10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________ .
Commission File No. 0-11674

LSI LOGIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE	94-2712976
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
1621 Barber Lane
Milpitas, California 95035
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408) 433-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each Exchange on which registered
Common Stock, $0.01 par value	New York Stock Exchange
Preferred Share Purchase Rights	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)

          Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

          Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.

Yes x No o

          The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant, based upon the closing price of the Common Stock on June 27, 2003, as reported on the New York Stock Exchange, was approximately $2,537,575,005.  Shares of Common Stock held by each executive officer and director and by each person who owns more than 5% of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.

          As of March 11, 2004, the Registrant had 381,904,398 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

          Parts of the following document are incorporated by reference into Part III of this Form 10-K Report:  Proxy Statement for Registrant’s 2004 Annual Meeting of Stockholders to be held on May 6, 2004.

FORWARD-LOOKING STATEMENTS

          This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including the risk factors set forth below and elsewhere in this Report. See “Risk Factors” in Part I, Item 1 and “Factors that may Affect Future Results” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 below.  Statements made herein are as of the date of the filing of this Form 10-K with the Securities and Exchange Commission and should not be relied upon as of any subsequent date.  We expressly disclaim any obligation to update information presented herein, except as may otherwise be required by law.

PART I

Item 1.  Business

General  

          LSI Logic Corporation (together with its subsidiaries collectively referred to as “LSI Logic”, “LSI” or the “Company” and referred to as “we”, “us” and “our”) is a leader in the design, development, manufacture and marketing of complex, high-performance integrated circuits and storage systems. We are focused on four markets: communications, consumer products, storage components and storage systems. Our integrated circuits are used in a wide range of communication devices, including devices used for wireless and broadband data networking applications. We also provide other types of integrated circuit products and board-level products for use in consumer applications, high-performance storage controllers and systems for storage area networks.

          We operate in two segments - the Semiconductor segment and the Storage Systems segment - in which we offer products and services for a variety of electronic systems applications. Our products are marketed primarily to original equipment manufacturers (“OEMs”) that sell products targeted for applications in our major markets.

          For the year ended December 31, 2003, revenues from the Semiconductor segment were $1,270 million (75% of total consolidated revenues) and the loss from operations was $296 million.  In the Semiconductor segment, we use advanced process technologies and comprehensive design methodologies to design, develop, manufacture and market highly complex integrated circuits (“ICs”). These system-on-a-chip solutions include both application specific integrated circuits, commonly referred to as ASICs, and standard products.  Semiconductor segment product offerings also include redundant array of independent disks (“RAID”), host bus adapters and related products and services. ASICs are designed for specific applications defined by the customer, whereas standard products are for market applications that we define. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II.

          We have developed methods of designing integrated circuits based on a library of building blocks of industry-standard electronic functions, interfaces and protocols. Among these is our CoreWare® design methodology. Our advanced submicron manufacturing process technologies allow our customers to combine one or more CoreWare library elements with memory and their own proprietary logic to integrate a highly complex, system-level solution on a single chip. We have developed and use complementary metal oxide semiconductor (“CMOS”) process technologies to manufacture our integrated circuits.

          For the year ended December 31, 2003, revenues from the Storage Systems segment were $423 million (25% of total consolidated revenues) and the income from operations was $23 million.  In the Storage Systems segment, our enterprise storage systems are designed, manufactured and sold by our wholly owned subsidiary - LSI Logic Storage Systems, Inc. (“Storage Systems” or “Storage Systems segment”).  Our high-performance, highly scalable open storage area network systems and storage solutions

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are available through leading OEMs and a specialized network of resellers.  Products and solutions distributed through these channels may exclude LSI Logic Storage Systems’ brand identification.  When included, LSI Logic Storage Systems’ brand identity may appear alone or in tandem with OEM brand identification.

          In November 2003, the Company announced its intention to separate the Storage Systems segment and create an independent storage systems company.  On February 19, 2004, LSI Logic Storage Systems, Inc. filed a registration statement on Form S-1 with the Securities and Exchange Commission for the initial public offering of its common stock. 

          LSI Logic Corporation was incorporated in California on November 6, 1980, and was reincorporated in Delaware on June 11, 1987. Our principal offices are located at 1621 Barber Lane, Milpitas, California 95035, and our telephone number at that location is (408) 433-8000. Our home page on the Internet is www.lsilogic.com. The contents of this website are not incorporated in or otherwise to be regarded as part of this annual report on Form 10-K.  Copies of this and other annual reports, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports are available free of charge on our website as soon as reasonably practicable after such documents are filed electronically with the Securities and Exchange Commission.  Any materials that the Company files with the SEC can be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 

Business Strategy

Semiconductor Business Strategy

          Our objective is to continue our industry leadership in the design, development, manufacture and marketing of highly integrated, complex integrated circuits and other electronic components and system-level products that provide our customers with silicon-based system-level solutions. To achieve this objective, our business strategy includes the following key elements:

          - Target Growth Markets and Selected Customers.  We concentrate our sales and marketing efforts on leading OEM customers in targeted growth markets, including communications, consumer products and storage components applications. Our engineering expertise is focused on developing technologies that will meet the needs of leading-edge customers in order to succeed in these market areas.

           - Emphasize CoreWare Methodology and System-on-a-Chip Capability.  Our CoreWare® design methodology enables the integration of one or more pre-designed circuit elements with customer-specified elements and memory to create system capabilities on a single chip. This results in higher product functionality, higher performance, greater differentiation and faster time to market.  We also have used this design methodology to develop proprietary standard products.

          We leverage our in-depth system-level expertise, extensive CoreWare IP library, innovative technology, understanding of customer requirements and philosophy of providing predictable Right First Time, On Time™ silicon solutions to serve customers with highly specific needs in the communications, consumer and storage markets worldwide. 

          We have expanded our technology product offerings to include the RapidChip™ product.  The RapidChip platform ASIC fills the void between the field programmable gate arrays (“FPGAs”) and standard-cell ASIC product spaces by combining the best attributes of both.  RapidChip combines the high-density, high-performance benefits of standard-cell ASICs with the fast time-to-market and customization benefits of FPGAs. This is done by addressing areas in the construction of complex custom ICs that have the greatest impact on a design schedule.

            - Promote Highly Integrated Design and Manufacturing Technology.  We use proprietary and leading third-party electronic design automation, or EDA, software design tools. Our design tool

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environment is highly integrated with our manufacturing process requirements so that it will accurately simulate product performance. This integration reduces design time and project cost. We continually evaluate and, as appropriate, develop expertise with third-party EDA tools from leading and emerging suppliers of such products.

           - Provide Flexibility in Design Engineering.  We engage with customers of our semiconductor products under various arrangements whereby the extent of the engineering support we provide will be determined in accordance with the customer’s requirements. For example, a customer may primarily use its own engineers for substantial development of its product design and retain our support for silicon-specific engineering work. We also enter into engineering design projects, including those on a “turn-key” basis.

           - Maintain High-Quality and Cost-Effective Manufacturing.  Our manufacturing strategy is a combination of our own manufacturing facilities and outsourcing arrangements with third-party foundries.  We perform substantially all of our packaging, assembly and final test operations through subcontractors in Asia.

          - Leverage Alliances with Key Partners.  We are continually seeking to establish relationships with key partners in a diverse range of semiconductor technologies to promote new products, services, operating standards and manufacturing capabilities and to avail ourselves of cost efficiencies that may be obtained through collaborative development.

          - Forge Successful Partnerships with Leading Distribution Partners.  Our partner program is designed to effectively market the Company’s host bus adapter product families utilizing distribution and reseller partnerships.  Such partnerships enable us to provide an extended population of customers with the full range of product offerings, services and support needed to ensure their success. 

          - Develop and Drive Industry Standards to Achieve Market Advantage.  We are a leader in developing and promoting important industry standard architectures, functions, protocols and interfaces. We believe that this strategy will enable us to quickly launch new standard-based products, allowing our customers to achieve time-to-market and other competitive advantages.

          - Operate Worldwide.  We market our products and engage with our customers on a worldwide basis through direct sales, marketing and field technical staff and through independent sales representatives and distributors. Our network of design centers located in major markets allows us to provide customers with highly experienced engineers, to interact with customer engineering management and system architects, to develop designs for new products and to provide continuing after-sale customer support.

Storage Systems Business Strategy 

          Our objective is to be the leading provider to server and storage OEMs and value added resellers (“VARs”) of modular disk storage systems and sub-assemblies.  We intend to enhance our market position by:

          - Continuing to innovate and extend our product offering.  We intend to lead the market in adopting and implementing new storage system technologies, interfaces, features and customer requirements.  In addition, we intend to define, design and develop products that enable our channel customers to offer a broad storage system product line, which incorporates their own intellectual property, to address multiple markets.  In this manner, we intend to continue to expand our product offerings further into the entry-level, mid-range and high-end markets.

          - Adding feature functionality to meet expanding enterprise requirements.  Implementation and management of storage systems within the enterprise is increasingly complex.  To address this increasing complexity, we plan to develop additional premium software management and hardware system features to enhance reliability, data availability and serviceability of our products.  We also intend to expand our LogicStor™ certified application implementation guides, which are designed to help our customers rapidly implement our products for specific business applications.

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          - Enhancing interoperability among our products, our customers’ products and other leading enterprise products.  We provide significant value to our channel customers and enterprises by testing and certifying our products with the products of other leading enterprise information technology vendors to ensure broad interoperability and compatibility.  We intend to work closely with our channel customers and enterprises to extend and enhance the capabilities of our storage sub-assemblies and storage management software.  We also seek to enhance our position in the storage industry by actively participating in a variety of organizations focused on developing standards for emerging technologies and facilitating industry-wide interoperability.

          - Obtaining new channel customers.  Our channel customers sell storage solutions based on or incorporating our products and technology through their direct sales forces and other channels. We will continue to seek new customers, including in international markets, and thereby expand the total marketing and sales resources focused on our products.  In this manner, we intend to increase the market addressable by our products.

          - Expanding our joint marketing and sales efforts with existing and new channel customers.  We seek to add value to our customers’ sales, marketing and support initiatives through the provision of extensive training, customized go-to-market campaigns, product positioning, marketing materials, competitive analysis and product support infrastructure.  We maintain 13 Experience Centers worldwide, which allow our channel customers to demonstrate to enterprise users the performance and benefits of storage deployments incorporating our products.  We plan to open additional centers to reach a broader customer base in the future.

          - Promoting our brand.  We believe that a strong association of our brand with innovation and integrity is valuable in achieving increased scale, market leadership and OEM acceptance within our industry.  Furthermore, we believe that brand recognition and reputation will become more important as OEMs increasingly outsource their storage system offerings and their customers focus on the performance and reliability of the storage systems or sub-assemblies integrated into OEM storage solutions.  We intend to continue to promote our brand and build brand equity to establish and bolster our position in the disk storage systems and related storage management software markets. 

Technology, Products and Services

ASIC Technology

          We have been continuously supplying ASIC products for over 20 years.  We leverage our system level expertise and technology providing silicon solutions primarily in communications, consumer and storage markets worldwide.

          Our CoreWare design methodology offers a comprehensive design approach for creating a system-on-a-chip efficiently, predictably and rapidly. Our CoreWare libraries include high-level intellectual property building blocks created around industry standards. Our CoreWare cells are connected electronically with other memory and logic elements to form an entire system on a single chip.

          Our continued emphasis on cell-based product lines reflects the market preference for use of this methodology to develop advanced integrated circuits.  Customers obtain greater flexibility in the design of system-level products using our cell-based technology than they do with other technologies.

          We have expanded our technology product offerings to include the RapidChip product in addition to our cell-based product lines.  Our new RapidChip products address a growing market need for a flexible, cost-effective and fast time-to-market solution with performance comparable to cell-based ASICs and at a cost significantly lower than FPGAs.  RapidChip is an innovative semiconductor platform set to reshape the way complex chips are designed and manufactured.  A key feature of RapidChip is the customer-friendly interface that dramatically simplifies the underlying complexity of the design tools and flows associated

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with system-on-a-chip design.  Rule sets automatically manage architectural design, verification and physical design.  As a result, design schedules for high-performance chips can be more predictable.

          LSI Logic works with customers to pre-define RapidSlices^TM applicable to the communications, consumer products, storage market areas and other markets to provide the basis for rapid personalization of the RapidChip to help meet the customer product objectives.  A slice is a pre-manufactured chip in which all silicon-based layers have been built, leaving the top metal layers to be completed with the customer’s unique intellectual property. 

          We shipped our first RapidChip platform products in the fourth quarter of 2003.  We have recorded numerous design wins to date with existing and new customers.  We believe the RapidChip platform product fills a growing gap between the traditional ASIC and FPGA solutions, complementing our ASIC product offerings. 

          Typically, the ASIC design process involves participation by both LSI Logic and customer engineers.  We engage our customers early in their new system product development process and accept large design assignments where we share development costs with the customer. We provide advice on the product design strategies to optimize product performance and suitability for the targeted application. In addition, our capabilities include support in the areas of architecture and system-level design simulation, verification and synthesis used in the development of complex integrated circuits. 

          Our software design tool environment supports and automatically performs key elements of the design process from circuit concept to physical layout of the circuit design. The design tool environment features a combination of internally developed proprietary software and third-party tools that are highly integrated with our manufacturing process requirements. The design environment includes expanded interface capabilities with a range of third-party tools from leading EDA vendors and features hardware/software co-verification capability. We provide a suite of MIPS cores and ARM processors, in addition to industry-standard bus interface cores such as USB, IEEE 1394, and PCI.

          After completion of the ASIC engineering design effort, we produce and test prototype circuits for shipment to the customer. We then begin volume production of integrated circuits that have been developed through one or more of the arrangements described above in accordance with the customer’s quantity and delivery requirements.

Semiconductor Products

          In our semiconductor components business, we design, manufacture and supply ASICs, standard products, host adapter boards and RAID host adapter board software to customers competing in global communications, consumer and storage markets.

          ASICs are semiconductors that are designed for unique, customer-specified applications. Standard products are developed for market applications we define and are targeted to be sold to multiple customers.  Both ASIC and standard products are sold to customers for incorporation into system-level products and may incorporate our intellectual property building blocks. Our ASICs, RapidChip and standard products are predominantly designed and manufactured using our proprietary process technologies.

          Communications 

          LSI Logic offers highly integrated, high-performance, system-on-a-chip silicon solutions for use in the design of communications equipment.  We focus on delivering custom ASIC and RapidChip solutions to customers who develop systems for the Enterprise, Metropolitan, and Wide Area Network sectors.

          Leading edge switches and routers require multi-gigabit throughput capability.  LSI Logic’s HyperPHY® SerDes (Serializer-Deserializer) technology enables chip-to-chip and back-plane connectivity at speeds in excess of 3Gbits/second.  We also provide our customers with CoreWare

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intellectual property in support of key industry standard interconnect technologies including Rapid IO, HyperTransport, SPI-4, 5, SFI-4, 5, NPSI and 10/100/1G/10G Ethernet.

          In addition to customer logic, our solutions incorporate embedded ARM, MIPS, digital signal processors (“DSPs”) as well as memory structures and mixed-signal cores.  We provide each customer with the opportunity to deliver unique value in a custom silicon device.

          Consumer Products

          For the consumer market, we offer a broad array of products, including both standard products and custom solutions.

          •          Consumer standard products. We design, develop, manufacture and market semiconductor devices, software and reference designs for digital video and audio applications, enabling new digital video and audio applications.  We are focused on providing solutions for rapidly growing applications such as DVD players, digital set-top boxes, broadcast encoders, video editing systems, as well as emerging applications such as DVD recorders, home servers, and personal video recorders. 

          •          Consumer custom solutions.  We also offer systems-on-a-chip for consumer applications.  We focus on consumer market segments employing our intellectual property portfolio, design methodology and turn-key product offerings (including manufacturing, assembly and test) to provide a customized solution.  Our main focus is in the video game console markets. Other market opportunities include digital cameras and camcorders, portable digital audio and video, personal digital assistant multimedia products and other emerging multimedia applications where an effective standard solution is not currently available.  In addition, we provide standard products, device and applications software and reference designs for DSL modems, Home Gateways and embedded DSL applications. We are focused on the network-centric modem market for which we provide a complete reference platform. We also provide a variety of home connectivity solutions, both wired and wireless, based on this platform.

          Storage Components

          Our ASIC and standard product solutions offered to customers in worldwide storage component markets make possible data transmission and storage between a host computer and peripheral devices such as magnetic and optical disk drives, scanners, printers and disk and tape-based storage systems. We offer Fibre Channel and SCSI standard products, including host adapter ICs for motherboard and adapter applications, SCSI expander ICs, storage adapter boards and LSI’s Fusion-MPT^TM software drivers for these product families.  We are also an industry leader in the on-going development of new storage interface standards and products, including Serial-Attached SCSI (“SAS”).

          In addition, we offer the industry’s widest spectrum of direct-attach RAID solutions, spanning from integrated RAID in our Fusion-MPT based-storage IC and adapter products and our IDEal software-based RAID products to our MegaRAID® product family.  Our MegaRAID products include integrated single-chip RAID on motherboard solutions and a broad family of PCI, PCI Express and iSCSI RAID controller boards featuring ATA, Serial ATA (“SATA”) and SCSI interfaces, along with fully featured software and utilities for robust storage configuration and management. 

          We also offer solutions using our ASIC and RapidChip technology to customers who develop Fibre Channel storage area network (“SAN”) switches and host adapters, storage systems, hard disk drive and tape peripherals. Through leveraging our extensive experience in providing solutions for these applications, LSI Logic has developed a full portfolio of high-speed interface CoreWare that is employed on the ASIC or RapidChip platform providing a connection to the network, the SAN, memory and host buses. Using these pre-verified interfaces, our customers reduce development risk and achieve quicker time to market.  Our CoreWare offerings include the GigaBlaze® high performance SerDes Core supporting Fibre Channel, SATA, Gigabit Ethernet, Infiniband, SAS, serial RIO and PCI-Express industry standards and a family of high-performance Fibre Channel, RIO, PCI-E, SAS and SATA protocol controllers.

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Storage Systems Products

          We offer a broad line of open, modular storage products comprised of complete systems and sub-assemblies configured from modular components, such as our storage controller modules, disk drive enclosure modules and related management software, to address the needs of our customers.  The modularity of our products provides channel customers with the flexibility either to integrate our sub-assemblies with third-party components, such as disk drives, and software to form their own storage system products.  Our modular product approach allows channel customers to create highly customized storage systems, which can then be integrated with value-added software and services and delivered as a complete, differentiated data storage solution to enterprises.

          We design and develop storage systems, sub-assemblies and management software that operate within all major open operating systems, including Windows, UNIX and UNIX variants and Linux environments.  We test and certify our products, both independently and jointly with our customers, with those of other hardware, networking and software storage vendors to ensure a high level of interoperability and performance.  Our products are targeted at a wide variety of data storage applications, including Internet-based applications such as online transaction processing and e-commerce, data warehousing, video editing and post-production and high-performance computing.

Marketing and Distribution

Semiconductor Marketing and Distribution  

          The highly competitive semiconductor industry is characterized by rapidly changing technology, short product cycles and emerging standards. Our marketing strategy requires that we accurately forecast trends in the evolution of product and technology development. We must then act upon this knowledge in a timely manner to develop competitively priced products offering superior performance. As part of this strategy, we are active in the formulation and adoption of critical industry standards that influence the design specifications of our products. Offering products with superior price and performance characteristics is essential to satisfy the rapidly changing needs of our customers in the dynamic communications, consumer and storage markets.

          Our semiconductor products and design services are primarily sold through our network of direct sales and marketing and field engineering offices located in North America, Europe, Japan and elsewhere in Asia. Our sites are interconnected by means of advanced computer networking systems that allow for the continuous, uninterrupted exchange of information that is vital for the proper execution of our sales and marketing activities. International sales are subject to risks common to export activities, including governmental regulations, geopolitical risks, tariff increases and other trade barriers and currency fluctuations.

          We rely primarily on direct sales and marketing, but we also work with independent component and commercial distributors and manufacturers’ representatives or other channel partners in North America, Europe, Japan and elsewhere in Asia. Some of our distributors possess engineering capabilities, and design and purchase both ASICs and standard products from us for resale to their customers. Other distributors focus solely on the sale of standard products. Our agreements with distributors generally grant limited rights to return standard product inventory and we defer revenue for such inventory until the distributor sells the product to a third party.

Storage Systems Marketing and Distribution

          Our products are sold worldwide through our channel customers and, to a smaller degree, to a limited installed base of end-users.  We closely develop and manage our channel customer relationships to meet the diverse needs and requirements of enterprises.  By selling products through our channel customers, we are able to address more markets, reach a greater number of enterprises, reduce our overall sales and marketing

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expenditures and amortize our research and development costs across a larger base of product sales volumes. 

          Our marketing efforts are designed to support our channel customers with programs targeted at developing differentiated go-to-market strategies and increasing sales effectiveness.  Depending on the nature of our channel customer engagement, our marketing teams offer various levels of assistance in assessing and analyzing the competitive landscape, defining product strategy and roadmap, developing product positioning and pricing, creating product launch support materials and assisting in closing sales processes.  These marketing teams carefully coordinate joint product development and marketing efforts between our customers and us to ensure that we address and effectively target enterprise requirements.  We maintain sales and marketing organizations at our headquarters in Milpitas, and also in regional offices in Atlanta, Georgia; Dallas, Texas; Chicago, Illinois; Houston, Texas; Los Angeles, California; New York, New York; Parsippany, New Jersey; Reston, Virginia and Wichita, Kansas. We also market our products internationally in China, France, Germany, Japan and the United Kingdom.

Customers

          In 2003, Sony and IBM accounted for approximately 13% and 15% of our consolidated revenues, respectively. No other customer accounted for greater than 10% of consolidated revenues.  We have a highly concentrated customer base and we are dependent on a limited number of customers for a substantial portion of revenues as a result of our strategy to focus our marketing and selling efforts on select, large-volume customers.  The loss of any of our significant customers, any substantial decline in sales to these customers, or any significant change in the timing or volume of purchases by our customers, could result in lower revenues and could harm our business, financial condition and results of operation.

