|Agere Systems Inc.


Medium-Term
Incentive Plan




Purpose


To provide the Executive
leadership team with an incentive to focus on increasing share during a period
of significant industry discontinuity and business restructuring.
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| |  |  | Critical
to meeting the expectations of our investors
| | - |  | -----------------------------------------------------

| |  |  | Key
element of performance-based compensation
| | - |  | ---------------------------------------------

| |  |  | Minimizes
use of options and further dilution
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|Description


The plan is a market
share-based incentive plan targeting performance versus peer competitors over a
two-year period.


Participants


The Chief Executive Officer
and selected other officers who report directly to the Chief Executive Officer.


Plan Administrator


The plan will be
administered by the Corporate Governance and Compensation Committee of
Ageres Board of Directors.


Performance Period


October 1, 2002 - September 30, 2004


Grant Date


January 1, 2003


Payment Date



On or about January 10, 2005.  Payments will be made in cash.



Incentive Opportunity
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| | CEO            | 3.0 x Base Salary in effect September 30, 2004
| | -------------- | ----------------------------------------------
| | Direct Reports | 1.5 x Base Salary in effect September 30, 2004

|Agere Systems Inc Medium-Term Incentive Plan


The actual payment will be
determined by multiplying the amount shown above by the Achievement Level for
the share attained by the company at the end of the performance period.


Section 162(m) Provisions


So that awards under the
program may be deductible for US federal income tax purposes, grants will be
made in the form of awards under the 2001 Long Term Incentive Plan. Each
participant will be granted a $9 million award, which can be reduced by the
Committee in its sole discretion. It is expected that the Committee would reduce
the awards before payment to the appropriate amounts shown below. No award may
be paid unless the Committee shall have certified in writing that Ageres
Net Income (as defined in Ageres 2001 Long Term Incentive Plan) for fiscal
2004 was at least equal to its Net Income in fiscal 2002.


Performance Structure
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Achievement
      Level | Share
      Target |  | Growth Rate | 
| |  | ----------------------- | ------------------ |  | ----------- | 
|
| |  |                         |                    |  |             | 
| |  |                         |                    |  |             | 
| |  |                         |                    |  |             | 
| |  |                         |                    |  |             | 
| |  |                        
| |  |                         | Target             |  |             | 
| |  |                        
| |  |                         |                    |  |             | 
| |  |                         |                    |  |             | 
| |  |                         |                    |  |             | 

|Share Computation
|-----------------

| |  |  | The
total market will be the sum of reported revenues from AMCC, Broadcom, Conexant, Infineon
(wireless and wireline segments only), Intersil, LSI Logic (semiconductor segment only),
Marvell, Motorola (semiconductor segment only), PMC-Sierra, Skyworks Solutions,
STMicroelectronics, Texas Instruments (semiconductor segment only), Vitesse and Agere
Systems.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | For
any company whose fiscal quarters are not calendar quarters, the share calculation for
any quarter will use the most recently completed fiscal quarter for that company. For
example, for the March quarter, Marvells reported sales results for its quarter
ending around the end of January will be used.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
beginning share will be the average of Ageres share for the two quarters
immediately prior to the performance period (FQ3 and FQ4 2002).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Ageres
share percentage will be calculated quarterly, using the following formula:
| | - |  | -----------------------------------------------------------------------------------

|Agere Share = 100 x Agere Revenue/Total Market Revenue


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Agere Systems Inc Medium-Term Incentive Plan
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| |  |  | The
ending share used to determine award levels will be the average of Ageres share for
the two quarters immediately prior to the end of the performance period (FQ3 and FQ4
2004).
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|Adjustments
|-----------

| |  |  | Discontinued
Agere businesses. Ageres revenues will be adjusted in all periods to remove
revenue from discontinued businesses. Therefore, the beginning period revenues have been
adjusted to remove revenue from optoelectronics, analog line cards (business sold to
Legerity), FPGAs (business sold to Lattice) and wireless LAN systems (business sold to
Proxim).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Changes
in Agere and competitor product portfolios. The Committee may make such adjustments to
plan targets or revenue computations as it deems appropriate in the event of changes in
the product portfolio of Agere or any of the other companies whose revenues are used to
determine the total market (e.g., product divestitures, acquisitions, mergers, etc.).
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| |  |  | Agere
Profitability.Except following a Change in Control as defined in Ageres 2001
Long Term Incentive Plan, the Committee may reduce the
plan target percentages payable for achieving a particular share target if
Agere does not meet the profitability
goals set forth in the approved plans for fiscal years 2003 and 2004.
Any such reduction shall be applied ratably to all participants.
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|Miscellaneous
|-------------

| |  |  | Performance
monitoring. The Committee will review Ageres performance under the plan on a
quarterly basis.
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| |  |  | Change
in Control. In an event of a Change in Control as defined in Ageres 2001 Long
Term Incentive Plan, if, within 2 years of the Change in Control, either:
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| |  |  | A
participants employment is terminated by the company other than for Cause, or
| | - |  | ----------------------------------------------------------------------------------

| |  |  | A
participant terminates his or her employment within three months of an event constituting
Good Reason,
| | - |  | ----------------------------------------------------------------------------------------------------------

| | then
that participant will be entitled to an at target payment to be made in a lump
sum within 30 days of the termination of employment. Cause and Good
Reason have the meanings given those terms in the companys Officer Severance
Policy.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Involuntary
Separation. In the event that a participants employment is terminated by the
company other than for Cause and the participant is not entitled to a payment
under Change in Control, then the participant will be entitled to a pro
rated payment for the period beginning on the Grant Date and ending on the participants
last day of active employment, without reference to any continuation of employment under
the Officer Severance Policy. The payment will be made in a lump sum at the same time as
all other participants. If a participants employment is terminated by the company
for Cause, the participant shall not be entitled to any payment under this
plan.
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Agere Systems Inc Medium-Term Incentive Plan
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| |  |  | Voluntary Separation.
In the event that, before the end of the performance period, a participant
voluntarily terminates their employment with the company, other than under circumstances
entitling the participant to a payment under Change in Control, the
participant will not be entitled to any payment under the plan. Payment of awards under
the plan does not require continued employment beyond the end of the performance period.
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| |  |  | Termination.
The Committee may terminate the plan at any time. If the Committee terminates the plan,
all participants will be entitled to an at-target payment to be made in a lump sum
within 30 days of the termination.
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