billed by PricewaterhouseCoopers LLP to Agere during fiscal 2006 and fiscal 2005 were as follows:

 

 

 

 

Under its charter, the Audit Committee must pre-approve all engagements of the independent auditors unless an exception to such pre-approval exists under the Securities Exchange Act of 1934 or the rules of the Securities and Exchange Commission. Each year, the committee approves the retention of the independent auditors to audit Agere’s financial statements, including proposed fees, before the filing of the preceding year’s annual report on Form 10-K. At the beginning of the fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditors, including the scope of the work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditors’ independence from management. At each subsequent committee meeting, the committee will receive updates on the services actually provided by the independent auditors, and management may present additional services for approval. Typically,

these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year. The committee has delegated to the Chairman of the committee the authority to evaluate and approve engagements on behalf of the committee in the event that a need arises for pre-approval between committee meetings. This might occur, for example, if Agere proposed to execute a financing on an accelerated timetable. If the Chairman approves any engagements pursuant to this delegation, he will report that approval to the full committee at the next committee meeting.

 

In fiscal 2006 and fiscal 2005, each new engagement of PricewaterhouseCoopers LLP was approved in advance by the Audit Committee or its Chairman, and none of those engagements made use of the de minimis exception to pre-approval contained in the Securities and Exchange Commission’s rules.

 

The Agere board of directors recommends a vote “FOR” the Audit Committee’s selection of PricewaterhouseCoopers LLP as Agere’s independent registered public accounting firm for fiscal 2007.

 

The following table shows information concerning the compensation of (i) Agere’s Chief Executive Officer, (ii) Agere’s former Chief Executive Officer, (iii) each of Agere’s other executive officers who were serving as such at the end of fiscal 2006 and (iv) two additional individuals who were executive officers for part of fiscal 2006, but were not serving as such at fiscal year end.