Semiconductor Customers

          We seek to leverage our expertise in the fields of communications, consumer and storage components by marketing our products and services to market leaders. Our strategic-account focus is on large, well-known companies that produce high-volume products incorporating our semiconductor products. We recognize that this strategy may result in increased dependence on a limited number of customers for a substantial portion of our revenues. It is possible that we will not achieve significant sales volumes from one or more of the customers we have selected. While this could result in lower revenues and higher unit costs owing to an under-utilization of our resources, we believe this strategy provides us with the greatest opportunity to drive further growth in sales and unit volumes.

Storage Systems Customers

          Our customers can be characterized into two major go-to-market categories:

            •  OEM Partners.  These channel customers independently resell or distribute OEM-branded or LSI Logic Storage Systems co-branded products, which may be integrated with value-added services, hardware and software and delivered as differentiated complete storage solutions to enterprises.  OEM Partners receive basic training services to enhance their abilities to sell and support our products.  After receiving our basic training services, OEM Partners independently market, sell and support our products, requiring limited ongoing product support from us.

            •  OEM+ Partners.  In addition to providing our OEM+ Partners with products and basic services as describe above, we also assist our OEM+ Partners with additional resources that may provide tailored, account-specific education, training and sales and marketing assistance, allowing our OEM+ Partners to leverage our storage products and industry expertise. 

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Manufacturing

Semiconductor Manufacturing  

          Our semiconductor manufacturing operations convert a product design from the development stages into integrated circuits.  Manufacturing begins with wafer fabrication, where the design is transferred to silicon wafers through a series of processes, including photolithography, ion implantation, deposition of numerous films and the etching of these various films and layers.  Each circuit on the wafer is tested in the wafer sort operation, the good circuits are identified and the wafer is then separated into individual die.  Each good die is then assembled into a package using different standards and advanced assembly technologies.  This package encapsulates the circuit for protection and allows for electrical connection to the printed circuit board.  The final step in the manufacturing process is final test, where the finished devices undergo stringent and comprehensive testing using computer systems. 

          The wafer fabrication operation is very complex and costly, and the industry trend has been towards outsourcing a portion of or all of this operation to silicon foundries located throughout the world.  The Company’s strategy is a combination of internal and external fabrication.  The majority of the Company’s wafers are fabricated internally in Gresham, Oregon, which is equipped to manufacture wafers utilizing 0.35-micron and smaller technologies. The factory in Gresham is ISO-9002 and ISO-14000 certified, which are important internationally recognized standards for quality and environmental stewardship. 

          We outsource additional portions of our wafer volume to a variety of wafer foundries primarily in Taiwan, Malaysia and China.  For the more advanced technologies, (0.13-micron and smaller), we have entered into joint development arrangements with foundry partners.  These agreements provide us access to leading edge technology and additional wafer capacity. 

          In November 2003, the Company sold its Tsukuba, Japan wafer fabrication facility to ROHM Company Ltd. (“Rohm”), and we now purchase wafers from Rohm as a foundry provider for products using 0.35-micron and larger technologies. 

          Our final assembly and test operations are performed by independent subcontractors in the Philippines, Malaysia, South Korea, Taiwan, Hong Kong, Thailand and China.  The Company has a long history of outsourcing these operations and offers a wide range of high performance packaging solutions for system-on-a-chip designs, including flip chip technology. 

          Development of advanced manufacturing technologies in the semiconductor industry frequently requires that critical selections be made as to those vendors from which essential equipment (including future enhancements) and after-sales services and support will be purchased. Some of our equipment selections require that we procure certain specific types of materials or components specifically designed to our specifications. Therefore, when we implement specific technology choices, we may become dependent upon certain sole-source vendors. Accordingly, our capability to switch to other technologies and vendors may be substantially restricted and a switch may involve significant expense and could delay our technology advancements and decrease manufacturing capabilities.

Storage Systems Manufacturing

          We use third-party suppliers for standard components, such as disk drives and standard computer processors, which are designed and incorporated into our products.  Additionally, we outsource the manufacturing of the majority of our product components, such as printed circuit boards, in order to take advantage of quality and cost benefits afforded by using third-party manufacturing services.  We believe that using outsourced manufacturing services allows us to focus on product development and increases operational flexibility, both in terms of adjusting manufacturing capacity in response to customer demand and rapidly introducing new products.

          The assembly of our storage system products involves integrating supplied components and manufactured sub-assemblies into final products, which are configured and rigorously tested before being delivered to our customers.  The highly modularized nature of our storage system products allows for flexible assembly and delivery models, which include build-to-order, configure-to-order, direct shipment,

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bulk shipment and local fulfillment services.  We have implemented these models in an effort to reduce requisite lead times for delivery of our products and to provide channel customers with multiple manufacturing and delivery alternatives that best complement their operations.

          - United States Assembly.  Our wholly-owned United States manufacturing facility in Wichita, Kansas, assembles and tests complete storage systems and sub-assemblies configured from modular components, such as our storage controller modules and disk drive enclosure modules.  ISO-9001 certification at our Kansas manufacturing facility has been maintained since April 1992.  This facility has been certified ISO-9001:2000 compliant as of October 2001.  Product quality is achieved through extensive employee training, exhaustive and automated testing and sample auditing.  Quality control and measurement is extended through the subcomponent supplier and component manufacturer base with continuous reporting and ongoing qualification programs.

          - European Assembly.  We outsource manufacturing in Cork, Ireland, to a Flextronics International Ltd. facility.  ISO-9001: 2000 certification at the Cork assembly facility has been maintained since December 2001.  This facility is capable of the assembly and testing of complete storage systems and sub-assemblies configured from modular components, such as our storage controller modules and disk drive enclosure modules. The site in Ireland was established to provide operational flexibility in meeting surges in demand, address growing European demand and to serve as a backup site in the event of natural or human-made disasters that could disrupt the operations of our Wichita facility.

Backlog

Semiconductor Backlog

          In the Semiconductor segment, we generally do not have long-term volume purchase contracts with our customers. Instead, customers place purchase orders that are subject to acceptance by us. The timing of the design activities for which we receive payment and the placement of orders included in our backlog at any particular time is generally within the control of the customer. For example, there could be a significant time lag between the commencement of design work and the delivery of a purchase order for the units of a developed product. Also, customers may from time to time revise delivery quantities or delivery schedules to reflect their changing needs. For these reasons, our backlog as of any particular date may not be a meaningful indicator of future annual sales.

Storage Systems Backlog

          Due to the nature of our business, we maintain relatively low levels of backlog in the Storage Systems segment.  Consequently, we believe that backlog is not a good indicator of future sales, and our quarterly revenues depend largely on orders booked and shipped in that quarter.  Because lead times for delivery of our products are relatively short, we must build in advance of orders.  This subjects us to certain risks, most notably the possibility that expected sales will not materialize, leading to excess inventory, which we may be unable to sell to our customers.

Competition  

Semiconductor Competitors

          The semiconductor industry is intensely competitive and characterized by constant technological change, rapid product obsolescence, evolving industry standards and price erosion. Many of our competitors are larger, diversified companies with substantially greater financial resources. Some of these are also customers who have internal semiconductor design and manufacturing capacity. We also compete with smaller and emerging companies whose strategy is to sell products into specialized markets or to provide a portion of the products and services that we offer.

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          Our major competitors in the Semiconductor segment include large companies such as Agere Systems, Inc., IBM Corporation, Philips Electronics, N.V., ST Microelectronics, Texas Instruments, Inc. and Toshiba Corporation.  Other competitors in strategic markets include Adaptec, Inc., Broadcom Corporation, Cirrus Logic, Inc., Marvell Technology Group, Mediatek Corp. and NEC Corporation.

     The principal competitive factors in the semiconductor industry include:

     - design capabilities;

     - differentiating product features;

     - product performance characteristics;

     - time to market;

     - price;

     - manufacturing processes; and

     - utilization of emerging industry standards.

          We believe that we presently compete favorably with respect to these factors. It is possible, however, that our competitors will develop other design solutions that could have a material adverse impact on our competitive position. Our competitors may also decide from time to time to aggressively lower prices of products that compete with us in order to sell related products or achieve strategic goals. Due to their customized nature, ASICs are not as susceptible to price fluctuations as standard products.  However, strategic pricing by competitors can place strong pricing pressure on our products in certain transactions, resulting in lower selling prices and lower gross profit margins for those transactions.

          The markets into which we sell our semiconductor products are subject to severe price competition. We expect to continue to experience declines in the selling prices of our semiconductor products over the life cycle of each product. In order to offset or partially offset declines in the selling prices of our products, we continue to reduce the costs of products through product design changes, manufacturing process changes, yield improvements and procurement of wafers from outsourced manufacturing partners. We do not believe that we can continually achieve cost reductions that fully offset the price declines of our products.  Therefore, gross profit margin percentages will generally decline for existing products over their life cycles.

          We are increasingly emphasizing our CoreWare design methodology and system-on-a-chip capability. Competitive factors that are important to the success of this strategy include:

     - selection, quantity and quality of our CoreWare library elements;

     - our ability to offer our customers system-level expertise; and

     - quality of software to support system-level integration.

          Although there are other companies that offer similar types of products and related services, we believe that we currently compete favorably with those companies. However, competition in this area is increasing, and there is no assurance that our CoreWare methodology approach and product offerings will continue to receive market acceptance. Customers in our targeted markets frequently require system-level solutions. Our ability to deliver complete solutions may also require that we succeed in obtaining licenses to necessary software and integrating this software with our semiconductors.

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Storage Systems Competitors

          The market for our storage system products is highly competitive, rapidly evolving and subject to changing technology, customer needs and new product introductions.  We compete with products from large well-capitalized storage system companies such as EMC, Hitachi Data Systems and Network Appliance, as well as with other storage system and component providers, such as Adaptec, Dot Hill, Infortrend, XIOtech, Xyratex and the internal storage divisions of existing and potential channel customers.  We also compete with internally developed products and, indirectly, through our channel customers, with third-party products being sold by major server vendors such as Dell, Hewlett-Packard and Sun Microsystems.  The competitive factors affecting the market for our storage system products include:

          •          features and functionality;

          •          product performance and price;

          •          reliability, scalability and data availability;

          •          interoperability with other networking devices;

          •          support for emerging industry and customer standards;

          •          levels of training, marketing and customer support;

          •          level of easily customizable features;

          •          quality and availability of supporting software;

          •          quality of system integration; and

          •          technical services and support.

          We believe that we compete effectively with our competitors on the basis of these factors.  Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development and customer support.  To be successful in the future, we believe that we must respond promptly and effectively to the challenges of technological change and our competitors’ innovations by continually enhancing our product offerings.  We must also continue to aggressively recruit and retain employees highly qualified and technically experienced in hardware and software development in order to achieve industry leadership in product development and support.

Patents, Trademarks and Licenses  

          We maintain a patent program, and believe that our patents and other intellectual property rights have value to our business.  We have filed a number of patent applications and currently hold more than 2,600 issued United States (“U.S.”) patents and additional issued foreign patents, expiring from 2004 to 2023, relating to certain of our products and technologies in both the Semiconductor and the Storage Systems segments. In both segments, we also maintain trademarks for certain of our products and services and claim copyright protection for certain proprietary software and documentation.  Patents, trademarks and other forms of protection for our intellectual property are important, but we believe our future success principally depends upon the technical competence and creative skills of our employees. 

          We continue to expand our portfolio of patents and trademarks. We offer a staged incentive to engineers to identify, document and submit invention disclosures. We have developed an internal review procedure to maintain a high level of disclosure quality and to establish priorities and plans for filings both in the United States and abroad. The review process is based solely on engineering and management judgment, with no assurance that a specific filing will issue or, if issued, will deliver any lasting value to us. There is no assurance that the rights granted under any patent will provide competitive advantages to us or will be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries in which our products are or may be manufactured or sold may not protect our products and intellectual property rights to the same extent as the U.S. legal system.

          As is typical in the high technology industry, from time to time, we have received communications from other parties asserting that certain of our products, processes, technologies or information infringe

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upon their patent rights, copyrights, trademark rights or other intellectual property rights. We regularly evaluate such assertions. In light of industry practice, we believe that, with respect to existing or future claims, any licenses or other rights that may be necessary can generally be obtained on commercially reasonable terms. Nevertheless, there is no assurance that licenses will be obtained on acceptable terms or that a claim will not result in litigation or other administrative proceedings.

          In the Semiconductor segment, we protect our trade secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants, and through other security measures. We have entered into certain cross-license agreements that generally provide for the non-exclusive licensing of rights to design, manufacture and sell products and, in some cases, for cross-licensing of future improvements developed by either party.

          In the Storage Systems segment, we own a portfolio of patents and patent applications concerning a variety of storage technologies. We also maintain trademarks for certain of our products and services and claim copyright protection for certain proprietary software and documentation. Similar to the Semiconductor segment, we protect our trade secrets and other proprietary information through agreements and other security measures, and have implemented internal procedures to identify patentable inventions and pursue protection in selected jurisdictions.

          Please see Item 3, Legal Proceedings for information regarding pending patent litigation against the Company.  Please also refer to the additional risk factors set forth in the Risk Factors section and Note 13 of the Notes to the Consolidated Financial Statements (“Notes”) for additional information.

Research and Development  

          Our industry is characterized by rapid changes in products, design tools and process technologies. We must continue to improve our existing products, design-tool environment and process technologies, and to develop new ones in a cost-effective manner to meet changing customer requirements and emerging industry standards. If we are not able to successfully introduce new products, design tools and process technologies or to achieve volume production of products at acceptable yields using new manufacturing processes, there could be a material adverse impact on our operating results and financial condition.

          We operate the majority of our research and development facilities in Arizona, California, Colorado, Georgia, Kansas, Maryland, Minnesota, Oregon, Texas, Washington, Canada, Germany and the United Kingdom. The following table shows our expenditures on research and development activities for each of the last three fiscal years (in thousands).

YEAR	AMOUNT		PERCENT OF REVENUE
2003	$	432,695	26%
2002	$	457,351	25%
2001	$	503,108	28%

          Research and development activities expenses primarily consist of materials expenses, salaries and related costs of employees engaged in ongoing research, design and development activities and subcontracting costs.

Working Capital

           Information regarding our working capital practices is incorporated herein by reference from Item 7 of Part II hereof under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Capital Resources and Liquidity.”

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Financial Information about Segments and Geographic Areas

          This information is included in Note 12 (“Segment and Geographic Information”) of the Notes, which information is incorporated herein by reference from Item 8 of Part II.

          For a discussion of various risks attendant to foreign operations, see (1) “Risk Factors” in this Item 1, in particular “We are exposed to fluctuations in foreign currency exchange rates,” “We procure parts and raw materials from limited domestic and foreign sources,” and “Our global operations expose the Company to numerous international business risks,” and (2) the section in Item 7A of Part II entitled “Foreign Currency Exchange Risk.”  This information is incorporated herein by reference.

Environmental Regulation

          Federal, state and local regulations, in addition to those of other nations, impose various environmental controls on the use and discharge of certain chemicals and gases used in semiconductor and storage product processing. Our facilities have been designed to comply with these regulations through the implementation of environmental management systems.  We believe that our activities conform to current environmental regulations. However, increasing public attention has been focused on the environmental impact of electronics and semiconductor manufacturing operations. While to date we have not experienced any material adverse impact on our business from environmental regulations, we cannot provide assurance that such regulations will not be amended so as to impose expensive obligations on us in the future. In addition, violations of environmental regulations or impermissible discharges of hazardous substances could result in the necessity for the following actions:

- additional capital improvements to comply with such regulations or to restrict discharges;

- liability to our employees and/or third parties; and/or

- business interruptions as a consequence of permit suspensions or revocations or as a consequence of the granting of injunctions requested by governmental agencies or private parties.

Employees

          As of December 31, 2003, we had 4,722 full-time employees, of which 905 were employees of our Storage Systems segment.

          In February 2003, the Company downsized operations, which resulted in the reduction in work force of 210 employees.  In April 2003, in an effort to streamline operations and better align operating expenses with projected revenues, the Company announced a restructuring of our operations that included, among other things, the reduction in work force of 325 employees. In September 2003, the Company decided to discontinue certain development programs and to refocus sales and marketing efforts for certain product lines in the Semiconductor segment, which caused the reduction in work force by 97 employees primarily involved in research and development. In November 2003, we sold our Tsukuba, Japan manufacturing facility to Rohm Company Ltd.  As a result of this sale, the Company’s work force was reduced by 169 employees. 

          Our future success depends upon the continued service of our key technical and management personnel and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and the development of new products and processes. We currently have favorable employee relations, but the competition for technical personnel is intense, and the loss of key employees or the inability to hire such employees when needed could have a material adverse impact on our business and financial condition.

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Seasonality

          The Company’s business is largely focused on the information technology and consumer products markets.  Due to seasonality in these markets, the Company typically expects to see stronger growth in the last two quarters of the year. 

RISK FACTORS

          Keep these risk factors in mind when you read “forward-looking” statements elsewhere in this Form 10-K and in the documents incorporated herein by reference. These are statements that relate to our expectations for future events and time periods. Generally, the words, “anticipate,” “expect,” “intend” and similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements.

          A general economic weakness may further reduce our revenues.  The semiconductor industry is cyclical in nature and is characterized by wide fluctuations in product supply and demand. Since 2001, our financial condition and results of operations have been significantly adversely affected by the weakness in the U.S. economy. While we are unable to quantify the effect that the weakened U.S. economy has had on our financial condition and results of operations, we note, for example, that our revenue declined from approximately $2.7 billion in 2000 to approximately $1.8 billion in 2001, and from approximately $1.8 billion in 2002 to approximately $1.7 billion in 2003. In addition, we had net income of approximately $237 million in 2000 compared with net loss of approximately $992 million in 2001, and our net loss increased from approximately $292 million in 2002 to approximately $309 million in 2003. Our results of operations are becoming increasingly dependent on the global economy. Any geopolitical factors such as additional terrorist activities, armed conflict or global health conditions may adversely affect the global economy, which may affect our recovery in 2004 and adversely impact our operating results and financial condition. In addition, goodwill and other long-lived assets could be impacted by a further decline in revenues because an impairment is measured based upon estimates of future cash flows. These estimates include assumptions about future conditions within our company and industry.

          LSI Logic Storage Systems, Inc., which consists of our Storage Systems segment, represents a significant portion of our business, and an initial public offering, sale or spin-off of the Storage Systems segment, may cause our operating results to suffer and may cause net revenues and income to decline.

          LSI Logic Storage Systems, Inc. represents a significant portion of our business, and it is currently reported as a separate segment in our consolidated financial statements.  For the fiscal years ended 2003, 2002 and 2001, the Storage Systems segment represented 25%, 18% and 12% of our revenues, respectively.  In addition, the Storage Systems segment has recently been profitable, while the Semiconductor segment has not.  For the year ended 2003, the Storage Systems segment accounted for an income from operations of $23 million, in contrast to a loss from operations of $296 million for the Semiconductor segment. 

          If we engage in another transaction that results in Storage Systems no longer being a subsidiary of the Company, the Storage Systems segment’s financial results, including its net revenues and net income, will no longer be included in the Company’s consolidated financial statements.  Consequently, our financial results may be harmed as a result of a spin-off of the currently-profitable Storage Systems business, which may cause our stock price to decline.  Accordingly, the historical consolidated financial information for the Company may not necessarily reflect the financial position, results of operations and cash flows after Storage Systems ceases to be a subsidiary.  In addition, after the possible spin-off, each company would be more vulnerable to the cyclical nature of each of their respective industries as a result of their focus on only one industry segment.

          The separation and possible IPO, sale or spin-off of LSI Logic Storage System, Inc., from the Company is a substantial undertaking that may disrupt the Company’s ongoing business and may increase expenses, which may affect the Company’s results of operations or financial condition.

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          The planning and implementation of the separation of LSI Logic Storage Systems from the Company, and the possible initial public offering of the subsidiary’s common stock to the public and the potential and spin-off of the subsidiary to the Company’s stockholders will require the substantial dedication of management resources.  Furthermore, we expect to incur significant expenses in future periods related to the separation. We have not yet made any adjustments to our historical financial information to reflect the significant changes that may occur in our cost structure, funding and operations as a result of the separation.  In addition, the efforts required to separate LSI Logic Storage Systems from us may disrupt our ongoing business activities, may result in employee distraction and may harm LSI Logic Storage Systems’ and our ability to attract, retain and motivate key employees.  If any of the foregoing occurs, our results of operations or financial condition would suffer.

           We operate in highly competitive markets. The Semiconductor and Storage Systems segments in which we conduct business are characterized by rapid technological change, short product cycles and evolving industry standards. We believe our future success depends, in part, on our ability to improve on existing technologies and to develop and implement new ones in order to continue to reduce semiconductor chip size and improve product performance and manufacturing yields. We must also be able to adopt and implement emerging industry standards in a timely manner and to adapt products and processes to technological changes. If we are not able to implement new process technologies successfully or to achieve volume production of new products at acceptable yields, our operating results and financial condition may be adversely impacted. 

          Our competitors include many large domestic and foreign companies that have substantially greater financial, technical and management resources than we do. Several major diversified electronics companies offer ASIC products and/or other standard products that are competitive with our product lines. Other competitors are specialized, rapidly growing companies that sell products into the same markets that we target. Some of our large customers may develop internal design and production capabilities to manufacture their own products, thereby displacing our products. There is no assurance that the price and performance of our products will be superior relative to the products of our competitors. As a result, we may experience a loss of competitive position that could result in lower prices, fewer customer orders, reduced revenues, reduced gross profit margins and loss of market share.

          Our new products may not achieve market acceptance.  We introduce many new products each year.  We must continue to develop and introduce new products that compete effectively on the basis of price and performance and that satisfy customer requirements. We continue to emphasize engineering development and acquisition of CoreWare building blocks and integration of our CoreWare libraries into our design capabilities. Our cores and standard products are intended to be based upon industry standard functions, interfaces and protocols so that they are useful in a wide variety of systems applications. Development of new products and cores often requires long-term forecasting of market trends, development and implementation of new or changing technologies and a substantial capital commitment. We cannot provide assurance that the cores or standard products that we select for investment of our financial and engineering resources will be developed or acquired in a timely manner or will enjoy market acceptance.

          We operate highly complex and costly manufacturing facilities.  Our wafer fabrication site located in Gresham, Oregon is a highly complex, state-of-the-art facility.  In addition, we own our Storage Systems manufacturing facility in Wichita, Kansas.  The manufacture and introduction of our products is a complicated process. We continually strive to implement the latest process technologies and manufacture products in a clean and tightly controlled environment.  We confront challenges in the manufacturing process that require us to:

- maintain a competitive manufacturing cost structure;

- implement the latest process technologies required to manufacture new products;

- exercise stringent quality control measures to ensure high yields;

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- effectively manage the subcontractors engaged in the wafer fabrication, test and assembly of products; and

- update equipment and facilities as required for leading edge production capabilities.

          We outsource a substantial portion of wafers manufactured.  The Company has consolidated its internal semiconductor manufacturing in Gresham, Oregon. The Company has developed outsourcing arrangements for the manufacture of some of its products based on process technology that is unique to the supplier.  There is no assurance that the third party manufacturer will be able to produce and deliver wafers that meet the Company’s specifications or that it will be able to provide successfully the process technology it has committed.  If the third party is not able to deliver products and process technology on a timely and reliable basis, the Company’s results of operations could be adversely affected. 

          We have significant capital requirements to maintain and grow our business. We continue to make significant investments in our facilities and capital equipment, and, as a result, our fixed costs for manufacturing remain high. We also seek to obtain access to advanced manufacturing capacities through strategic supplier alliances with wafer foundries.  In general, we seek to optimally allocate the manufacture of our products between our facilities and those of our foundry suppliers. Nonetheless, a high level of capital expenditures in our facilities results in relatively high fixed costs. If demand for our products does not absorb the available capacity, the fixed costs and operating expenses related to our production capacity could have a material adverse impact on our operating results and financial condition.

          We finance our capital expenditure needs from operating cash flows, bank financing and capital market financing.  As of December 31, 2003, we had convertible notes outstanding of approximately $840 million.  Also as of December 31, 2003, we have two operating leases financed by several commercial banks.  We may need to seek additional equity or debt financing from time to time and cannot be certain that additional financing will be available on favorable terms.  Moreover, any future equity or equity-linked financing may dilute the equity ownership of existing stockholders.

          We are exposed to fluctuations in foreign currency exchange rates.  We have some exposure to fluctuations in foreign currency exchange rates.  We have international subsidiaries and distributors that operate and sell our products globally. We routinely hedge these exposures in an effort to minimize the impact of currency fluctuations. However, we may still be adversely affected by changes in foreign currency exchange rates or declining economic conditions in these countries.

          We procure parts and raw materials from limited domestic and foreign sources. We do not maintain an extensive inventory of parts and materials for manufacturing. We purchase a portion of our requirements for parts and raw materials from a limited number of sources, primarily from suppliers in Japan and their U.S. subsidiaries, and we obtain other material inputs on a local basis.  There is no assurance that, if we have difficulty in obtaining parts or materials in the future, alternative suppliers will be available, or that these suppliers will provide parts and materials in a timely manner or on favorable terms. As a result, we may be adversely affected by delays in product shipments. If we cannot obtain adequate materials for manufacture of our products, there could be a material adverse impact on our operating results and financial condition.

          We are dependent on a limited number of customers. We have a highly concentrated customer base and we are increasingly dependent on a limited number of customers for a substantial portion of revenues as a result of our strategy to focus our marketing and selling efforts on select, large-volume customers. Sony and IBM represented 13% and 15%, respectively, of our total consolidated revenues for the year ended December 31, 2003.

          Our operating results and financial condition could be significantly affected if:

- we do not win new product designs from major existing customers;

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- major customers reduce or cancel their existing business with us;

- major customers make significant changes in scheduled deliveries; or

- there are declines in the prices of products that we sell to these customers.

          We utilize indirect channels of distribution over which we have limited control. We derive a material percentage of product revenues from independent reseller and distributor channels. Our financial results could be adversely affected if our relationship with these resellers or distributors were to deteriorate or if the financial condition of these resellers or distributors were to decline. Given the current economic environment, the risk of distributors going out of business is significantly increased.  In addition, as our business grows, we may have an increased reliance on indirect channels of distribution. There can be no assurance that we 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 our visibility with respect to future business, thereby making it more difficult to accurately forecast orders.

          Our operations are affected by cyclical fluctuations. The Semiconductor and Storage Systems segments in which we compete are subject to cyclical fluctuations in demand.  The Semiconductor industry has in the past experienced periods of rapid expansion of production capacity followed by periods of significant downturn. Even when the demand for our products remains constant, the availability of additional excess production capacity in the industry creates competitive pressure that can degrade pricing levels, which can reduce revenues. Furthermore, customers who benefit from shorter lead times may defer some purchases to future periods, which could affect our demand and revenues in the short term. As a result, we may experience downturns or fluctuations in demand in the future and experience adverse effects on our operating results and financial condition.

          We engage in acquisitions and alliances giving rise to economic and technological risks.  We are continually exploring strategic acquisitions that build upon our existing library of intellectual property, human capital and engineering talent, and increase our leadership position in the markets where we operate.  We did not complete any material acquisitions or alliances in 2003.  We completed two acquisitions in 2002 and two acquisitions in 2001.  Mergers and acquisitions of high-technology companies bear inherent risks. No assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results or financial condition.  We must manage any growth effectively.  Failure to manage growth effectively and to integrate acquisitions could adversely affect our operating results and financial condition.

          In addition, we intend to continue to make investments in companies, products and technologies through strategic alliances. Investment activities often involve risks, including the need to acquire timely access to needed capital for investments related to alliances and to invest in companies and technologies that contribute to the growth of our business.

          The price of our securities may be subject to wide fluctuations. Our stock has experienced substantial price volatility, particularly as a result of quarterly variations in results, the published expectations of analysts and announcements by our competitors and us. 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 our securities may also be affected by general global, economic and market conditions. While we cannot predict the individual effect that these and other factors may have on the price of our securities, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time.  These fluctuations in our stock price also impact the price of our outstanding convertible securities and the likelihood of the convertible securities being converted into cash or equity.  If our stock price is below the conversion price of our convertible bonds on the date of maturity, they may not convert into equity and we may be required to redeem the convertible securities for cash.  However, in the event they do not convert to equity, we believe that our current cash position and expected future operating cash flows will be adequate to meet these obligations as they mature.

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          We may rely on capital and bank markets to provide liquidity.  In order to finance strategic acquisitions, capital assets needed in our manufacturing facilities and other general corporate needs, we may rely on capital and bank markets to provide liquidity. Historically, we have been able to access capital and bank markets, but this does not necessarily guarantee that we will be able to access these markets in the future or at terms that are acceptable to us. The availability of capital in these markets is affected by several factors, including geopolitical risk, the interest rate environment and the condition of the economy as a whole. In addition, our own operating performance, capital structure and expected future performance impact our ability to raise capital.  We believe that our current cash, cash equivalents, short-term investments and future cash provided by operations will be sufficient to fund our needs in the foreseeable future.  This includes repaying our existing convertible debt when due. However, if our operating performance falls below expectations, we may need additional funds.

          We design and develop highly complex cell-based ASICs.  As technology advances to 0.13 micron and smaller geometries, there are increases in the complexity, time and expense associated with the design, development and manufacture of ASICs. We must incur substantial research and development costs to confirm the technical feasibility and commercial viability of any ASIC products that in the end may not be successful.  Therefore, the Company cannot guarantee that any new ASIC products will result in market acceptance.

          Our global operations expose the Company to numerous international business risks. We have substantial business activities in Asia and Europe. Both manufacturing and sales of our products may be adversely impacted by changes in political and economic conditions abroad. A change in the current tax laws, tariff structures, export laws, regulatory requirements or trade policies in either the United States or foreign countries could adversely impact our ability to manufacture or sell our products in foreign markets. Moreover, a significant decrease in sales by our customers to end users in either Asia or Europe could result in a decline in orders.

          We subcontract wafer manufacturing, test and assembly functions to independent companies located in Asia. A reduction in the number or capacity of qualified subcontractors or a substantial increase in pricing could cause longer lead times, delays in the delivery of products to customers or increased costs.

          The high technology industry in which we operate is prone to intellectual property litigation. Our success is dependent in part on our technology and other proprietary rights, and we believe that there is value in the protection afforded by our patents, patent applications and trademarks. The Company has a program whereby it actively protects its intellectual property by acquiring patent and other intellectual property rights.  However, the industry is characterized by rapidly changing technology and our future success depends primarily on the technical competence and creative skills of our personnel. 

          As is typical in the high technology industry, from time to time we have received communications from other parties asserting that certain of our products, processes, technologies or information infringe upon their patent rights, copyrights, trademark rights or other intellectual property rights. We regularly evaluate such assertions. In light of industry practice, we believe, with respect to existing or future claims that any licenses or other rights that may be necessary can generally be obtained on commercially reasonable terms. Nevertheless, there is no assurance that licenses will be obtained on acceptable terms or that a claim will not result in litigation or other administrative proceedings.  Resolution of whether the Company’s product or intellectual property has infringed on valid rights held by others could have a material adverse effect on the Company’s financial position or results of operations and may require material changes in production processes and products.

          The Company is currently involved in several patent litigation matters.  See “Legal Matters” in Note 13 (“Commitments and Contingencies”) of the Notes.

          Our manufacturing facilities may not achieve desired margins.  Anticipated production rates of our Gresham manufacturing facility depend upon the reliable operation and effective integration of a variety of hardware and software components. There is no assurance that all of these components will be fully

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functional or successfully integrated on time or that the facility will achieve the forecasted yield targets. The capital expenditures required to bring the facility to full operating capacity may be greater than we anticipate and result in lower margins.

          Our manufacturing facilities are subject to disruption.  Operations at any of our primary manufacturing facilities, or at any of our wafer fabrication, test and assembly subcontractors, may be disrupted for reasons beyond our control, including work stoppages, fire, earthquake, tornado, floods or other natural disasters, which could have a material adverse effect on the Company’s financial position or results of operation.

          We must attract and retain key employees in a highly competitive environment. Our employees are vital to our success and our key management, engineering and other employees are difficult to replace. We do not generally have employment contracts with our key employees.  Despite the economic slowdown of the last few years, competition for certain key technical and engineering personnel remains intense.  Our continued growth and future operating results will depend upon our ability to attract, hire and retain significant numbers of qualified employees.

          Item 2.  Properties

          The Company’s 594,000 square foot Milpitas, California facilities are leased and contain the Company’s corporate executive headquarters, administration and engineering offices.  Storage Systems shares 15,000 square feet of the Milpitas, facility with the Company.  The Company maintains 101,000 square feet of leased facilities in Fremont, California, housing engineering offices, logistics and warehouses and 95,800 square feet of leased facilities in San Jose, California, housing engineering offices (of which the Company subleases 39,000 square feet).

          The Company owns the land and buildings housing its 588,000 square foot manufacturing facilities for the Semiconductor segment in Gresham, Oregon.  The Company also owns the land and buildings housing sales and engineering offices in Fort Collins and Colorado Springs, Colorado, and owns the logistics center in Tsuen Wan, Hong Kong.  The Company sold the Tsukuba, Japan manufacturing facility in November 2003.  The Company closed the Colorado Springs semiconductor manufacturing facility in October 2001 and is in the process of disposing and selling its assets.

          In the Storage Systems segment, the Company owns the manufacturing and executive offices site in Wichita, Kansas, which includes 330,000 square feet of space, and in a leased facility in Boulder, Colorado, which consists of 43,725 square feet.  The Company also leases 15,000 square feet of additional office facilities in Wichita.

          In addition, the Company maintains leased sales and engineering offices, regional office space for its field sales, marketing and design center offices for both its Semiconductor segment and its Storage Systems segment at various locations in North America, Europe, Japan and elsewhere in Asia. The Company also maintains leased executive offices, design centers and sales offices in Bracknell, United Kingdom and Tokyo, Japan.  Leased facilities described above are subject to operating leases that expire in 2004 through 2011. (See Note 13 of the Notes.)

          We believe that our existing facilities and equipment are well maintained, in good operating condition, suitable for our operations and are adequate to meet our current requirements.

Item 3.  Legal Proceedings

    This information is included in Note 13 (“Commitments and Contingencies”) of the Notes, which information is incorporated herein by reference from Item 8 of Part II hereof.

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Item 4.  Submission of Matters to a Vote of Security Holders

     Not applicable.

Executive Officers of the Company

    The executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, are as follows.  Their ages are as of December 31, 2003.

Name	Age	Position
Wilfred J. Corrigan	65	Chairman and Chief Executive Officer
John D’Errico	60	Executive Vice President, Storage and Communications Components
Donald Esses	52	Executive Vice President, Worldwide Operations
Thomas Georgens	44	Executive Vice President, LSI Logic Storage Systems, Inc.
Jon R. Gibson	56	Vice President, Human Resources
Christopher L. Hamlin	60	Senior Vice President, Chief Technology Officer
Bryon Look	49	Executive Vice President and Chief Financial Officer
W. Richard Marz	60	Executive Vice President, Worldwide Strategic Marketing
David G. Pursel	58	Vice President, General Counsel and Corporate Secretary
Giuseppe Staffaroni	52	Executive Vice President, Consumer Products
Frank A. Tornaghi	49	Executive Vice President, Worldwide Sales
Joseph M. Zelayeta	57	Executive Vice President, ASIC Technology & Methodology

          Mr. Corrigan is the principal founder of the Company and has served as its Chairman and Chief Executive Officer since its organization in January 1981.  Prior to founding the Company, he was President, Chairman and Chief Executive Officer of Fairchild Camera and Instrument Corporation.  Mr. Corrigan is also a member of the Board of Directors of FEI Company, a semiconductor equipment and solutions provider.

          John D’Errico was named Executive Vice President, Storage and Communications Components in January 2003.  He served as Executive Vice President Storage Components from August 2000 to January 2003 and as Executive Vice President, Storage Components and Colorado Operations from August 1998 to August 2000.  Mr. D’Errico joined us in 1984 and has held various senior management and executive positions at our manufacturing facilities in the U.S. and Japan. 

          Donald Esses was named Executive Vice President, Worldwide Operations in December 2003.  He joined the Company in 1983 and has held management positions in process and product engineering.  From July 1994 to November 2000, Mr. Esses held the position of Vice President, U.S. Manufacturing.  From November 2000 to December 2003, he was Vice President of Supply Chain Management. 

          Thomas Georgens has served as Executive Vice President of LSI Logic Storage Systems since November 2000.  From August 1998, upon the acquisition of Symbios, Inc., by the Company, to November 2000, Mr. Georgens served as the Company’s Senior Vice President and General Manager, Storage Systems. 

          Jon Gibson was named Vice President, Human Resources in November 2001.  He joined LSI in September 1984 as Employee Relations Manager.  Mr. Gibson was named Director of Human Resources in October 1987.  From March 1999 until November 2001, Mr. Gibson served as Senior Director of Human Resources. 

          Dr. Christopher Hamlin joined the Company in May 2000, as Senior Vice President and Chief Technology Officer. He served as Chief Technology Officer of Ridge Technologies, a data storage company, from September 1997 until that company was acquired by Adaptec Inc., a data storage company,

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in May 1998.  From December 1998 until he joined LSI Logic, Dr. Hamlin was Chief Technology Officer and Vice President of New Technologies for Western Digital Corporation, a data storage company. 

          Bryon Look was named Executive Vice President and Chief Financial Officer in November 2000.  Mr. Look joined the Company in March 1997 as Vice President, Corporate Development and Strategic Planning.  Prior to joining the Company, he was manager of business development at Hewlett-Packard’s corporate development department.  During a 21-year career at Hewlett-Packard, Mr. Look held a variety of management positions in finance and research and development.

          W. Richard Marz was named Executive Vice President, Strategic Worldwide Marketing in December 2003.  He joined the Company in September 1995 as Senior Vice President, North American Marketing and Sales, and was named Executive Vice President, Geographic Markets in May 1996, a position he held until July 2001. He served as Executive Vice President, ASIC Technology from July 2001 to January 2002 and served as Executive Vice President, Communications and ASIC Technology from January 2003 to December 2003.  Mr. Marz is a member of the board of directors of Perceptron, Inc., a measurement and control systems company, where he also serves on the nominating and compensation committees.

          David G. Pursel serves as Vice President, General Counsel and Corporate Secretary.  He was named to this position in June 2000.  Mr. Pursel joined LSI Logic in February 1996 as Associate General Counsel, Chief Intellectual Property Counsel and Assistant Secretary. 

          Giuseppe Staffaroni was named Executive Vice President, Consumer Products in January 2002.  He served as Director of the Wireless business unit from November 1997 to October 1999. Mr. Staffaroni served as Vice President and General Manager of the Broadband Communications Group from October 1999 to November 2000, and he served as Executive Vice President, Broadband Communications Group from November 2000 to February 2002. Mr. Staffaroni joined LSI Logic in 1990 as Director of Engineering in the Company’s Milan, Italy, design center.

          Frank A. Tornaghi was named Executive Vice President, Worldwide Sales in July 2001.  Since joining the Company in 1984, Mr. Tornaghi has held several management positions in sales at LSI Logic and was named a vice president in 1993.  He served as Vice President, North America Sales, from May 1993 to July 2001.

          Joseph M. Zelayeta was named Executive Vice President ASIC Technology and Methodology in December 2003.  He served as Executive Vice President, Worldwide Operations from September 1997 to December 2003.  Mr. Zelayeta joined LSI Logic in 1981 and has held various management positions with the Company, including Senior Vice President of U.S. Manufacturing and General Manager Gresham Operations, Vice President of Research and Development and Vice President of U.S. Operations.

          There are no family relationships between any executive officers and directors.

Corporate Governance

          The Board of Directors (the “Board”) is the ultimate decision-making body of the Company except with respect to those matters reserved for decision of stockholders. The Board is responsible for selection of the executive management team, providing oversight responsibility and direction to management, and evaluating the performance of this team on behalf of the stockholders. Responsibility for day-to-day management of operations is delegated to the executive management team.  The Board has adopted Corporate Governance Guidelines to assist it in the exercise of its responsibilities.  These Guidelines are available on the Company’s website at www.lsilogic.com.

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          The Board is composed of a majority of independent directors.  Currently, seven out of eight directors are independent, as defined by the New York Stock Exchange Listing Standards.  The Board has a lead director.  The Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.  The Audit, Compensation and Nominating and Corporate Governance Committees consist solely of non-employee, independent directors.  All committees operate under charters approved by the Board.  These charters are available on the Company’s website at www.lsilogic.com.  The Board of Directors appoints the members and chairs of the committees annually. 

          The Audit Committee reviews the Company’s accounting policies and practices, internal controls, financial reporting practices, contingent risks and risk management strategies and plans.  The Audit Committee selects and retains the Company’s independent accountants to serve the following year to examine the Company’s accounts, reviews the independence of the independent accountants as a factor in making these determinations and pre-approves all audit and non-audit services performed by the independent accountants.  The Audit Committee meets alone with the Company’s management, independent accountants and the director of the Company’s Internal Audit Department, and grants them free access to the Audit Committee at any time.  All members of the Audit Committee are financially literate, as such qualification is interpreted by the Company’s Board in its business judgment.  In addition, two members  of the Committee are financial experts. 

          At least annually, the Compensation Committee reviews the goals of the Company’s executive officer and director compensation plans, and amends or recommends that the Board amend these goals if the Committee deems it appropriate.  The Compensation Committee evaluates and reviews, at least annually, the performance of the Chairman and Chief Executive Officer and other executive officers in light of those goals.  Based upon such an evaluation, the Compensation Committee establishes the Company’s overall executive compensation strategy, and, in particular, determines the compensation structure for the Chairman and Chief Executive Officer and other executive officers of the Company.  The Committee approves any incentive, bonus or similar plans of the Company based upon the recommendations submitted by the Chairman and Chief Executive Officer and the Vice President of Human Resources.  The Committee reviews and approves the Company’s stock option and other stock incentive award programs and reviews, as needed (with an independent consultant), executive compensation matters and significant issues that relate to executive compensation. 

          The Nominating and Corporate Governance Committee provides assistance to the Board in recommending to the Board individuals qualified to serve as directors of the Company and on committees of the Board, recommending to the Board the director nominees for the next annual meeting of stockholders, advising the Board with respect to Board composition, procedures and whether to form or dissolve committees, advising the Board with respect to the corporate governance principles applicable to the Company and developing criteria for oversight of the evaluation of the Board and management.  The Nominating and Corporate Governance Committee will consider shareholder recommendations for candidates to the Company’s Board. 

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PART II

Item 5.  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

          Our stock trades on the New York Stock Exchange under the symbol “LSI.” The high and low closing sales prices for the stock for each full quarterly period within the two most recent fiscal years as reported on the Exchange are:

	2003	2002
	High—Low	High—Low
First Quarter	$6.32 — 3.97	$18.58 — 13.95
Second Quarter	$7.74 — 4.44	$  17.35 — 7.89
Third Quarter	$11.96 — 7.08	$   8.75  — 6.23
Fourth Quarter	$10.14 — 8.30	$   8.54  — 4.14
Year	$ 11.96 —3.97	$  18.58 — 4.14

          At March 11, 2004, there were 3,842 owners of record of our common stock.

          We have never paid cash dividends on our common stock. It is presently our policy to reinvest our earnings, and we do not anticipate paying any cash dividends to stockholders in the foreseeable future.

          The table set forth in “Security Ownership” in the Company’s Proxy Statement is herby incorporated by reference into this Part II, Item 5.

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Item 6.  Selected Financial Data

Five-Year Consolidated Summary

	Year Ended December 31,
	2003			2002			2001			2000			1999
	(In thousands, except per share amounts)
Revenues	$	1,693,070		$	1,816,938		$	1,784,923		$	2,737,667		$	2,089,444
Cost of revenues		1,015,865			1,122,696			1,160,432			1,557,232			1,286,844
Additional excess inventory and related charges		—			45,526			210,564			11,100			—
Total cost of revenues		1,015,865			1,168,222			1,370,996			1,568,332			1,286,844
Gross profit		677,205			648,716			413,927			1,169,335			802,600
Research and development		432,695			457,351			503,108			378,936			297,554
Selling, general and administrative		234,156			230,202			307,310			306,962			257,712
Acquired in-process research and development		—			2,920			96,600			77,438			4,600
Restructuring of operations and other items, net		180,597			67,136			219,639			2,781			(2,063	)
Amortization of non-cash deferred stock compensation		26,021			77,303			104,627			41,113			—
Amortization of intangibles		76,352			78,617			188,251			72,648			46,625
(Loss)/ income from operations		(272,616	)		(264,813	)		(1,005,608	)		289,457			198,172
Interest expense		(30,703	)		(51,977	)		(44,578	)		(41,573	)		(39,988	)
Interest income and other, net		18,933			26,386			14,529			51,766			17,640
Gain on sale of equity securities		—			—			5,302			80,100			48,393
(Loss)/ income before income taxes, minority interest and cumulative effect of change in accounting principle		(284,386	)		(290,404	)		(1,030,355	)		379,750			224,217
Provision for/ (benefit from) income taxes		24,000			1,750			(39,198	)		142,959			65,030
(Loss)/ income before minority interest and cumulative effect of change in accounting principle		(308,386	)		(292,154	)		(991,157	)		236,791			159,187
Minority interest in net income of subsidiary		161			286			798			191			239
(Loss)/ income before cumulative effect of change in accounting principle		(308,547	)		(292,440	)		(991,955	)		236,600			158,948
Cumulative effect of change in accounting principle		—			—			—			—			(91,774	)
Net (loss)/ income	$	(308,547	)	$	(292,440	)	$	(991,955	)	$	236,600		$	67,174
Basic earnings per share:
(Loss)/ income before cumulative effect of change in accounting principle	$	(0.82	)	$	(0.79	)	$	(2.84	)	$	0.76		$	0.54
Cumulative effect of change in accounting principle		—			—			—			—			(0.31	)
Net (loss)/ income per share	$	(0.82	)	$	(0.79	)	$	(2.84	)	$	0.76		$	0.23
Diluted earnings per share:
(Loss)/ income before cumulative effect of change in accounting principle	$	(0.82	)	$	(0.79	)	$	(2.84	)	$	0.70		$	0.51
Cumulative effect of change in accounting principle		—			—			—			—			(0.28	)
Net (loss)/ income per share	$	(0.82	)	$	(0.79	)	$	(2.84	)	$	0.70		$	0.23
Year-end status:
Total assets	$	3,447,901		$	4,012,736		$	4,525,077		$	4,092,762		$	3,131,031
Long-term obligations	$	1,007,079		$	1,315,557		$	1,547,197		$	970,761		$	862,762
Stockholders’ equity	$	2,042,450		$	2,300,355		$	2,479,885		$	2,498,137		$	1,855,832

          The Company’s fiscal years ended on December 31 for each of the years presented above.  During 2003, the Company recorded $181 million in charges for restructuring of operations and other items, net. (See Note 4 of the Notes.) On January 1, 2003, the Company 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.  During 2002, the Company recorded $46 million in additional excess inventory and related

26

charges and $67 million in charges for restructuring of operations and other items, net.  The Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets” on January 1, 2002, as a result of which goodwill is no longer amortized. (See Note 3 of the Notes.) During 2001, the Company recorded $211 million in additional excess inventory and related charges, a $97 million in-process research and development (“IPR&D”) charge associated with the acquisitions of C-Cube and AMI, which were effective on May 11, 2001 and August 31, 2001, respectively.  In addition, the Company recorded charges of $220 million for restructuring of operations and other items, net. (See Notes 2, 4 and 8 of the Notes.)  During 2000, the Company recorded a $77 million IPR&D charge associated with the acquisitions of ParaVoice, DataPath, IntraServer and the purchases of divisions of NeoMagic and Cacheware.  The Company began recording amortization of non-cash deferred stock compensation as a result of the adoption of FASB interpretation (“FIN”) No. 44, “Accounting for Certain Transactions Involving Stock Compensation,” which was effective for acquisitions after July 1, 2000. During 1999, the Company expensed an unamortized preproduction balance of $92 million, net of taxes, associated with the manufacturing facility in Gresham, Oregon and has presented it as a cumulative effect of a change in accounting principle in accordance with SOP No. 98-5, “Reporting on the Costs of Start-up Activities.”

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Basis of Presentation

          Our consolidated financial statements include our accounts and the accounts of all of our subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.  Where the functional currency of the Company’s foreign subsidiaries is the local currency, all assets and liabilities are translated into U.S. dollars at the current rates of exchange as of the balance sheet date and revenues and expenses are translated using weighted average rates prevailing during the period. Accounts and transactions denominated in foreign currencies have been remeasured into functional currencies before translation into U.S. dollars. Foreign currency transaction gains and losses are included as a component of interest income and other. Gains and losses from foreign currency translation are included as a separate component of comprehensive income.

          Minority interest in subsidiary represents the minority stockholders’ proportionate share of the net assets and the results of operations for one of our majority-owned Japanese subsidiaries. Sales of common stock of our subsidiary and purchases of such shares may result in changes in our proportionate share of the subsidiary’s net assets.    

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from these estimates.

          Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2003 presentation.

Overview

          In 2003, we were still recovering from the economic downturn that began in 2001.  We reported a net loss for the year ended December 31, 2003 of $308.5 million or $0.82 loss per diluted share.  During the year, we lowered our cost structure, completed the transition to a balanced manufacturing strategy and continued to invest in next-generation products.

          As part of our transition to a balanced manufacturing strategy, we signed a definitive agreement with ROHM Company Ltd. (“Rohm”), a Japanese company, to sell our wafer manufacturing facility in Tsukuba, Japan in the third quarter of 2003 and during the fourth quarter of 2003, we finalized the sale for 2.82 billion yen (approximately $25.8 million).  We also completed the consolidation of internal manufacturing at our Gresham, Oregon campus, supplemented by strategic foundry relationships.

          We shipped our first RapidChip platform ASIC products in the fourth quarter of 2003. We have now recorded platform ASIC design wins with existing and new customers in all major semiconductor geographic regions including North America, Europe, Japan and China. As the global semiconductor market gathers momentum, we anticipate an acceleration of our RapidChip design-win activity, strengthening LSI’s leadership position in the growing Platform ASIC space.

          Our long-term debt declined in 2003 from $1.2 billion as of December 31, 2002 to $0.9 billion as of December 31, 2003.  The decline was the result of the issuance of our 2003 $350 million, 4% Convertible Subordinated Notes due in 2010, and the redemption/repurchase of approximately $710 million of our 1999 and 2000 Convertible Subordinated Notes due in 2004 and 2005, respectively.

          Separation of our Storage Systems business.  On November 13, 2003, we announced our intention to separate our storage systems operations – LSI Logic Storage Systems, Inc (“Storage Systems”) and create an independent storage systems company.  We have entered into agreements to implement this separation

28

and to address various arrangements between Storage Systems and us.  A more comprehensive discussion of the separation agreements is set forth in Note 14 of the Notes.  On February 19, 2004, Storage Systems filed a Registration Statement on Form S-1 with the Securities and Exchange Commission.  If the initial public offering is completed as currently intended, we plan to receive the net cash proceeds from the offering from Storage Systems in the form of a dividend.  We may sell shares of Storage Systems’ common stock in the public market or in private transactions, which may not include the sale of a controlling interest in Storage Systems. 

          We currently intend to distribute to our stockholders, by the summer of 2005, all remaining shares of Storage Systems’ common stock held by us at such time.  We will determine the timing, structure and all terms of the distribution taking into account factors such as market conditions.  Completion of the distribution would also be contingent upon the receipt of a favorable tax ruling from the Internal Revenue Service and/or a favorable opinion from our tax advisor as to the tax-free nature of the distribution for U.S. federal income tax purposes.  We are not obligated to undertake the distribution, and the distribution may not occur by the contemplated time or at all. 

          Stock option exchange program.  On August 20, 2002, we filed with the Securities and Exchange Commission an offer to exchange stock options outstanding under the 1991 Equity Incentive Plan and the 1999 Nonstatutory Stock Option Plan for new options.  Under the exchange offer, eligible employees had the opportunity to exchange eligible stock options for the promise to grant new options under the 1999 Nonstatutory Stock Option Plan.  Our directors and executive officers were not eligible to participate in this program.  The exchange offer expired on September 18, 2002, and we accepted options to purchase an aggregate of 16,546,370 shares for exchange.  On March 20, 2003, we granted a new option that covered two shares of LSI Logic common stock for every three shares covered by an option that an employee had elected to exchange.  The exercise price per share of the new options was equal to the fair market value of our common stock on the grant date.  We granted options to purchase 10,691,139 shares at an exercise price of $5.06 per share.  The exchange program did not result in the recording of any compensation expense in the statement of operations. 

          Significant acquisitions and other major transactions.  We are continually exploring strategic acquisitions that build upon our existing library of intellectual property, human capital and engineering talent, and increase our leadership position in the markets in which we operate.  All of our acquisitions in 2002 and 2001 were accounted for as purchases and accordingly, the estimated fair value of assets acquired and liabilities assumed and the results of operations were included in our Consolidated Financial Statements as of the effective date of each acquisition through the end of the period.  The transactions are summarized below. There were no significant differences between our accounting policies and those of the companies acquired.  (See Note 2 of the Notes.)

There were no material acquisitions in 2003.

2002

          On August 29, 2002, we finalized an Asset Purchase Agreement with International Business Machines Corporation (“IBM”). Under the agreement, we acquired certain tangible and intangible assets associated with IBM’s Mylex business unit. This acquisition has enhanced product offerings in the expanding entry-level storage systems space within the Storage Systems segment and the PCI-RAID offering in the Semiconductor segment. The details of this acquisition are summarized below (in millions, except per share amounts): 

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Entity name or type of technology; Segment included in; Description of acquired business	Acquisition date	Total Purchase price		Type of Consideration	Fair Value of tangible net assets/ (liabilities) acquired		Goodwill		Current technology, trademarks and supply agreement		IPR&D		Deferred compensation
Mylex Business Unit of IBM; Storage Systems and Semiconductor segments; entry level storage systems and PCI-RAID products	August 2002		$50.5	Cash		$14.1		$20.5		$14.0		$1.9		$ -
Digital video product technologies; Semiconductor segment	November 2002		6.7	Cash		(0.2)		2.9		1.8		1.0		1.2

2001

          During 2001, we acquired C-Cube Microsystems Inc. and certain tangible and intangible assets associated with the redundant array of independent disks, or RAID, business of American Megatrends, Inc.  Both these acquisitions became a part of our Semiconductor segment (in million, except per share amounts): 

Entity name, Segment included in; Description of acquired business	Acquisition date	Total Purchase price		Type of Consideration	Fair Value of tangible net assets/ (liabilities) acquired		Goodwill		Current technology & trademarks		IPR&D		Deferred compensation
RAID Division of AMI; Semiconductor segment; Redundant Array of Independent Disks (“RAID”)	August 2001		$240.5	$224 cash 0.8 million restricted common shares		$ (1.4)		$128.9		$77.5		$19.1		$16.4
C-Cube; Semiconductor segment; Digital video products	May 2001		893.7	40.2 million shares issued at $18.73 per share, 10.6 million options assumed, 0.8 million warrants assumed		64.3		608.1		94.5		77.5		49.3

          In April 2001, we announced a co-development and foundry supply agreement with Taiwan Semiconductor Manufacturing Company Ltd. (“TSMC”). This agreement is part of our strategy to outsource a portion of our manufacturing, that is to procure a larger portion of our wafer requirements from external sources.  As a result of our joint development efforts with TSMC we anticipate being able to defer the need to expand our manufacturing capacity for the Gflx™ technology beyond the time when products designed for that technology would begin volume production. We have also completed the definition of a 90-nanometer system on a chip process platform with TSMC and its other leading edge technology customers. This platform is designed to enable an advanced capability for the deployment of our RapidChip products and high volume standard cell ASICs.  These advanced process technologies allow for greater circuit density and increased functionality on a single chip. 

          Where more than one significant factor contributed to changes in results from year to year, we have quantified such factors throughout the Management’s Discussion & Analysis where practicable and useful to the discussion.

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RESULTS OF OPERATIONS

Revenues:

	Year ended December 31,
	2003		2002		2001
	(in millions)
Semiconductor segment	$	1,269.7	$	1,481.4	$	1,573.6
Storage Systems segment		423.4		335.5		211.3
Consolidated	$	1,693.1	$	1,816.9	$	1,784.9

There were no significant inter-segment revenues during the periods presented.

2003 compared to 2002

          Total consolidated revenues for 2003 decreased $123.8 million or 7% as compared to 2002. Revenues for the Semiconductor segment decreased $211.7 million or 14% in 2003 as compared to the previous year.  The decline in revenues was primarily attributable to lower demand for our semiconductors sold into certain consumer product applications such as set-top box, DVD playback and video games. Revenues for the communications group also declined, mainly as a result of continued weak demand for semiconductors used in applications for the wide-area-network (WAN) market.  The above-noted declines in revenues were partially offset by growth in revenues from semiconductors used in DVD recorders in our consumer products group, and Ultra 320 SCSI and ASICs supplied to the disk-drive industry in our storage components group. 

          Revenues for the Storage Systems segment increased $87.9 million or 26% in 2003 from 2002.  The increase was due to a significant increase in sales to IBM, from $120.4 million in 2002 to $219.4 million in 2003. As a percentage of Storage Systems revenues, revenues from IBM increased to 52% in 2003 from 36% in 2002.  The increase in revenues from IBM was primarily due to growth in demand for our high-performance controller products and an entry-level controller product introduced during the year, together with the enclosure products that are generally sold with these controllers. In addition, this increase was due to IBM’s purchases of products added to our product line pursuant to the acquisition of IBM’s Mylex business unit in August 2002. Growth in the demand for our premium software features also contributed to an increase in revenues. The growth in revenues for 2003 over 2002 was offset in part by a decrease in aggregate revenues of $10.8 million from StorageTek and the Teradata division of NCR. As a percentage of Storage Systems revenues, sales to these two customers decreased in 2003 as compared to 2002. 

          We expect total consolidated revenues to decline in the first quarter of 2004 to within a range of $445 million to $455 million, primarily due to normal seasonality for semiconductors used in video game products within our consumer products group.

2002 compared to 2001

          Total consolidated revenues for 2002 increased $32.0 million or 2% as compared to 2001. Revenues for the Semiconductor segment decreased $92.2 million or 6% in 2002 as compared to the previous year. Communications revenues dropped significantly in 2002 due to weak demand from our telecommunications customers resulting from overcapacity in end markets.  Revenues decreased slightly in the consumer product group as revenues from set top box semiconductors weakened substantially, primarily due to competitive factors, and revenue from video game semiconductors decreased slightly compared to the prior year.  The decline in the consumer group was offset in part by increased revenues from DVD and cable modem products due to growth in those markets and the benefit of a full year of revenue from C-Cube, which became a part of our consolidated financial statements with its acquisition in May 2001. Revenues for the storage components group increased year-on-year mainly because of a full year of revenues from RAID products, which became a part of our consolidated financial statements with the acquisition of AMI’s RAID business in August 2001.

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          Revenues for the Storage Systems segment increased $124.2 million or 59% in 2002 from 2001. The increase was due to overall increased demand for modular storage products, in particular increased demand from IBM.  Revenues from IBM increased to 36% of Storage Systems revenues in 2002 from 21% of revenues in 2001. We believe the growth in revenues with IBM was primarily caused by IBM increasing its sales efforts on modular storage products, including those IBM purchases from us. Revenues in 2002 also increased due to additional revenue as a result of the acquisition of IBM’s Mylex business unit in August 2002. Our sales to StorageTek also significantly increased in 2002 as compared to 2001, which was primarily due to the consolidation of our direct sales efforts into a single master distributor agreement with StorageTek during 2002. These increases also resulted from an increase in sales to the Teradata division of NCR.

          Significant Customers.  The following table summarizes the number of our significant customers, each of whom accounted for 10% or more of our revenues, along with the percentage of revenues they individually represent on a consolidated basis and by segment:

	Year ended December 31,
	2003			2002			2001
Semiconductor segment:
Number of significant customers		1			1			1
Percentage of segment revenues		18	%		22	%		21	%
Storage Systems segment:
Number of significant customers		3			3			3
Percentage of segment revenues		52%, 14%, 11	%		36%, 20%, 15	%		21%, 21%, 13	%
Consolidated:
Number of significant customers		2			1			1
Percentage of consolidated revenues		15%, 13	%		18	%		18	%

     Revenues by geography.  The following table summarizes our revenues by geography:

	Year ended December 31,
	2003		2002		2001
	(in millions)
Revenues:
North America	$	863.6	$	905.3	$	880.8
Asia, including Japan		677.3		748.9		630.7
Europe		152.2		162.7		273.4
Total	$	1,693.1	$	1,816.9	$	1,784.9

          In 2003, revenues declined in all geographic regions as compared to 2002.  The decline in revenues in North America for 2003 is mainly due to the continued economic downturn in the United States.  The decline in revenues in Asia, including Japan, in 2003 compared to 2002 is primarily attributable to lower demand for our semiconductors used in certain consumer product applications such as DVD playback and video games.  The decline in revenues for Asia, including Japan, was partially offset by growth in revenues from semiconductors used in DVD recorders in our consumer products group and Ultra 320 SCSI and ASICs supplied to the disk-drive industry in our storage components group.

          Operating costs and expenses.  Key elements of the consolidated statements of operations for the respective segments are as follows:

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Gross profit margin:

	Year ended December 31,
	2003			2002			2001
	(in millions)
Semiconductor segment	$	518.2		$	523.4		$	351.2
Percentage of segment revenues		41	%		35	%		22	%
Storage Systems segment	$	159.0		$	125.3		$	62.7
Percentage of segment revenues		38	%		37	%		30	%
Consolidated	$	677.2		$	648.7		$	413.9
Percentage of revenues		40	%		36	%		23	%

          In September 2003, we entered into a definitive agreement to sell the Tsukuba, Japan facility to Rohm, a Japanese company.  The sale closed during November 2003 for 2.82 billion yen (approximately $25.8 million). See Note 4 of the Notes.  We have now completed the consolidation of our internal manufacturing at our Gresham, Oregon campus, supplemented by strategic foundry relationships by acquiring wafers from foundries in other locations. Utilizing a diversity of manufacturing locations allows us to better manage our manufacturing needs, including investment in and access to world-class process technology.

2003 compared to 2002

          The consolidated gross profit margin as a percentage of revenues increased to 40% in 2003 from 36% in 2002. The following factors were primarily attributable to the improvement in gross profit margins in 2003 as compared to 2002:

• Lower charges for obsolete and unmarketable inventories in 2003 as compared to 2002 in the Semiconductor segment;

• Lower manufacturing variances associated primarily with yield improvements in 2003 related to our 0.18 –micron technology;

• Lower compensation-related costs for manufacturing in the Semiconductor segment;

• Higher sales of previously reserved inventory.  In 2003, sales of previously reserved inventory improved gross profit margins by less than one percentage point as compared to sales of previously reserved inventory in 2002. The majority of this improvement in gross profit margin was in the Semiconductor segment;

• A favorable change in product mix for the Semiconductor segment during 2003; and

• A favorable change in product mix for the Storage Systems segment, offset by higher compensation related costs, due to headcount increases, and higher freight costs incurred during 2003.

          The gross profit margin as a percentage of revenues for the Semiconductor segment increased to 41% from 35%.  The gross profit margin improved in 2003 as compared to 2002, even though Semiconductor segment revenues were lower in 2003 as compared to 2002.  The following factors were primarily attributable to the improvement in the Semiconductor segment’s gross profit margins in 2003 as compared to 2002:

• Lower charges for obsolete and unmarketable inventories in 2003 as compared to 2002;

• Lower manufacturing variances associated primarily with yield improvements in 2003 related to our 0.18 –micron technology;

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• Lower compensation-related costs for manufacturing;

• A favorable change in product mix during 2003; and

• Higher sales of previously reserved inventory.  In 2003, sales of previously reserved inventory improved gross profit margins by less than one percentage point as compared to sales of previously reserved inventory in 2002.

          The gross profit margin as a percentage of revenues for the Storage Systems segment increased to 38% in 2003 from 37% in 2002. The slight increase in gross profit margin as a percentage of revenues was primarily a function of product mix.  Offsetting this increase were higher compensation-related costs for manufacturing, due to headcount increases, and higher freight costs incurred during 2003.

          We expect our consolidated gross profit margin to be in the range of 41% to 43% in the first quarter of 2004, compared to 43% for the fourth quarter of 2003. 

2002 compared to 2001

          The consolidated gross profit margin as a percentage of revenues increased to 36% in 2002 from 23% in 2001.  The following factors were primarily responsible for the improvement in consolidated gross profit margins in 2002 as compared to 2001:

• Lower additional excess inventory and related charges in both the Semiconductor and Storage Systems segments in 2002.  Such total consolidated charges in 2002 were $45.5 million, $165.1 million lower than the additional excess inventory and related charges of $210.6 million recorded in 2001;

• Lower manufacturing variances, due to improved capacity utilization for the Semiconductor segment during 2002;

• Lower compensation-related costs for manufacturing in both the Semiconductor and Storage Systems segments in 2002 as compared to 2001 due to a decrease in average headcount; and

• Increased revenues in the Storage Systems segment.

          The gross profit margin as a percentage of revenues for the Semiconductor segment increased to 35% from 22%. The following factors were primarily responsible for the improvement in gross profit margins for Semiconductor segment in 2002 as compared to 2001:

• Lower additional excess inventory and related charges of $45.5 million in 2002 as compared to $204.6 million in 2001.  The charges were primarily associated with underutilization charges related to a partial idling of our fabrication facilities due to decreased demand;

• Lower manufacturing variances, due to improved capacity utilization for the Semiconductor segment during 2002; and

• Lower compensation-related costs for manufacturing in 2002 as compared to 2001 as a result of a decrease in average manufacturing headcount.

          Gross profit margins improved, even though Semiconductor segment revenues were lower in 2002 as compared to 2001. 

          The gross profit margin as a percentage of revenues for the Storage Systems segment increased to 37% in 2002 from 30% in 2001. The following factors were primarily responsible for the improvement in gross profit margins for the Storage Systems segment in 2002 as compared to 2001:

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• Lower compensation-related costs in 2002 due to decreases in average manufacturing headcount in 2002 as compared to 2001 as a result of restructuring actions executed in 2002;

• The adverse impact in 2001 of a $6.0 million charge related to the write-down of excess inventory for certain cancelled product programs;

• Decreased amortization of capitalized software development costs as a percentage of revenues; and

• Increased revenues, resulting in lower overhead and fixed costs as a percentage of revenues.

Research and development:

	Year ended December 31,
	2003			2002			2001
	(in millions)
Semiconductor segment	$	386.9		$	421.3		$	473.1
Percentage of segment revenues		30	%		28	%		30	%
Storage Systems segment	$	45.8		$	36.1		$	30.0
Percentage of segment revenues		11	%		11	%		14	%
Consolidated	$	432.7		$	457.4		$	503.1
Percentage of revenues		26	%		25	%		28	%

2003 compared to 2002

          Research and development (“R&D”) expenses, on a consolidated basis, decreased $24.7 million or 5% during 2003 as compared to 2002. 

          R&D expenses for the Semiconductor segment decreased $34.4 million or 8% in 2003 as compared to 2002.  The decrease in R&D expenses for the Semiconductor segment is primarily due to benefits from the cost-cutting measures implemented as part of the restructuring actions of 2001 to 2003 (see Note 4 of the Notes).

          The decrease was offset in part because the technology transfer agreement entered into with Silterra during 1999 ended in 2002, which included a benefit of $8 million for 2002 (See Note 5 of the Notes).   

          We develop advanced sub-micron product technologies.  We continued the build-out of the current generation RapidChip platform infrastructure in 2003. Products utilizing RapidChip technology combine the high-density, high-performance and proven intellectual property benefits of cell-based ASICs with the advantages of Field Programmable Gate Arrays (“FPGAs”), such as lower development costs and faster time to market.  We expect products utilizing RapidChip technology to have performance comparable to cell-based ASICs at a cost significantly lower than FPGAs. Markets for our RapidChip platform ASIC solutions will include communications, storage, industrial, and others.  Our customer base for RapidChip technology encompasses a range from small start-up companies to major system OEMs throughout all geographic markets.  We shipped our first RapidChip platform products in the fourth quarter of 2003.

          R&D expenses for the Semiconductor segment increased to 30% of revenues in 2003 from 28% in 2002. This is a result of lower revenues, offset in part by lower R&D expenses for 2003 as compared to 2002.  

          R&D expenses for the Storage Systems segment increased by $9.7 million or 27% in 2003 as compared to 2002. The increase primarily resulted from our strategy to invest in R&D programs to enhance the features, functionality and performance of our existing products and to add new products to our portfolio. In particular, we incurred additional R&D expenses in 2003 as a result of hiring 91 additional R&D employees in connection with our August 2002 acquisition of IBM’s Mylex business unit.  R&D expenses as a percentage of revenues for the Storage Systems segment remained unchanged at 11% in 2003 and 2002.

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2002 compared to 2001

          Consolidated R&D expenses decreased $45.7 million or 9% in 2002 as compared to 2001. During the same period, R&D expenses for the Semiconductor segment decreased $51.8 million or 11%.  The decrease was primarily attributable to the cost-cutting measures implemented as part of the restructuring actions in 2001 and 2002. (See Note 4 of the Notes.)  The decrease was offset in part by the following:

• A lower benefit of $8 million was recorded to R&D in 2002 as compared to $20 million recorded in 2001. This benefit is associated with the technology transfer agreement entered into with Silterra in Malaysia during 1999 (See Note 5 of the Notes);

• Continued R&D expenses for the former C-Cube and AMI RAID businesses, which are a part of the Semiconductor segment and included in our consolidated financial statements from May 11, 2001 and August 31, 2001, respectively; and

• Expenditures related to continued development of advanced sub-micron products and process technologies, which includes the development of RapidChip.

          R&D expenses for the Semiconductor segment decreased to 28% of revenues in 2002 from 30% in 2001.  This decline is a result of lower R&D spending as discussed above offset in part by lower Semiconductor segment revenues in 2002 as compared to 2001.

          R&D expenses for the Storage Systems segment increased $6.1 million or 20% in 2002 as compared to 2001. We incurred additional research and development expenses in 2002 as a result of payment of salaries for approximately four months during 2002 of the additional former Mylex employees. R&D expenses as a percentage of revenues for the Storage Systems segment decreased to 11% in 2002 from 14% in 2001 as a result of an increase in revenues offset in part by an increase in R&D expenses in 2002.

Selling, general and administrative:

	Year ended December 31,
	2003			2002			2001
	(in millions)
Semiconductor segment	$	171.8		$	181.2		$	241.5
Percentage of segment revenues		14	%		12	%		15	%
Storage Systems segment	$	62.4		$	49.0		$	65.8
Percentage of segment revenues		15	%		15	%		31	%
Consolidated	$	234.2		$	230.2		$	307.3
Percentage of revenues		14	%		13	%		17	%

2003 compared to 2002

          Consolidated selling, general and administrative (referred to as “SG&A”) expenses increased $4.0 million or 2% during 2003 as compared to 2002. 

          SG&A expenses for the Semiconductor segment decreased $9.4 million or 5% in 2003 as compared to 2002.  The decrease for the Semiconductor segment was primarily attributable to the various cost reduction measures implemented from 2001 to 2003 (see Note 4 of the Notes) offset in part by a slight increase in compensation-related costs. For the Semiconductor segment, SG&A expenses as a percentage of revenues increased to 14% in 2003 from 12% in 2002.  This is primarily a function of lower semiconductor segment revenues, offset in part by lower SG&A expenses.

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          SG&A expenses for the Storage Systems segment increased $13.4 million or 27% in 2003 as compared to 2002.  The increase is primarily a result of spending increases on sales and related activities to support existing channel customers and develop new channel customers.  In addition, higher revenues resulted in higher selling commissions.  For the Storage Systems segment, SG&A expenses as a percentage of revenues remained unchanged at 15% in 2003 as compared to 2002.

2002 compared to 2001

          Consolidated SG&A expenses decreased $77.1 million or 25% in 2002 as compared to 2001. As a percentage of revenues, SG&A expenses decreased to 13% in 2002 from 17% in 2001 on a consolidated basis. SG&A expenses for the Semiconductor segment decreased $60.3 million or 25% as compared to 2001. For the Semiconductor segment, SG&A expenses decreased to 12% from 15% as a percentage of revenues over the same period. The decreases on a consolidated basis and for the Semiconductor segment were primarily attributable to the various cost-cutting measures implemented in 2001 and 2002 (See Note 4 of the Notes). The decrease was offset in part by continued SG&A expenses for the former C-Cube and AMI RAID businesses, which were added as part of the Semiconductor segment and included in our consolidated financial statements in the second and third quarters of 2001. 

          For the Storage Systems segment, SG&A expenses were $49.0 million in 2002, down 26% from $65.8 million in 2001.  As a percentage of revenues, SG&A expenses for the Storage Systems segment decreased to 15% in 2002 from 31% in 2001.  The decrease is primarily a result of lower bad debt expenses of $6.3 million in 2002 due to payments we collected from two customers against which we had previously taken reserves; reimbursements from a customer of $5.9 million for selling expenses under our master distributor arrangement, which was entered into during the first quarter of 2002; and higher revenues in 2002 as compared to 2001.

Acquired in-process research and development:

          There were no acquired in-process research and development (“IPR&D”) expenses in 2003. We recorded a charge of $2.9 million and $96.6 million for the years ended December 31, 2002 and 2001, respectively, associated with IPR&D in connection with various acquisitions. The details for the major acquisitions, at the acquisition dates, are summarized in the table below: 

Company	Acquisition Date		IPR&D		Discount rate		Revenue projections extend through
	(dollar amounts in millions)
Mylex unit of IBM		August 2002		$1.9		25%		2006
RAID Division of AMI		August 2001		19.1		20%		2006
C-Cube		May 2001		77.5		27.5%		2006

          The amounts of IPR&D were determined by identifying research projects for which technological feasibility had not been established and no alternative future uses existed as of the respective acquisition dates.  The value of the projects identified to be in progress was generally determined by estimating the future cash flows from the projects once commercially feasible, discounting the net cash flows back to their present value and then applying a percentage of completion to the calculated value.  The net cash flows from the identified projects were based on estimates of revenues, cost of revenues, research and development costs, selling general and administrative costs and applicable income taxes for the projects.  Total revenues for the projects are expected to extend through the dates noted in the above table by acquisition.  These projections were based on estimates of market size and growth, expected trends in technology and the expected timing of new product introductions by our competitors and us. These estimates did not account for any potential synergies realizable as a result of the acquisition and were in line with industry averages and growth estimates. 

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          Percentage of completion. The percentage of completion for each project was determined based on research and development expenses incurred up to the acquisition dates as a percentage of total research and development expenses to bring the projects to technological feasibility. 

          Discount rates.  The discount rate is used for the projects to account for the risks associated with the inherent uncertainties surrounding the successful development of the IPR&D, market acceptance of the technology, the useful life of the technology, and the profitability level of such technology and the uncertainty of technological advances, which could impact the estimates described above.  See details in table above.

Project descriptions and estimates of completion by acquisition. 

          Mylex unit of IBM.  On August 29, 2002, we finalized an Asset Purchase Agreement with IBM.  Under the agreement, we acquired certain tangible and intangible assets associated with IBM’s Mylex business unit. The acquisition has enhanced product offerings in the expanding entry-level storage systems space within the Storage Systems segment and the PCI-RAID offering in the Semiconductor segment.  As of the acquisition date, there were several projects in-process. Development of storage systems hardware technology started in 2000, while development of firmware and subsystems components technology started in 2002.  As of August 29, 2002, we estimated that the projects were from 10% to 50% complete. As of the acquisition date, the cost to complete these projects was estimated at $4.6 million in 2002 and $2.6 million in 2003. As of December 31, 2003, the projects were completed.

          RAID business.  On August 31, 2001, we entered into an Asset Purchase Agreement with AMI.  Under the agreement, we acquired certain tangible and intangible assets associated with AMI’s RAID business.  The acquisition enhanced product offerings and is included in the Semiconductor segment.  As of the acquisition date, there were several projects in process.  The projects were for development of RAID technology applications. Development of these projects started in early 2000 and 2001. As of August 31, 2001, we estimated the projects were approximately 12% to 62% complete for the RAID projects and the cost to complete these projects was estimated at $4.6 million for 2001 and $2.4 million for 2002. As of December 31, 2003, the projects were completed.

          C-Cube.  On May 11, 2001, we acquired C-Cube Microsystems Inc., pursuant to a definitive merger agreement. The acquisition enhanced our consumer product offerings in the Semiconductor segment.  As of the acquisition date, there were various projects that were in process.  The development of these projects started in early 1999. As of May 11, 2001, we estimated the projects were approximately 61% to 84% complete.  As of the acquisition date, the cost to complete these projects was estimated at $22.7 million in 2001 and $9.1 million in 2002. As of December 31, 2003, the projects were completed or written-off.  See discussion in Note 4 of the Notes.

          Restructuring of operations and other items, net:

2003

          We recorded net charges of $180.6 million in restructuring of operations and other items for the year ended December 31, 2003 consisting of $182.8 million in charges for restructuring of operations, and a gain of $2.2 million for other items.  Of these charges, $165.7 million was recorded in the Semiconductor segment and $14.9 million was included in the Storage Systems segment. 

          Restructuring and impairment of long-lived assets:

          On January 1, 2003, we 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. 

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          First quarter of 2003:

          In February 2003, we downsized operations and recorded $35.7 million in charges for restructuring of operations and other items. Of this charge, $21.1 million was associated with the Semiconductor segment and $14.6 million was attributable to the Storage Systems segment.  The charges consisted of severance and termination benefits of $4.5 million for 210 employees involved in manufacturing operations, R&D and SG&A; $1.4 million for costs associated with exiting certain operating leases primarily for real estate; and write-downs of $24.1 million for certain acquired intangible assets, $3.5 million for capitalized software and $2.2 million for fixed assets.  During the year ended December 31, 2003, payments related to the February 2003 restructuring actions consisted of approximately $4.4 million for severance and termination benefits and $0.6 million for lease and contract terminations.

          Second quarter of 2003:

          In April 2003, we announced a restructuring of our operations that included a reduction in workforce and the consolidation of certain non-manufacturing facilities.  A charge of $32.4 million was recorded in the Semiconductor segment consisting of severance and termination benefits of $9.1 million for 325 employees involved in manufacturing operations, research and development, marketing, sales and administration; $18.6 million for costs associated with exiting certain operating leases primarily for real estate; other exit costs of $0.2 million; and a write-down of $4.5 million for fixed assets due to impairment.  During the year ended December 31, 2003, payments related to the April 2003 restructuring actions consisted of approximately $9.0 million for severance and termination benefits, $2.6 million for lease and contract terminations and $0.1 million for other exit costs.

          In June 2003, we announced the decision to sell the Tsukuba, Japan manufacturing facility.  During the second quarter, a charge of $72.9 million was recorded in the Semiconductor segment to write down fixed assets to their fair market value.  The fair value was reclassified from property, plant and equipment to other current assets to reflect the intention to dispose of the facility within the next twelve months.  In addition, approximately $2.0 million in restructuring charges were recorded in the second quarter for severance and other exit costs.  See further discussion in the third quarter below. 

          In June 2003, we also recorded $19.4 million of additional fixed asset write-downs to reflect the decrease in fair market value of assets held for sale during the period.  This write-down included a reduction in the value of the Colorado Springs fabrication facility of $16.4 million to reflect continued efforts to sell the facility. 

          Third quarter of 2003:

          Agreement to sell Japan fabrication facility:

          In September 2003, we entered into a definitive agreement to sell the Tsukuba, Japan manufacturing facility to Rohm, a Japanese company.  The sale closed during November 2003 for 2.82 billion yen (approximately $25.8 million).  As part of the definitive agreement, we agreed to purchase a minimum amount of production wafers from Rohm for a period of 15 months following the close of the transaction.  As a result, a charge of $4.3 million was recorded in cost of revenues during the third quarter of 2003.  This charge is a result of the application of our policy to accrue for non-cancelable inventory purchase commitments in excess of 12 months of estimated demand.  Included in the $4.3 million charge to cost of revenues is a reclassification of $3.0 million from restructuring expense originally recorded in the second quarter of 2003 to better reflect the terms of the definitive agreement.  Also in the third quarter, $1.8 million was recorded for additional severance benefits to be paid and for contract termination and other exit costs associated with the definitive agreement.  During the year ended December 31, 2003, payments related to the Japan restructuring actions consisted of approximately $1.3 million for severance and termination benefits and $0.2 million for lease and contract terminations.

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          Other third quarter 2003 restructuring actions:

          In the third quarter of 2003, we continued to consolidate non-manufacturing facilities and recorded $1.5 million for costs associated with exiting certain operating leases for real estate as the facilities ceased being used.

          In September 2003, we decided to discontinue development programs and to refocus sales and marketing efforts for certain product lines in the Semiconductor segment.  As a result of an analysis of future net cash flows related to the affected product lines, it was determined that certain acquired intangible assets were impaired.  An impairment charge of $21.0 million related to the write-down of the acquired intangible assets to fair market value was recorded in the third quarter of 2003.  These intangible assets were originally acquired in connection with the acquisition of C-Cube Microsystems in the second quarter of 2001.  In addition, $3.2 million in restructuring charges were recorded in the third quarter of 2003.  These charges related to severance and termination benefits for 97 employees primarily involved in research and development and for certain contract termination costs and fixed asset write downs due to impairment. The severance benefits were paid during the third quarter of 2003.

          Fourth quarter of 2003:

          In the fourth quarter of 2003, we reversed approximately $2.2 million of previously accrued restructuring expenses.  The reversal was primarily due to the combination of a favorable negotiation to terminate leases for real property and severance payments that were lower than expected due to the timing of the sale of the Japan manufacturing facility to Rohm.  An expense of $1.6 million was recorded primarily to reflect the change in time value of accruals for facility lease termination costs and the write down of fixed assets due to impairment. Certain other reclassifications were made between asset decommissioning costs and other facility closure costs to reflect changes in management estimates for the remaining costs for these activities.

          In December 2003, we recorded $1.6 million of additional fixed asset write-downs to reflect the decrease in fair market value of assets held for sale during the period.  We also recorded a realized gain of $5.1 million on the sale of fixed assets that had been previously held for sale.

          The fair value of equipment, facilities and intangible assets determined to be impaired was the result of the use of management estimates.  Given that current market conditions for the sale of older fabrication facilities and related equipment may fluctuate, there can be no assurance that we will realize the current net carrying value of the assets held for sale. We reassess the realizability of the carrying value of these assets at the end of each quarter until the assets are sold or otherwise disposed of and additional adjustments may be necessary.  Assets held for sale of $30 million and $74 million were included as a component of prepaid expenses and other current assets as of December 31, 2003 and December 31, 2002, respectively.  Assets classified as held for sale are not depreciated.  We are making appropriate efforts to sell assets held for sale within the next twelve months.

          The following table sets forth our restructuring reserves as of December 31, 2003, which are included in other accrued liabilities on the balance sheet:

	Balance at December 31, 2002		Restructuring Expense 2003		Release of reserve and reclassifications			Utilized during 2003			Balance at December 31, 2003
	(In thousands)
Write-down of excess assets (a)	$	6,008	$	147,454	$	(6,422	)	$	(144,379	)	$	2,661
Lease terminations and maintenance contracts (b)		6,757		23,444		(1,146	)		(8,034	)		21,021
Facility closure and other exit costs (c)		8,129		1,072		1,203			(8,268	)		2,136
Payments to employees for severance (d)		1,391		18,095		(928	)		(17,684	)		874
Total
Total	$	22,285	$	190,065	$	(7,293	)	$	(178,365	)	$	26,692

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(a)	The amounts utilized in 2003 reflect $142.4 million of non-cash write-downs of amortizable intangible and other long-lived assets in the U.S and Japan due to impairment, and $2.0 million in cash payments to decommission and sell assets.  The write-downs of the intangible and other long-lived assets were accounted for as a reduction of the assets and did not result in a liability. The $2.7 million balance as of December 31, 2003, relates to machinery and equipment decommissioning costs in the U.S and estimates of selling costs for assets held for sale which is expected to be utilized during 2004.
(b)	Amounts utilized represent cash payments.  The balance remaining for primarily real estate lease terminations and maintenance contracts will be paid during the remaining terms of these contracts, which extend through 2011.
(c)	Amounts utilized represent cash payments.  The balance remaining for facility closure and other exit costs will be paid during 2004.
(d)	Amounts utilized represent cash severance payments to 777 employees during 2003. The balance remaining for severance is expected to be paid by the end of the first quarter of 2004.

Other items:

          A gain of approximately $2.2 million was recorded in restructuring and other items, net during the second quarter of 2003 associated with additional sales of intellectual property associated with the CDMA handset product technology. 

2002

          We recorded approximately $67.1 million in restructuring of operations and other items for the year ended December 31, 2002, consisting of $75.2 million for restructuring of operations, and a gain of  $8.1 million for other items including the gain on sale of CDMA handset product technology.  Restructuring of operations and other items were primarily included in the Semiconductor segment; the restructuring expense included in the Storage Systems segment was not significant.

Restructuring and impairment of long-lived assets:

          In the first quarter of 2002, we announced a set of actions to reduce costs and streamline operations. These actions included a worldwide reduction in workforce, downsizing our manufacturing operations in Tsukuba, Japan, and the decision to exit CDMA handset product technology.  During the three months ended March 31, 2002, we recorded a restructuring charge for severance for 1,150 employees worldwide and exit costs primarily associated with cancelled contracts and operating leases.  As a result of the restructuring actions, we recorded fixed asset write-downs due to impairment in the U.S. and Japan for assets to be disposed of by sale.  In the second quarter of 2002, we completed the sale of CDMA handset product technology to a third party, recognizing a net gain of $6.4 million.

          During the fourth quarter of 2002, we reversed approximately $5 million of previously accrued restructuring expenses.  As a result of our decision to terminate fewer employees than the original plan contemplated in Tsukuba, Japan, we reversed previously accrued restructuring expenses for termination benefits including outplacement costs and certain contract termination fees of $7 million.  This was offset by additional expense accruals of $2 million for costs related to the previously announced closure of the Colorado Springs fabrication facility.  Certain other reclassifications were made between lease and contract terminations and facility closure and other exit costs to reflect changes in management estimates for the remaining costs for these activities.

          In September 2002, we recorded $13 million of additional fixed asset write-downs to reflect the decrease in the fair market value of the assets during the period. 

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          The following table sets forth our restructuring reserves as of December 31, 2002, which are included in other accrued liabilities on the balance sheet:

	Balance at December 31, 2001		Restructuring Expense 2002		Release of reserve and reclassifications			Utilized during 2002			Balance at December 31, 2002
	(In thousands)
Write-down of excess assets (a)	$	3,762	$	38,918	$	5,147		$	(41,819	)	$	6,008
Lease terminations and maintenance contracts(c)		10,695		12,871		(10,559	)		(6,250	)		6,757
Facility closure and other exit costs (c)		14,153		415		4,058			(10,497	)		8,129
Payments to employees for severance (b)		724		27,490		(3,150	)		(23,673	)		1,391
Total	$	29,334	$	79,694	$	(4,504	)	$	(82,239	)	$	22,285

(a)	Amounts utilized in 2002 reflect a non-cash write-down of fixed assets in the U.S. and Japan due to impairment of $38.3 million and cash payments for machinery and equipment decommissioning costs of $3.5 million. The fixed asset write-downs were accounted for as a reduction of the assets and did not result in a liability. The $6.0 million balance as of December 31, 2002 relates to machinery and equipment decommissioning costs in the U.S and selling costs for assets held for sale.
(b)	Amounts utilized represent cash severance payments to 1,290 employees during the year ended December 31, 2002. The $1.4 million balance as of December 31, 2002 was paid during 2003.
(c)	Amounts utilized represent cash payments.

Other items:

          We recorded a net gain of $1.7 million in other items during the first quarter of 2002, which consisted of a nonrefundable deposit paid to us in the first quarter of 2002 related to the termination of the agreement to sell the Colorado Springs fabrication facility during 2001, offset in part by certain costs associated with maintaining CDMA handset product technology held for sale.

2001

          We recorded approximately $219.6 million in restructuring of operations and other items for the year ended December 31, 2001, consisting of $207.2 million for restructuring of operations and $12.4 million for other items.  Restructuring of operations and other items were primarily included in the Semiconductor segment; the restructuring expense included in the Storage Systems segment was not significant.

Restructuring and impairment of long-lived assets:

          In September 2001, we announced the consolidation of U.S. manufacturing operations to Gresham, Oregon, including the transfer of process research and development from Santa Clara, California to Gresham, Oregon.  We also announced the closure of certain assembly activities in Fremont, California, which would be transferred offshore.  As a result of these actions, we recorded a restructuring charge of $95.0 million, including fixed asset write-downs due to impairment as a result of the restructuring actions in the U.S., losses on operating leases for equipment and facilities, severance for 600 employees across multiple company activities and functions in the U.S., Europe, Japan and Asia Pacific, as well as other exit costs. 

          In April 2001, we announced the closure of our Colorado Springs fabrication facility.  This facility was closed in the fourth quarter of 2001.  We recorded an impairment charge of $130.5 million relating to the facility, of which approximately $35.0 million was recorded in cost of sales and $95.5 million was recorded in restructuring charges.  The restructuring charges consisted of fixed asset write-downs due to impairment as a result of the restructuring actions, losses on operating leases for equipment, severance for 413 manufacturing employees and other exit costs.  

          During the second quarter of 2001, we recorded an additional $16.8 million in restructuring charges primarily associated with the write-down of fixed assets due to impairment as a result of the restructuring actions in the U.S., Japan and Hong Kong and severance charges for 240 employees across multiple company activities and functions in the U.S., Europe and Asia Pacific. 

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          The following table sets forth our restructuring reserves as of December 31, 2001, which are included in other accrued liabilities on the balance sheet:

	Restructuring Expense		Utilized during 2001			Balance at December 31, 2001
	(In thousands)
Write-down of excess assets (a)	$	139,724	$	(135,962	)	$	3,762
Lease terminations and maintenance contracts(c)		26,912		(16,217	)		10,695
Facility closure and other exit costs (c)		24,242		(10,089	)		14,153
Payments to employees for severance (b)		16,346		(15,622	)		724
Total	$	207,224	$	(177,890	)	$	29,334

(a)	Amounts utilized in 2001 reflect a non-cash write-down of fixed assets in the U.S., Japan and Hong Kong due to impairment of $133.8 million and cash payments for machinery and equipment decommissioning costs of $2.2 million. The fixed asset write-downs were accounted for as a reduction of the assets and did not result in a liability. The $3.8 million balance as of December 31, 2001 relates to machinery and equipment decommissioning costs in the U.S.
(b)	Amounts utilized represent cash payments related to the severance of 1,180 employees during the year ended December 31, 2001.
(c)	Amounts utilized represent cash payments.

Other items:

          We recorded approximately $12.4 million in other items during 2001 as follows:

• $8.1 million in charges associated with the write-down of intangible assets due to impairment.  The majority of the intangible assets were originally acquired in the purchase of a division of NeoMagic in the second quarter of 2000.

• $4.3 million in charges primarily consisting of the write-down of an investment in a marketable equity security and related purchased intellectual property.

Amortization of non-cash deferred stock compensation:

          Amortization of non-cash deferred stock compensation is due to non-cash deferred stock compensation recorded in connection with acquisitions. The acquisitions for which deferred stock compensation and related amortization were recorded consisted of an acquisition in the fourth quarter of 2002, C-Cube and the RAID business from AMI in 2001, and DataPath and Syntax in 2000.  No deferred stock compensation was recorded in connection with the acquisition of the Mylex business unit in 2002.  There were no business combination transactions in 2003. We amortize deferred stock compensation ratably over the vesting period.  Deferred stock compensation is adjusted to reflect the departure of any employee prior to vesting.

          Amortization of non-cash deferred stock compensation of $26.0 million, $77.3 million and $104.6 million was recorded in 2003, 2002 and 2001, respectively. At December 31, 2003, the deferred stock compensation that remained was $24.8 million, which is expected to be amortized over the next two years. The balance of deferred stock compensation that remained to be amortized at December 31, 2002, was $51.2 million. 

Amortization of intangibles:

          Amortization of intangibles decreased to $76.4 million in 2003 from $78.6 million in 2002.  Amortization decreased during 2003 as a result of the write-down in the first quarter of $15.1 million of intangible assets in the Semiconductor segment and $9.0 million of intangible assets in the Storage Systems segment.  In the third quarter of 2003 we wrote-down an additional $21.0 million of intangible assets originally acquired in connection with the acquisition of C-Cube Microsystems which was added to our Semiconductor segment in the second quarter of 2001. The charges were recorded in restructuring and other items, net in 2003.  See Note 4 of the Notes.  These decreases were offset in part by a full year of amortization for intangible assets acquired during the third and fourth quarters of 2002. 

          Amortization of intangibles decreased to $78.6 million in 2002 from $188.3 million in 2001. The decrease is primarily attributable to cessation of amortization of goodwill as of January 1, 2002 in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, offset by the additional intangible assets and related amortization recorded in connection with two acquisitions during the second half of 2002.

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          As discussed above, our goodwill balance of approximately $968.5 million as of December 31, 2003 is no longer amortized, but is instead tested for impairment annually or sooner if circumstances indicate that it may no longer be recoverable.  The annual impairment test was performed at December 31, 2003 and it indicated that goodwill was not impaired.  Factors that could trigger an impairment review sooner than annually are discussed in the critical accounting estimates section later in this Annual Report on Form 10-K.  Goodwill is tested for impairment by reporting unit.  Our reporting units are Semiconductor and Storage Systems. The impairment testing is performed in a two-step process.  The first step requires comparing the fair value of each reporting unit to its net book value.  An impairment exists if the fair value of the reporting unit is lower than its net book value.  The second step of the process is only performed if an impairment exists, as it involves measuring the actual impairment to goodwill.  We use management estimates to perform the first step of the goodwill impairment test.  Two methodologies were used to obtain the fair value for each reporting unit as of December 31, 2003:  Discounted Cash Flow and Market Multiple.

          The Discounted Cash Flow and Market Multiple methodologies include assumptions about future conditions within our reporting units and related industries.  These assumptions include estimates of future market size and growth, expected trends in technology, timing of new product introductions by our competitors and us, and the nature of the industry in which comparable companies and we operate.  If significant changes to these assumptions occur, goodwill could become impaired in the future.  The valuation of long-lived and intangible assets and goodwill is considered to be a critical accounting estimate to us and is discussed further later in this Annual Report on Form 10-K.

Interest expense:

          Interest expense decreased by $21.3 million to $30.7 million in 2003 from $52.0 million in 2002. The decrease is due to the repurchase/redemption of $710.0 million of Convertible Subordinated Notes (“Convertible Notes”) during 2003 and $135.0 million during 2002. The decrease from the repurchases and redemptions was partly offset by interest expense on the $350 million of 4% Convertible Notes issued on May 12, 2003 (see Note 9 of the Notes).

          Our interest expense continued to be below the stated coupon rate of approximately 4% as a result of the interest rate swaps (the “Swaps”) on the Convertible Notes entered into in the second quarter of 2002.  

          With the objective of protecting our cash flows and earnings from the impact of fluctuations in interest rates, while minimizing the cost of capital, we may enter into or terminate interest rate swaps. In June 2002, we entered into the Swaps with various investment banks. The Swaps effectively converted fixed interest payments on a portion of our Convertible Notes to LIBOR-based floating rates. The Swaps qualified for hedge accounting treatment. (See Note 7 of the Notes.) During the second quarter of 2003, we terminated the Swaps, resulting in a deferred gain of $44.1 million that will be amortized as a benefit to interest expense over the remaining term of the hedged Convertible Notes.  A portion of the deferred gain was written off as part of the net gain or loss on the repurchase/redemption of the hedged Convertible Notes during 2003.  As of December 31, 2003, a deferred gain of $25.4 million was recorded as a component of the Convertible Notes.

          Interest expense increased to $52.0 million in 2002 from $44.6 million in 2001. The increase is due to additional interest expense incurred on the increased debt outstanding in 2002 due to the issuance of the $490.0 million of 4% Convertible Notes issued in October 2001. (See Note 9 of the Notes.) The increase was offset in part by a reduction in the effective interest rate payable on the Convertible Notes as a result of the Swaps entered into in the second quarter of 2002.  At December 31, 2002, a notional amount of $740 million of our Convertible Notes was covered by the Swaps. 

Interest income and other, net:

          Interest income and other, net, was $18.9 million in 2003 as compared to $26.4 million in 2002.  Interest income decreased by $3.3 million to $28.3 million in 2003 from $31.6 million in 2002.  The decrease in interest income is mainly due to lower returns on our short-term investments during the year ended December 31, 2003 as compared to the same period of 2002. Other expenses net of $9.4 million in

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2003 included $8.5 million in charges associated with write-downs of investments in equity securities due to impairment that were considered by management to be other than temporary (See Note 6 of the Notes), a net loss on the redemption/repurchase of Convertible Notes of $3.9 million, and currency option premium expenses, which were offset in part by net foreign exchange gains, gains on sale of miscellaneous assets, and other expenses that were individually insignificant. 

          Interest income and other, net, was $26.4 million in 2002 as compared to $14.5 million in 2001. Interest income decreased to $31.6 million in 2002 from $42.7 million in 2001. The decrease in interest income is attributable to lower returns due to the declining interest rate environment and lower invested cash balances in 2002 as compared to 2001. Other expense of $5.2 million in 2002 included the following:

• A gain of $14.3 million on the repurchase of a portion of the Convertible Notes, net of the write-off of debt issuance costs associated with the issuance of the Convertible Notes. During the third and fourth quarters of 2002, we repurchased and retired $115.0 million of the $500 million 4% Convertible Notes issued in 2000 and $20.0 million of the $345 million 4 1/4% Convertible Notes issued in 1999. Effective January 1, 2002, we early adopted the provisions of Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” related to extinguishment of debt.  As a result, the gain on the repurchase of debt is included in interest income and other, net, in the statement of operations (See Note 9 of the Notes);

• A net write-down of certain equity investments for $19.4 million due to impairment considered by our management to be other than temporary. (See Note 6 of the Notes.); and

• A gain on miscellaneous asset sales, the cost of purchased option contracts, bank fees and other miscellaneous expenses.

Gain on sale of equity securities:

          During 2001, we sold investments in certain marketable equity securities for $7.9 million in the open market, realizing a pre-tax gain of approximately $5.3 million.

Provision/(benefit) for income taxes:

          During 2003, we recorded an income tax expense of $24.0 million, which represents an effective tax rate of approximately (8%).  This rate differs from the U.S. statutory rate primarily due to losses of our foreign subsidiaries, which are not benefited or are benefited at lower rates, earnings of certain foreign subsidiaries taxed in the U.S., and alternative minimum taxes.  The effect of these charges has been partially offset by the benefit of foreign tax and research and development tax credits.

          In 2002, we recorded an income tax expense of $1.8 million, which represents an effective tax rate of approximately (1%).  This rate differs from the U.S. statutory rate primarily due to losses of our foreign subsidiaries, which are not benefited or are benefited at lower rates, foreign tax expense in certain jurisdictions, and reductions in the value of our deferred tax assets with the corresponding charge to income tax expense of approximately $62 million. The effect of these charges was partially offset by the expanded net operating loss carry-back provided by a law change in 2002, as well as the reversal of taxes previously accrued and the conclusion of a federal income tax audit with the Internal Revenue Service for the income tax years 1995 through 2000.

          In 2001, we recorded an income tax benefit of $39.2 million, which represents an effective tax rate of approximately 4%.  This rate differs from the U.S. statutory rate primarily due to losses of our foreign subsidiaries, which are not benefited or are benefited at lower rates, foreign tax expense in certain jurisdictions, net operating losses not currently benefited, and items related to acquisitions, which are non-deductible for tax purposes.

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Minority interest in net income of subsidiary:

          Minority interest in net income of subsidiary was not significant for the periods presented.  The changes in minority interest were attributable to the composition of earnings and losses in one of our international affiliates for each of the respective years.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

          Cash, cash equivalents and short-term investments decreased to $813.7 million at December 31, 2003, from $990.0 million at December 31, 2002.  The decrease is mainly due to net cash outflows from investing and financing activities, partially offset by cash and cash equivalents provided by operating activities as described below.

          Working capital.  Working capital decreased by $229.5 million to $998.8 million at December 31, 2003, from $1.23 billion as of December 31, 2002. Working capital declined in 2003 as a result of the following:

•	We paid $716.0 million for the repurchase or redemption of Convertible Notes during 2003, which was partially offset by $350.0 million in cash proceeds received from the issuance of the 2003 Convertible Notes in the second quarter of 2003 (see Note 9 of the Notes);
•	Accounts receivable declined by $17.4 million to $231.2 million as of December 31, 2003 from $248.6 million at December 31, 2002. The decrease is mainly attributable to decreased revenues in the fourth quarter of 2003 as compared to the fourth quarter of 2002;
•	Prepaid expenses and other current assets decreased by $43.1 million, primarily due to the termination of the interest rate swap which caused a reduction in the related interest receivable (see Note 7 of the Notes) and a lower balance of assets held for sale due to sales and write-downs of assets, net of additions (see Note 4 of the Notes);
•	Accounts payable increased by $1.8 million due to timing of payments;
•	Accrued salaries, wages and benefits increased by $4.5 million due to timing differences in payment of salaries and bonuses; and
•	Income taxes payable increased by $28.4 million due to the timing of tax payments made and the income tax provision recorded in 2003.
The decrease in working capital was offset, in part, by the following:
•	Inventories increased by $4.1 million, primarily as a result of decreased revenues, offset in part by decreased production in the fourth quarter of 2003 as compared to the fourth quarter of 2002;
•	Current deferred tax assets, net of current deferred tax liabilities increased by $6.9 million due to changes in underlying temporary differences (see Note 11 of the Notes); and
•	Other accrued liabilities decreased by $31.0 million mainly due to a reduction in interest payable primarily due to the timing of interest payments and the reduction in the balance of outstanding Convertible Notes, offset in part by higher restructuring reserves (see Note 4 of the Notes).

          Cash and cash equivalents generated from operating activities. During 2003, we generated $189.8 million of net cash and cash equivalents from operating activities compared to $164.8 million generated in 2002.  Cash and cash equivalents generated from operating activities for the year ended December 31, 2003 were the result of the following:

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• Higher net changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations for the year ended December 31, 2003 as compared to the same period in 2002, offset by lower income (before depreciation and amortization; non-cash restructuring and other items; amortization of non-cash deferred stock compensation acquired in-process R&D; provision for inventories and losses on write-downs of equity securities, net of gain on sales) over the two periods presented. The non-cash items and other non-operating adjustments are quantified in our Consolidated Statements of Cash Flows included in this Current report on Form 10-K;

• Changes in working capital components from December 31, 2003 as compared to December 31, 2002 as discussed above; and

• Cash of  $44.9 million, which was received upon termination of the Swaps during the second quarter of 2003 (see Note 7 of the Notes).  The fair value of the Swap was formerly included in other non-current assets.

          Cash and cash equivalents used in investing activities. Cash and cash equivalents used in investing activities during 2003 were $0.2 million as compared to $402.3 million used in 2002. The primary investing activities or changes during 2003 were as follows:

• Purchases of debt and equity securities available for sale, net of sales and maturities in 2003;

• Proceeds of $160.0 million from the sale-leaseback transaction entered into during the first quarter of 2003 (see Note 13 of the Notes);

• Proceeds from the sale of property and equipment and the sale of the Japan manufacturing facility to Rohm (see Note 4 of the Notes);

• Purchases of property and equipment during 2003; and

• Higher non-current assets and deposits in 2003, primarily as a result of the new lease agreement entered into during the first quarter of 2003 (see Note 13 of the Notes).

          Capital additions were $78.2 million in 2003 as compared to $48.2 million in 2002. We believe that maintaining technological leadership in the highly competitive worldwide semiconductor manufacturing industry requires access to additional advanced manufacturing capacity.  Our focus is on establishing strategic supplier alliances with foundry semiconductor manufacturers, which enables us to have access to advanced manufacturing capacity, and reduces our capital spending requirements.  We expect capital expenditures to be approximately $100 million in 2004.

          Cash and cash equivalents used in financing activities.  Cash and cash equivalents used in financing activities during 2003 were $375.0 million as compared to $75.3 million in 2002.  The increase is primarily attributable to cash paid to redeem/repurchase the 1999 and 2000 Convertible Notes, partially offset by cash proceeds from the issuance of the 2003 Convertible Notes, accompanied by lower cash proceeds from issuance of common stock under our employee stock option and purchase plans in 2003 as compared to 2002. 

          On May 12, 2003, we issued $350 million of 4% Convertible Subordinated Notes (the “2003 Convertible Notes”) due in 2010.  We paid approximately $10.9 million for debt issuance costs that are being amortized using the interest method (See Note 9 of the Notes). 

          Approximately $28 million of the proceeds from the issuance of the 2003 Convertible Notes were used to purchase call spread options on LSI’s common stock (the “Call Spread Options”).  The Call Spread Options, including fees and costs have been accounted for as capital transactions in accordance with Emerging Issues Task Force No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”  The Call Spread Options cover approximately 26.1

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million shares of our common stock, which is the number of shares that are initially issuable upon conversion of the 2003 Convertible Notes in full.  The Call Spread Options are designed to mitigate dilution from conversion of the 2003 Convertible Notes in the event that the market price per share of our common stock upon exercise of the Call Spread Options is greater than $13.42 and is less than or equal to $23.875.  The Call Spread Options may be settled at our option in either net shares or in cash and expire in 2010.

          The proceeds from the 2003 Convertible Notes were used to repurchase $153 million of the 1999 Convertible Notes and $135 million of the 2000 Convertible Notes during the second quarter of 2003.  A net pre-tax loss of $2 million was recognized, in interest income and other, net, on the repurchases of the 1999 and 2000 Convertible Notes.  The pre-tax loss is net of the write-off of debt issuance costs and a portion of the deferred gain on the terminated Swaps (see Note 7 of the Notes).

          On September 18, 2003, we redeemed the balance of the 1999 Convertible Notes that were outstanding on that date (See Note 9 of the Notes).  Cash of $173 million was paid to redeem the remaining 1999 Convertible Notes at a total redemption price of $1,008.86 per $1,000 principal amount of the notes consisting of $1,008.50 principal amount plus accrued interest of $0.36.  A net pre-tax loss of $1 million was recognized, in interest income and other, net, on the redemption of the 1999 Convertible Notes.  The pre-tax loss is net of the write-off of debt issuance costs and the remaining deferred gain on the terminated Swap (see Note 9 of the Notes).

          On December 24, 2003, we redeemed the balance of the 2000 Convertible Notes that were outstanding on that date. Cash of  $258 million was paid to redeem the remaining 2000 Convertible Notes at a total redemption price of  $1030.33 per $1,000 principal amount of notes, consisting of $1,016.00 principal plus interest of $ 14.33. A net pre-tax loss of approximately $1 million was recognized, in interest income and other, net, on the redemption of the 2000 Convertible Notes.  The pre-tax loss is net of the write-off of debt issuance costs and the remaining deferred gain on the terminated Swap (see Note 7 and 9 of the Notes).

          It is our policy to reinvest our earnings and we do not anticipate paying any cash dividends to stockholders in the foreseeable future.

          We may seek additional equity or debt financing from time to time. We believe that our existing liquid resources and funds generated from operations, combined with funds from such financing and our ability to borrow funds, will be adequate to meet our operating and capital requirements and obligations for the foreseeable future. However, we cannot be certain that additional financing will be available on favorable terms. Moreover, any future equity or convertible debt financing will decrease the percentage of equity ownership of existing stockholders and may result in dilution, depending on the price at which the equity is sold or the debt is converted. 

          On February 19, 2004, Storage Systems filed a Registration Statement on Form S-1 with the Securities and Exchange Commission.  If the initial public offering is completed as currently intended, we plan to receive the net cash proceeds from the offering from Storage Systems in the form of a dividend.  We may sell shares of Storage Systems’ common stock in the public market or in private transactions, which may not include the sale of a controlling interest in Storage Systems. 

          We currently intend to distribute to our stockholders, by the summer of 2005, all remaining shares of Storage Systems’ common stock held by us at such time.  We will determine the timing, structure and all terms of the distribution taking into account factors such as market conditions.  Completion of the distribution would also be contingent upon the receipt of a favorable tax ruling from the Internal Revenue Service and/or a favorable opinion from our tax advisor as to the tax-free nature of the distribution for U.S. federal income tax purposes.  We are not obligated to undertake the distribution, and the distribution may not occur by the contemplated time or at all.  We do not expect our operating cash flows to be materially affected in periods subsequent to the distribution.

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CONTRACTUAL OBLIGATIONS

          The following table summarizes our contractual obligations at December 31, 2003, and the effect these obligations are expected to have on our liquidity and cash flow in future periods.

	Payments due by period
Contractual Obligations	Less than 1 year		1 – 3 years		4 – 5 years		After 5 years		Total
	(in millions)
Convertible Subordinated Notes	$	—	$	490.0	$	—	$	350.0	$	840.0
Operating lease obligations		131.5		212.3		31.0		26.9		401.7
Capital lease obligations		0.4		0.2		—		—		0.6
Purchase commitments		132.5		12.9		0.1		—		145.5
Total	$	264.4	$	715.4	$	31.1	$	376.9	$	1,387.8

Convertible Subordinated Notes

          As of December 31, 2003, we have $490 million of Convertible Notes due in November 2006 (“2001 Convertible Notes”) and $350 million of the 2003 Convertible Notes due in May 2010.  All of the Convertible Notes are subordinated to all existing and future senior debt, are convertible at the holder’s option, at any time prior to the maturity date of the Convertible Notes, into shares of our common stock.  The 2001 and 2003 Convertible Notes have conversion prices of approximately $26.34 per share and $13.42 per share, respectively.  The 2001 Convertible Notes are convertible at the holder’s option, at any time after 60 days following issuance, into shares of our company’s common stock. The 2001 Convertible Notes are redeemable at our option, in whole or in part, on at least 30 days notice at any time on or after the call date, which is two years before the due date.  We cannot elect to redeem the 2003 Convertible Notes prior to maturity.  Each holder of the 2001 and 2003 Convertible Notes has the right to cause us to repurchase all of such holder’s convertible notes at 100% of their principal amount plus accrued interest upon the occurrence of any fundamental change, which includes a transaction or event such as an exchange offer, liquidation, tender offer, consolidation, merger or combination.  Interest is payable semiannually. 

          Fluctuations in our stock price impact the prices of our outstanding convertible securities and the likelihood of the convertible securities being converted into cash or equity. If we are required to redeem any of the Convertible Notes for cash, it may affect our liquidity position.  However, in the event they do not convert to equity, we believe that our current cash position and expected future operating cash flows will be adequate to meet these obligations as they mature.  From time to time, we may buy back Convertible Notes.

Operating Lease Obligations

          As of December 31, 2003, we had operating leases financing certain wafer fabrication equipment (see Note 13 of the Notes).  The debt related to these operating leases is not reflected on the balance sheet.  Under these leases, we are required to maintain unrestricted cash and short-term investment reserves in an amount no less than $350 million.  We were in compliance with this requirement as of December 31, 2003. 

          We guarantee residual values of equipment on these leases.  As of December 31, 2003, we do not expect to realize a loss on the guarantee at the end of the lease term and, accordingly, no additional rent expense has been recognized (see Note 13 of the Notes).

          We also lease real estate, certain other equipment and software under non-cancelable operating leases.

Purchase Commitments

          We maintain certain purchase commitments primarily for raw materials with suppliers and for some non-production items.  Purchase commitments for inventory materials are generally restricted to a forecasted

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time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary among different suppliers.

          Standby letters of credit

          In connection with the equipment operating leases described above in “Operating Lease Obligations”, we entered into standby letters of credit for $63 million which will expire at the end of the lease term.  These instruments are off-balance sheet commitments to extend financial guarantees.  The fair value of the letters of credit approximates the contract amount.

          At December 31, 2003 and 2002, we had outstanding standby letters of credit of $14 million and $15 million, respectively, that are in addition to the ones mentioned above entered into in conjunction with the equipment lease.  These instruments are off-balance sheet commitments to extend financial guarantees for certain self-insured risks, import/export taxes and performance under contracts, and generally have one-year terms.  The fair value of the letters of credit approximates the contract amount. 

CRITICAL ACCOUNTING ESTIMATES

          The discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  Note 1 of the Notes describes the significant accounting policies essential to the consolidated financial statements.  The preparation of these financial statements requires estimates and assumptions that affect the reported amounts and disclosures.

          We believe the following to be critical accounting estimates.  That is, they are both important to the portrayal of our Company’s financial condition and results, and they require significant management judgments and estimates about matters that are inherently uncertain.  As a result of the inherent uncertainty, there is a likelihood that materially different amounts would be reported under different conditions or using different assumptions.  Although we believe that our judgments and estimates are reasonable, appropriate and correct, actual future results may differ materially from our estimates.

          Inventory Valuation Methodology.  Inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method. We write down our inventories for estimated obsolescence and unmarketable inventory in an amount equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. Inventory impairment charges create a new cost basis for inventory.

          We balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers with the risk of inventory obsolescence due to rapidly changing technology and customer requirements, product life-cycles, life-time buys at the end of supplier product runs and a shift of production to outsourcing. If actual demand or market conditions are less favorable than we project or our customers fail to meet projections, additional inventory write-downs may be required. Our inventory balance was approximately $199 million and $194 million as of December 31, 2003, and 2002, respectively. 

          If market conditions are more favorable than expected, we could experience more favorable gross profit margins going forward as we sell inventory that was previously written down.

          Valuation of long-lived and intangible assets and goodwill.  We operate our own wafer fabrication facilities and make significant capital expenditures to ensure that we are technologically competitive.  In addition, we have actively pursued the acquisition of businesses, which has resulted in significant goodwill and intangible assets.  We assess the impairment of long-lived assets, identifiable intangibles and related goodwill annually or sooner if events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include the following:  (i) significant negative industry or economic trends; (ii) exiting an activity in conjunction with a restructuring of operations; (iii) current, historical or projected losses that demonstrate continuing losses associated with an asset; or (iv) a significant decline in our market capitalization, for an extended period of time, relative to net book value. When we determine that there is an indicator that the carrying value of long-lived assets, identifiable intangibles and related goodwill may not be recoverable, we measure impairment based on

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estimates of future cash flows.  These estimates include assumptions about future conditions such as future revenues, gross margins, operating expenses within our Company, the fair values of certain assets based on appraisals, and industry trends.  See Notes 3 and 8 to the Notes for more details on long-lived and intangible assets and goodwill.

          Valuation of residual value guarantees. We guarantee the residual values of equipment associated with two of our operating leases. (See Note 13 of the Notes.)  If it becomes probable that a loss on the guarantees will occur, we would immediately recognize the deficiency as additional rent expense on a straight-line basis over the remaining term of the lease.  In order to assess whether or not a loss has occurred, we use management estimates to estimate the residual value of the equipment.  These estimates include assumptions about future conditions within our Company and industry.  We test for potential loss annually or sooner if events or changes in circumstances indicate that the residual value of the equipment may be lower than the guaranteed residual value.  As of December 31, 2003, our maximum potential exposure to residual value guarantees is $163 million.

          Restructuring reserves.  We have recorded reserves/accruals for restructuring costs related to the restructuring of operations.  The restructuring reserves include payments to employees for severance, termination fees associated with leases and other contracts, decommissioning and selling costs associated with assets held for sale, and other costs related to the closure of facilities.  After the adoption of Statement of Financial Accounting Standards No. 146 (“SFAS No. 146”) on January 1, 2003, the reserves have been recorded when management has approved a plan to restructure operations and a liability has been incurred rather than the date upon which management has approved and announced a plan.  The restructuring reserves are based upon management estimates at the time they are recorded.  These estimates can change depending upon changes in facts and circumstances subsequent to the date the original liability was recorded.  For example, existing accruals for severance may be modified if employees are redeployed due to circumstances not foreseen when the original plans were initiated, accruals for outplacement services may not be fully utilized by former employees, and severance accruals could change for statutory reasons in countries outside the United States.  Accruals for facility leases under which we ceased-using the benefits conveyed to us under the lease may change if market conditions for subleases change or if we later negotiate a termination of the lease.  Prior to the adoption of SFAS No. 146, restructuring reserves were recorded at the time we announced a plan to exit certain activities and were based on estimates of the costs and length of time to exit those activities.  See Note 4 of the Notes for a complete discussion of our restructuring actions and all related restructuring reserves by type as of December 31, 2003.

          Income taxes.  We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of the assets and liabilities.  We have recorded a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.  We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance.  See Note 11 of the Notes for more details about our deferred tax assets and liabilities.

          The calculation of the Company’s tax liabilities involves the application of United States generally accepted accounting principles to complex tax rules and regulations within multiple jurisdictions throughout the world. The Company’s tax liabilities include estimates for all income and related taxes which the Company believes are probable and which can be reasonably estimated. To the extent that the Company’s estimates are understated, additional charges to income tax expense would be recorded in the period in which the Company determines such understatement. If the Company’s income tax estimates are overstated, income tax benefits will be recognized when realized.

Recent Accounting Pronouncements

          In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition.  SAB 104 supercedes SAB 101, Revenue Recognition in Financial Statements.  The primary purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF 00-21. Additionally, SAB 104 rescinds the SEC s Revenue Recognition in Financial Statements Frequently

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Asked Questions and Answers (the FAQ) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The issuance of SAB 104 did not have a material impact on our financial position, results of operations or cash flows.

          In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-10, Application of EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, by Resellers to Sales Incentives Offered to Consumers by Manufacturers”.  This issue clarifies whether consideration received by a reseller from a vendor that is reimbursement by the vendor for honoring the vendor’s sales incentives offered directly to consumers should be recorded as a reduction of the cost of the reseller’s cost of sales.  The provisions of EITF Issue No. 03-10 should be applied prospectively in fiscal years beginning after December 15, 2003 with no early adoption or retroactive reclassification permitted.  The adoption of this standard is not expected to have a material impact on our consolidated balance sheet or statements of operations.

          In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.”  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 were to be applied for the first interim or annual period beginning after June 15, 2003.  In December 2003, the FASB released a revision of FIN 46 to address various implementation issues and modify the effective date for applying the provisions of FIN 46. A public entity shall apply the provisions of the FIN 46 revision no later than the end of the first reporting period that ends after March 15, 2004. However, a public entity shall apply FIN 46 to entities considered to be special-purpose entities no later than as of the end of the first reporting period that ends after December 15, 2003. On March 28, 2003, we entered into new operating leases to refinance the old leases.  See Note 13 of the Notes.  We refinanced these leases in a manner that best met our capital financing strategy, and cost of capital objectives and the new leases are not subject to the consolidation provisions of FIN 46.  We believe that the adoption of this standard will not have a material impact on our consolidated balance sheets or statement of operations. 

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

          Statements in this discussion and analysis include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements included in this discussion and analysis are based on information available to us on the date of filing of this Annual Report on Form 10-K, and we assume no obligation to update any such forward-looking statements.  These statements involve known and unknown risks and uncertainties.  Our actual results in future periods may be significantly different from any future performance suggested in this report.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “intends,” “projects,” “predicts,” or similar expressions.  For such statements, we claim the protection under the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. For a detailed discussion of risk factors, refer to the “Risk Factors” section set forth in Part I, Item 1 of this Annual Report on Form 10-K, which is incorporated by reference into this Part II, Item 7.

          While management believes that the discussion and analysis in this report is adequate for a fair presentation of the information, we recommend that you read this discussion and analysis in conjunction with the remainder of this Annual Report on Form 10-K.

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Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

          Interest rate sensitivity.  With the objective of protecting our cash flows and earnings from the impact of fluctuations in interest rates, while minimizing the cost of capital, we may enter into or terminate interest rate swaps. In June 2002, we entered into interest rate swap transactions (the “Swaps”) with several investment banks. The Swaps effectively converted fixed interest payments on a portion of our 4% and 4.25% Convertible Subordinated Notes to LIBOR-based floating rates. The Swaps qualified for hedge accounting as fair value hedges, with changes in the fair value of the interest rate risk on the Convertible Notes being offset by changes in the fair values of the Swaps recorded as a component of interest expense. (See Note 7 of the Notes.) 

          In the second quarter of 2003, we terminated Swaps with a notional amount of $740 million.  The termination resulted in a deferred gain of $44 million being recorded as a component of the Convertible Notes and is being amortized as a benefit to interest expense over the remaining term of the hedged Convertible Notes.  A portion of the deferred gain was written off as part of the net gain or loss on the repurchase/redemption of the hedged Convertible Notes during 2003.  As of December 31, 2003, a deferred gain of $25.4 million remains to be amortized.  In 2003, before termination, the difference between the changes in the fair values of the derivative and the hedged risk resulted in a benefit to interest expense of $1 million.  The difference between the changes in the fair values of the derivative and the hedged risk resulted in a $4.0 million charge that we included in interest expense in our statement of operations for the year ended December 31, 2002. 

          In May 2003, we entered into an interest rate swap transaction to effectively convert the LIBOR-based floating rate interest payments on the equipment operating lease discussed in Note 13 of the Notes, with an original notional amount of $395 million, to a fixed interest rate (“Lease Swap”).  The Lease Swap qualifies to be accounted for as a cash flow hedge of the forecasted interest payments attributable to the benchmark interest rate on the equipment operating lease through September 2006.  Fluctuations in interest rates affect the fair value of the Lease Swap, which is recorded as asset or liability and the unrealized gains or losses recorded in accumulated other comprehensive income in the statement of financial position.

          In 2003, an interest rate move of 33 basis points (10% of our weighted-average worldwide interest rate on outstanding debt in 2003) affecting our floating rate financial instruments as of December 31, 2003, including debt obligations, investments and fabrication equipment leases, would not have had a significant effect on our financial position, results of operations and cash flows over the next fiscal year, assuming that the investment balance remains consistent.  An interest rate move of 30 basis points (10% of our weighted-average worldwide interest rate on outstanding debt in 2002) affecting our floating-rate financial instruments as of December 31, 2002, including both debt obligations and investments, would not have a significant effect on our financial position, results of operations and cash flows.

          Foreign currency exchange risk.  We have foreign subsidiaries that operate and sell our products in various global markets. As a result, our cash flow and earnings are exposed to fluctuations in foreign currency exchange rates. We attempt to limit these exposures through operational strategies and financial market instruments. We use various hedge instruments, primarily forward contracts with maturities of twelve months or less and currency option contracts, to manage our exposure associated with net asset and liability positions and cash flows denominated in non-functional currencies. We did not enter into derivative financial instruments for trading purposes during 2003 and 2002.

          Based on our overall currency rate exposures at December 31, 2003, including derivative financial instruments and nonfunctional currency-denominated receivables and payables, a near-term 10% appreciation or depreciation of the U.S. dollar would not have a significant effect on our financial position, results of operations and cash flows over the next fiscal year. In 2002, a near-term 10% appreciation or depreciation of the U.S. dollar would also not have had a significant effect.

          Equity price risk.  We have investments in marketable available-for-sale equity securities included in long-term assets.  The fair values of these investments are sensitive to equity price changes. Changes in the value of these investments are ordinarily recorded through accumulated comprehensive income. The

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increase or decrease in the fair value of the investments would affect our results of operations to the extent the investments were sold or that declines in value were concluded by management to be other than temporary. 

          If prices of the marketable available-for-sale equity securities increase or decrease 10% from their fair value as of December 31, 2003, it would increase or decrease the investment values by $3.5 million.  As of December 31, 2002, a 10% increase or decrease in fair value would have increased or decreased the investment values by $3.8 million.  We do not use any derivatives to hedge the fair value of our marketable available-for-sale equity securities. 

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Item 8.  Financial Statements and Supplementary Data

LSI Logic Corporation
Consolidated Balance Sheets

	December 31,
	2003			2002
	(In thousands, except per-share amounts)
Assets
Cash and cash equivalents	$	269,682		$	448,847
Short-term investments		544,007			541,129
Accounts receivable, less allowances of $7,415 and $7,033		231,184			248,621
Inventories		198,517			194,466
Deferred tax assets		8,116			4,248
Prepaid expenses and other current assets		138,531			181,610
Total current assets		1,390,037			1,618,921
Property and equipment, net		481,489			746,964
Intangibles assets, net		161,236			282,579
Goodwill		968,483			968,464
Deferred tax assets		7,484			14,283
Non-current assets and deposits		318,176			220,415
Investment in equity securities		35,455			37,655
Other assets		85,541			123,455
Total assets	$	3,447,901		$	4,012,736
Liabilities and Stockholders’ Equity
Accounts payable	$	102,632		$	100,856
Accrued salaries, wages and benefits		75,968			71,499
Other accrued liabilities		153,857			184,837
Income taxes payable		58,417			30,066
Deferred tax liabilities		—			3,060
Current portion of long-term obligations		377			361
Total current liabilities		391,251			390,679
Deferred tax liabilities		—			496
Long-term debt and capital lease obligations		865,606			1,241,217
Other non-current liabilities		141,096			73,483
Total long-term obligations and other liabilities		1,006,702			1,315,196
Commitments and contingencies  (Note 13)
Minority interest in subsidiary		7,498			6,506
Stockholders’ equity:
Preferred shares; $.01 par value; 2,000 shares authorized; none outstanding		—			—
Common stock; $.01 par value; 1,300,000 shares authorized; 381,491 and 375,096 shares outstanding		3,815			3,751
Additional paid-in capital		2,950,051			2,954,282
Deferred stock compensation		(24,839	)		(51,161	)
Accumulated deficit		(920,790	)		(612,243	)
Accumulated other comprehensive income		34,213			5,726
Total stockholders’ equity		2,042,450			2,300,355
Total liabilities and stockholders’ equity	$	3,447,901		$	4,012,736

See Notes to Consolidated Financial Statements.

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LSI Logic Corporation
Consolidated Statements of Operations

	Year Ended December 31,
	2003			2002			2001
	(In thousands, except per share amounts)
Revenues	$	1,693,070		$	1,816,938		$	1,784,923
Cost of revenues		1,015,865			1,122,696			1,160,432
Additional excess inventory and related charges		—			45,526			210,564
Total cost of revenues		1,015,865			1,168,222			1,370,996
Gross profit		677,205			648,716			413,927
Research and development		432,695			457,351			503,108
Selling, general and administrative		234,156			230,202			307,310
Acquired in-process research and development		—			2,920			96,600
Restructuring of operations and other items, net		180,597			67,136			219,639
Amortization of non-cash deferred stock compensation (*)		26,021			77,303			104,627
Amortization of intangibles		76,352			78,617			188,251
Loss from operations		(272,616	)		(264,813	)		(1,005,608	)
Interest expense		(30,703	)		(51,977	)		(44,578	)
Interest income and other, net		18,933			26,386			14,529
Gain on sale of equity securities		—			—			5,302
Loss before income taxes and minority interest		(284,386	)		(290,404	)		(1,030,355	)
Provision for/ (benefit from)  income taxes		24,000			1,750			(39,198	)
Loss before minority interest		(308,386	)		(292,154	)		(991,157	)
Minority interest in net income of subsidiary		161			286			798
Net loss	$	(308,547	)	$	(292,440	)	$	(991,955	)
Net loss per share:
Basic and diluted	$	(0.82	)	$	(0.79	)	$	(2.84	)
Shares used in computing per share amounts:
Basic and diluted		377,781			370,529			349,280

(*) Amortization of non-cash deferred stock compensation, if not shown separately, would have been included in cost of revenues, research and development, and selling, general and administrative expenses, as shown below: 

	Year ended December 31,
	2003		2002		2001
	(In thousands)
Cost of revenues	$	446	$	1,520	$	2,034
Research and development		20,412		58,623		77,970
Selling, general and administrative		5,163		17,160		24,623
Total	$	26,021	$	77,303	$	104,627

See Notes to Consolidated Financial Statements.

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LSI Logic Corporation
Consolidated Statements of Stockholders’ Equity

	Common Stock				Additional Paid-in Capital			Deferred Stock Compensation			(Accumulated Deficit)/ Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total
	Shares		Amount
	(In thousands)
Balances at December 31, 2000		321,523	$	3,215	$	1,931,564		$	(163,045	)	$	672,152		$	54,251		$	2,498,137
Net loss												(991,955	)
Foreign currency translation adjustments															(31,069	)
Unrealized loss on available-for-sale securities															(8,725	)
Total comprehensive loss																		(1,031,749	)
Issuance to employees under stock option and purchase plans		6,249		62		81,588												81,650
Issuance of common stock for conversion of convertible debt		4		—		65												65
Issuance of common stock in conjunction with acquisitions (Note 2)		40,670		407		892,421												892,828
Deferred stock compensation (Note 2)									(65,673	)								(65,673	)
Amortization of deferred stock compensation									104,627									104,627
Balances at December 31, 2001		368,446		3,684		2,905,638			(124,091	)		(319,803	)		14,457			2,479,885
Net loss												(292,440	)
Foreign currency translation adjustments															11,358
Unrealized loss on available-for-sale securities															(20,089	)
Total comprehensive loss																		(301,171	)
Issuance to employees under stock option and purchase plans		6,292		63		45,102												45,165
Issuance of common stock in conjunction with acquisitions (Note 2)		358		4		3,542												3,546
Deferred stock compensation (Note 2)									(4,373	)								(4,373	)
Amortization of deferred stock compensation									77,303									77,303
Balances at December 31, 2002		375,096		3,751		2,954,282			(51,161	)		(612,243	)		5,726			2,300,355
Net loss												(308,547	)
Foreign currency translation adjustments															21,309
Unrealized gain on available-for-sale securities															5,183
Unrealized gain on cash flow hedge															1,995
Total comprehensive loss																		(280,060	)
Issuance to employees under stock option and purchase plans		6,386		64		30,886												30,950
Issuance or return from escrow of common stock in conjunction with acquisitions		9		—		(6,816	)											(6,816	)
Forfeiture of restricted shares (Note 2)						(301	)		301									—
Cash paid for call spread options (Note 9)						(28,000	)											(28,000	)
Amortization of deferred stock compensation									26,021									26,021
Balances at December 31, 2003		381,491	$	3,815	$	2,950,051		$	(24,839	)	$	(920,790	)	$	34,213		$	2,042,450

See Notes to Consolidated Financial Statements.

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LSI Logic Corporation
Consolidated Statements of Cash Flows

	Year Ended December 31,
	2003			2002			2001
	(In thousands)
Operating activities:
Net loss	$	(308,547	)	$	(292,440	)	$	(991,955	)
Adjustments:
Depreciation and amortization		262,728			349,326			532,562
Amortization of non-cash deferred stock compensation		26,021			77,303			104,627
Acquired in-process research and development		—			2,920			96,600
Non-cash restructuring and other items		148,252			46,050			184,876
Loss on write-down of equity securities, net of gain on sales		8,518			19,423			9,906
Loss/(gain) on redemption/repurchase of Convertible Subordinated Notes		3,885			(14,260	)		—
(Gain)/loss on sale of property and equipment		(6,896	)		2,928			3,142
Changes in deferred tax assets and liabilities		(646	)		61,385			(45,271	)
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Accounts receivable, net		18,220			(54,619	)		345,439
Inventories		(4,232	)		75,579			43,182
Prepaid expenses and other assets		63,325			18,648			18,030
Accounts payable		1,684			(35,828	)		(138,100	)
Accrued and other liabilities		(22,559	)		(91,619	)		(40,445	)
Net cash provided by operating activities		189,753			164,796			122,593
Investing activities:
Purchase of debt securities available-for-sale		(2,219,484	)		(1,771,809	)		(1,272,897	)
Maturities and sales of debt securities available-for-sale		2,203,313			1,478,596			1,858,304
Purchase of equity securities		(200	)		(11,894	)		(12,269	)
Proceeds from sales of equity securities		1,060			—			7,926
Purchase of property and equipment		(78,189	)		(48,245	)		(227,394	)
Proceeds from sale of property and equipment		24,737			6,745			—
Proceeds from the sale-lease back of equipment		160,000			—			—
Proceeds from the sale of the Japan manufacturing facility		25,846			—			—
Increase in non-current assets and deposits		(390,135	)		(8,920	)		(325,894	)
Decrease in non-current assets and deposits		272,868			9,156			—
Acquisitions of companies, net of cash acquired		—			(55,916	)		(177,677	)
Net cash used in investing activities		(184	)		(402,287	)		(149,901	)
Financing activities:
Proceeds from borrowings		350,000			—			690,088
Repayment of debt obligations		(327	)		(332	)		(201,226	)
Redemption/Repurchase of Convertible Subordinated Notes		(715,983	)		(118,938	)		—
Debt issuance costs		(10,984	)		—			(16,249	)
Cash paid for call spread options		(28,000	)		—			—
Issuance of common stock		30,306			43,992			81,650
Net cash (used in)/provided by financing activities		(374,988	)		(75,278	)		554,263
Effect of exchange rate changes on cash and cash equivalents		6,254			4,478			(5,712	)
(Decrease)/increase in cash and cash equivalents		(179,165	)		(308,291	)		521,243
Cash and cash equivalents at beginning of period		448,847			757,138			235,895
Cash and cash equivalents at end of period	$	269,682		$	448,847		$	757,138

See Notes to Consolidated Financial Statements.

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LSI Logic Corporation
Notes to Consolidated Financial Statements

Note 1- Significant Accounting policies

          Nature of business. LSI Logic Corporation (“the Company” or “LSI”) supplies high-performance integrated circuits and highly scalable enterprise storage systems. The Company is focused on the four markets of consumer products, communications, storage components and storage systems.

          The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies and the ability to safeguard patents and intellectual property in a rapidly evolving market. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times.

          Basis of presentation. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.  Where the functional currency of the Company’s foreign subsidiaries is the local currency, all assets and liabilities are translated into U.S. dollars at the current rates of exchange as of the balance sheet date and revenues and expenses are translated using weighted average rates prevailing during the period. Accounts and transactions denominated in foreign currencies have been remeasured into functional currencies before translation into U.S. dollars. Foreign currency transaction gains and losses are included as a component of interest income and other. Gains and losses from foreign currency translation are included as a separate component of comprehensive income.

          Minority interest in a subsidiary represents the minority stockholders’ proportionate share of the net assets and the results of operations for one of the Company’s majority-owned Japanese subsidiaries. Sales of common stock of the Company’s subsidiary and purchases of such shares may result in changes in the Company’s proportionate share of the subsidiary’s net assets.

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from these estimates.

          Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2003 presentation.

          Acquisitions.  The estimated fair value of acquired assets and assumed liabilities and the results of operations for acquisitions accounted for under the purchase method of accounting are included in the Company’s consolidated financial statements as of the effective date of the purchase, through the end of the period.  The total purchase price is allocated to the estimated fair value of assets acquired and liabilities assumed based on management estimates.  The fair value of common shares issued for acquisitions was determined using the average closing stock price for the period of two days before and after the date the number of LSI common shares to be issued was fixed.  The purchase price includes direct acquisition costs consisting of investment banking, legal and accounting fees.  There were no significant differences between the accounting policies of the Company and the acquired entities.  There were no acquisitions in 2003. See Note 2 for prior year acquisitions.

          Cash equivalents.  All highly liquid investments purchased with an original maturity of 90 days or less are considered to be cash equivalents.  Cash equivalents are reported at amortized cost plus accrued interest.

          Accounts receivable and allowance for doubtful accounts.  Trade receivables are reported in the balance sheet reduced by an allowance for doubtful accounts for estimated losses resulting from receivables

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not considered to be collectible. The allowance for doubtful accounts is estimated by evaluating customer’s history and credit worthiness as well as current economic and market trends. 

          Investments.  Available-for-sale investments include marketable short-term investments and long-term investments in marketable and non-marketable shares of technology companies.  Short-term investments in marketable debt securities are reported at fair value and include all debt securities regardless of their maturity dates.  Long-term investments in marketable equity securities are reported at fair value with unrealized gains and losses, net of related tax, recorded as a separate component of comprehensive income in stockholders’ equity until realized.  The investments in long-term restricted and non-marketable equity securities are recorded at cost.  Gains and losses on securities sold are determined based on the specific identification method and are included in interest income and other and research and development. The Company does not hold any of these securities for speculative or trading purposes.

          For all investment securities, unrealized losses that are considered to be other than temporary are considered impairment losses and recognized as a component of interest income and other.  In order to determine if an impairment has occurred, the Company reviews the financial performance of each investee, industry performance and outlook for each investee, the trading prices of marketable securities and pricing in current rounds of financing for non-marketable equity securities.  For marketable equity securities, the impairment losses were measured using the closing market price of the marketable securities on the date management determined that the investments were impaired.  For non-marketable equity securities, the impairment losses were measured by using pricing in current rounds of financing.

          Inventories. Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard basis (which approximates first-in, first-out) for raw materials, work-in-process and finished goods.  Inventory reserves are established when conditions indicate that the selling price could be less than cost due to physical deterioration, obsolescence, changes in price levels, or other causes.  Reserves are established for excess inventory generally based on inventory levels in excess of 12 months of demand, as judged by management, for each specific product. 

          Property and equipment. Property and equipment are recorded at cost and include interest on funds borrowed during the construction period.  Depreciation and amortization for property and equipment are calculated based on the straight-line method over the estimated useful lives of the assets as presented below:

Buildings and improvements	20–40 years
Equipment	3–5 years
Furniture and fixtures	5 years

          Amortization of leasehold improvements is computed using the shorter of the remaining term of the Company’s facility leases or the estimated useful lives of the improvements. Depreciation for property and equipment totaling $149 million, $206 million and $273 million was included in the Company’s results of operations during 2003, 2002 and 2001, respectively.

          Software. The Company capitalizes both purchased software and, to a lesser extent, certain software development costs associated with its Storage Systems segment.  Purchased software primarily includes purchased software and external consulting fees related to the purchase and implementation of software projects used for business operations and engineering design activities.  Capitalized software projects are amortized over the estimated useful lives of the projects, typically a two-to-five year period.  Development costs for software that will be sold to customers and/or embedded in certain hardware products are capitalized beginning when a product’s technological feasibility has been established.  Capitalized development costs are amortized to cost of revenues when ready for general release to customers over the estimated useful life of the product, typically an 18 to 24 month period.  The Company had $125 million and $163 million of capitalized software costs and $118 million and $144 million of accumulated amortization included in other assets at December 31, 2003 and 2002, respectively.  Software amortization totaling $25 million, $43 million and $56 million was included in the Company’s results of operations during 2003, 2002 and 2001, respectively.

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          Impairment of long-lived assets and lease guarantees.  The Company evaluates the carrying value of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use and eventual disposition of the asset. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values. When assets are removed from operations and held for sale, the impairment loss is estimated as the excess of the carrying value of the assets over their fair value.

          The Company guarantees the residual values of equipment associated with two operating leases (see Note 13 of the Notes).  If it becomes probable that a loss on the guarantees will occur, the Company would immediately recognize the deficiency as additional rent expense on a straight-line basis over the remaining term of the lease.  In order to assess whether or not a loss has occurred, the Company uses management estimates to estimate the residual value of the equipment.  These estimates include assumptions about future conditions within the Company and industry.  The Company tests for potential loss annually or sooner if events or changes in circumstances indicate that the residual value of the equipment may be lower than the guaranteed residual value.

          Self-insurance. The Company retains certain exposures in its insurance plan under self-insurance programs. Reserves for claims made and reserves for estimated claims incurred but not yet reported are recorded as current liabilities.

          Product warranties.  The Company warrants finished goods against defects in material and workmanship under normal use and service for periods of one to five years for Semiconductor products and Storage Systems’ hardware products and 90 days for Storage Systems’ software products.  A liability for estimated future costs under product warranties is recorded when products are shipped. See Note 13 of the Notes.

          Fair value disclosures of financial instruments.  The estimated fair value of financial instruments is determined by the Company, using available market information and valuation methodologies considered to be appropriate. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.  The fair value of investments, derivative instruments and convertible debt are based on market data.  Carrying amounts of accounts receivable and accounts payable approximate fair value due to the short maturity of these financial instruments. 

          Derivative instruments.  All of the Company’s derivative instruments are recognized as assets or liabilities in the statement of financial position and measured at fair value (see Note 7 of the Notes).  The Company does not enter into derivative financial instruments for speculative or trading purposes.  On the date a derivative contract is entered into, the Company designates its derivative as either a hedge of the fair value of a recognized asset or liability (“fair-value” hedge), as a hedge of the variability of cash flows to be received (“cash-flow” hedge), or as a foreign-currency hedge.  Changes in the fair value of a derivative that is highly effective and is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current period earnings.  Effective changes in the fair value of a derivative that is highly effective and is designated and qualifies as a cash-flow hedge, are recorded in other comprehensive income, until earnings are affected by the variability of the cash flows.  Changes in the fair value of derivatives that are highly effective, and are designated and qualify as a foreign-currency hedge, are recorded in either current period earnings or other comprehensive income, depending on whether the hedge transaction is a fair-value hedge (e.g., a hedge of a firm commitment that is to be settled in a foreign currency) or a cash-flow hedge (e.g., a foreign-currency-denominated forecasted transaction). 

          The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value, cash-flow or foreign-currency hedges to

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specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.  If it were to be determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company would discontinue hedge accounting prospectively, as discussed below.

          The Company would discontinue hedge accounting prospectively when (1) it is determined that the derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated or exercised; (3) the derivative is no longer designated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) the hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate.

          When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as a highly effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was previously recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in current period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings.  When a fair value hedge on an interest-bearing financial instrument (such as an interest rate swap) is cancelled and hedge accounting is discontinued, the hedged item is no longer adjusted for changes in its fair value, and the remaining asset or liability will be amortized to earnings over the remaining life of the hedged item. 

          Concentration of credit risk of financial instruments. Financial instruments that potentially subject the Company to credit risk consist of cash equivalents, short-term investments, interest rate swaps and accounts receivable. Cash equivalents, short-term investments and interest rate swaps are maintained with high quality institutions, the composition and maturities of which are regularly monitored by management. A majority of the Company’s trade receivables are derived from sales to large multinational computer, communication, networking, storage and consumer electronics manufacturers, with the remainder distributed across other industries.  No customers accounted for greater than 10% of trade receivables as of December 31, 2003 and 2002.  Concentrations of credit risk with respect to all other trade receivables are considered to be limited due to the quantity of customers comprising the Company’s customer base and their dispersion across industries and geographies.  The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral as considered necessary. Write-offs of uncollectable amounts have not been significant.

          Revenue recognition. Product revenue is primarily recognized upon shipment, when persuasive evidence of a sales arrangement exists, the price is fixed or determinable, title has transferred and collection of resulting receivables is reasonably assured or probable in the case of software.  Standard products sold to distributors are subject to specific rights to return products; therefore, revenue recognition is deferred until the distributor sells the product to a third party.  Revenue from the licensing of the Company’s design and manufacturing technology is recognized when the significant contractual obligations have been fulfilled. Royalty revenue is recognized upon the sale of products subject to royalties. The Company uses the percentage-of-completion method for recognizing revenues on fixed-fee design arrangements.  All amounts billed to a customer related to shipping and handling are classified as revenues while all costs incurred by the Company for shipping and handling are classified as cost of revenues.  Consideration given to customers, when offered, is primarily in the form of discounts and rebates.  Such consideration is accounted for as a reduction to revenues in the period the related sale is made.  Reserves for estimated sales returns are established based on historical returns experience.  The Company has substantial historical experience to form a basis for estimating returns when products are shipped.

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          The provisions of Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions”, are applied to all transactions involving the sale of software and hardware products where software is considered more than incidental to the hardware products.

          The provisions of Emerging Issues Task Force (“EITF”) issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” apply to sales arrangements with multiple arrangements that include a combination of hardware, software and/or services. For multiple element arrangements, revenue is allocated to the separate elements based on fair value, which is determined using the price charged when the element is sold separately. If an arrangement includes undelivered elements that are not essential to the functionality of the delivered elements, the Company defers the fair value of the undelivered elements and the residual revenue is allocated to the delivered elements.  If the undelivered elements are essential to the functionality of the delivered elements, no revenue is recognized.  Discounts are allocated only to the delivered elements.  Undelivered elements typically include installation, training, software warranty and maintenance, hardware maintenance and professional services.

          Advertising. Advertising costs are charged to expense in the period incurred. Advertising expense was $4 million, $3 million and $4 million for the years ended December 31, 2003, 2002, and 2001 respectively.

          Income Taxes.  Deferred tax assets and liabilities are recognized for temporary differences between financial statement and income tax bases of assets and liabilities.  Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. 

          Stock-based compensation. The Company accounts for stock-based compensation, including stock options granted and shares issued under the Employee Stock Purchase Plan, using the intrinsic value method as prescribed in APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.  Compensation cost for stock options, if any, is measured as the excess of the quoted market price at grant date over the exercise price and recognized ratably over the vesting period. The Company’s policy is to grant options with an exercise price equal to the quoted market price of the Company’s stock on the grant date. 

          For all acquisitions that closed after July 2000, the intrinsic value of the unvested options, restricted awards and warrants assumed as part of the acquisitions as of the closing date of the acquisitions was recorded as deferred stock compensation as a component of the purchase price to be amortized over the respective vesting periods of the options and awards. The Company calculated the value of restricted shares issued using the closing price of its common stock on the date of consummation of the purchase.  The fair value of the options and warrants assumed was determined using the Black Scholes model.  Deferred stock compensation is included as a component of stockholders’ equity and is amortized straight line over the vesting period of one to four years.

          The following table provides pro forma disclosures as if the Company had recorded compensation costs based on the estimated grant date fair value, as defined by SFAS No. 123, for all awards granted under its stock option and stock purchase plans, the Company’s net loss per share would have been adjusted to the pro forma amounts below. 

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	Year ended December 31,
	2003			2002			2001
	(In thousands, except per share amounts)
Net loss, as reported	$	(308,547	)	$	(292,440	)	$	(991,955	)
Add:  Amortization of non-cash deferred stock compensation expense determined under the intrinsic value method as reported in net loss, net of related tax effects *		9,243			30,583			44,772
Deduct:  Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(200,470	)		(253,599	)		(247,561	)
Pro forma net loss**	$	(499,774	)	$	(515,456	)	$	(1,194,744	)
Loss per share:
Basic and diluted -as reported	$	(0.82	)	$	(0.79	)	$	(2.84	)
Basic and diluted -pro forma	$	(1.32	)	$	(1.39	)	$	(3.42	)

*  This amount excludes amortization of non-cash deferred stock compensation on restricted stock awards.
 **  These amounts have been adjusted to reflect higher calculated fair values for the Employee Stock Purchase Plan, which resulted in a 2% and 0.4% increase in the pro forma net loss in 2002 and 2001, respectively.

          The stock-based compensation expense determined under the fair value method, included in the table above, was calculated using the Black-Scholes model.  The assumptions used in this model are discussed further in Note 10 of the Notes.

          Earnings per share.  Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be repurchased upon the exercise of stock options. A reconciliation of the numerators and denominators of the basic and diluted per share amount computations is as follows:

	Year Ended December 31,
	2003								2002								2001
	(Loss)*			Shares+		Per-Share Amount			(Loss)*			Shares+		Per-share Amount			(Loss)*			Shares+		Per-Share Amount
	(In thousands except per share amounts)
Basic EPS:
Net loss available to common stockholders	$	(308,547	)		377,781	$	(0.82	)	$	(292,440	)		370,529	$	(0.79	)	$	(991,955	)		349,280	$	(2.84	)
Effect of dilutive securities:
Stock options and restricted stock awards		—			—		—			—			—		—			—			—		—
Diluted EPS:
Net loss available to common stockholders	$	(308,547	)		377,781	$	(0.82	)	$	(292,440	)		370,529	$	(0.79	)	$	(991,955	)		349,280	$	(2.84	)

          *          Numerator
          +          Denominator

          Options to purchase approximately 69,165,802, 57,064,593 and 73,996,916 shares were outstanding at December 31, 2003, 2002 and 2001, respectively, and were excluded from the computation of diluted shares because of their antidilutive effect on earnings per share as the Company incurred a net loss for these years.  The exercise price of these options ranged from $0.06 to $72.25 at December 31, 2003 and 2002 and from $0.01 to $72.25 at December 31, 2001. 

          A total of 50,850,649 weighted average potentially dilutive shares associated with the 2003, 2001, 2000 and 1999 Convertible Notes were excluded from the calculation of diluted shares because of their antidilutive effect on loss per share for the year ended December 31, 2003. For the years ended December

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31, 2002 and 2001, 47,059,516 and 32,277,323 weighted average potentially dilutive shares respectively, associated with the 2001, 2000 and 1999 Convertible Notes were excluded from the calculation of diluted shares because of their antidilutive effect on loss per share.

          Related party transactions.  There were no significant related party transactions during the years ended December 31, 2003, 2002 and 2001, other than as listed in Note 5. 

          Recent accounting pronouncements. 

          In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition.  SAB 104 supercedes SAB 101, Revenue Recognition in Financial Statements.  The primary purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF 00-21. Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers (the FAQ) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The issuance of SAB 104 did not have a material impact on the Company’s financial position, results of operations or cash flows.

          In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-10, Application of EITF Issue No. 02-16,”Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, by Resellers to Sales Incentives Offered to Consumers by Manufacturers”.  This issue clarifies whether consideration received by a reseller from a vendor that is reimbursement by the vendor for honoring the vendor’s sales incentives offered directly to consumers should be recorded as a reduction of the cost of the reseller’s cost of sales.  The provisions of EITF Issue No. 03-10 should be applied prospectively in fiscal years beginning after December 15, 2003 with no early adoption or retroactive reclassification permitted.  The adoption of this standard is not expected to have a material impact on the Company’s consolidated balance sheet or statements of operations.

          In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.”  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 were to be applied for the first interim or annual period beginning after June 15, 2003.  In December 2003, the FASB released a revision of FIN 46 to address various implementation issues and modify the effective date for applying the provisions of FIN 46.  A public entity shall apply the provisions of the FIN 46 revision no later than the end of the first reporting period that ends after March 15, 2004. However, a public entity shall apply FIN 46 to entities considered to be special-purpose entities no later than as of the end of the first reporting period that ends after December 15, 2003. On March 28, 2003, the Company entered into new operating leases to refinance the old leases.  See Note 13 of the Notes.  The Company refinanced these leases in a manner that best met the Company’s capital financing strategy, and cost of capital objectives and the new leases are not subject to the consolidation provisions of FIN 46.  The Company believes that the adoption of this standard will not have a material impact on its consolidated balance sheet or statement of operations. 

Note 2- Business Combinations

          The Company is continually exploring strategic acquisitions that build upon our existing library of intellectual property, human capital and engineering talent, and increase our leadership position in the markets in which we operate.  Below is a discussion of recent acquisitions and acquired in-process research and development.

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          There were no material acquisitions in 2003. Certain restricted shares issued in connection with the AMI acquisition (see below for details) were cancelled in 2003 due to voluntary termination of employment of certain employees prior to vesting of theses shares and recorded as forfeiture of restricted shares in the consolidated statements of stockholders’ equity.

2002

          During 2002, the Company completed two acquisitions accounted for under the purchase method of accounting.  Pro forma statements of earnings information have not been presented because the effect of these 2002 acquisitions was not material either on an individual or an aggregate basis.  See summary table below (in millions, except per share amounts):

Entity name or type of technology; Segment included in; Description of acquired business	Acquisition date	Total Purchase price		Type of Consideration	Fair Value of tangible net assets/ (liabilities) acquired		Goodwill		Current technology, trademarks and supply agreement		IPR&D		Deferred compensation
Mylex Business Unit of IBM; Storage Systems and Semiconductor segments; entry level storage systems and PCI-RAID products	August 2002		$50.5	Cash		$14.1		$20.5		$14.0		$1.9		$ -
Digital video product technologies; Semiconductor segment	November 2002		6.7	Cash		(0.2)		2.9		1.8		1.0		1.2

2001

          During 2001, the Company completed two acquisitions accounted for under the purchase method of accounting.  An unaudited pro forma statement of earnings information has not been presented for the RAID business because the effects of this acquisition were not material.  See summary table below (in millions, except per share amounts):

Entity name, Segment included in; Description of acquired business	Acquisition date	Total Purchase price		Type of Consideration	Fair Value of tangible net assets/ (liabilities) acquired		Goodwill		Current technology & trademarks		IPR&D		Deferred compensation
RAID Division of AMI; Semiconductor segment; Redundant Array of Independent Disks (“RAID”)	August 2001		$240.5	$224 cash 0.8 million restricted common shares		$ (1.4)		$128.9		$77.5		$19.1		$16.4
C-Cube; Semiconductor segment; Digital video products	May 2001		893.7	40.2 million shares issued at $18.73 per share, 10.6 million options assumed, 0.8 million warrants assumed		64.3		608.1		94.5		77.5		49.3

          Pro forma results for C-Cube acquisition. The following unaudited pro forma summary is provided for illustrative purposes only and is not necessarily indicative of the consolidated results of operations for future periods or that actually would have been realized had the Company and C-Cube been a consolidated

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entity during the periods presented. The summary combines the results of operations as if C-Cube had been acquired as of the beginning of the period presented.

          The summary includes the impact of certain adjustments such as amortization of intangibles and non-cash deferred stock compensation.  Additionally, the acquired in-process research and development charge of $78 million shown above in the table has been excluded from the period presented as it arose from the acquisition of C-Cube and is a non-recurring amount. The restructuring of operations and other items of $220 million were included in the pro forma calculation as the charges did not relate to the acquisition of C-Cube (see Note 4).

	Year ended December 31, 2001
	(Unaudited)
	(In thousands, except per-share amounts)
Revenues	$	1,851,659
Net loss	$	(962,488	)
Basic and diluted loss per share	$	(2.65	)

          Acquired in-process research and development.  The Company recorded acquired in-process research and development (“IPR&D”) charges of $3 million and $97 million for the years ended December 31, 2002 and 2001, respectively.  No IPR&D charges were recorded for the year ended December 31, 2003.  The details for the major acquisitions at the acquisition dates are summarized in the table below. 

Company	Acquisition Date	IPR&D	Discount  rate	Percentage of Completion	Revenue projections extend through
(dollar amounts in millions)
Mylex Division of IBM	August 2002	$1.9	25%	10% to 50%	2006
RAID Division of AMI	August 2001	19.1	20%	12% to 62%	2006
C-Cube	May 2001	77.5	27.5%	61% to 84%	2006

          The amounts of IPR&D were determined by identifying research projects for which technological feasibility had not been established and no alternative future uses existed as of the respective acquisition dates.  The value of the projects identified to be in progress was determined by estimating the future cash flows from the projects once commercially feasible, discounting the net cash flows back to their present value and then applying a percentage of completion to the calculated value.  The net cash flows from the identified projects were based on estimates of revenues, cost of revenues, research and development costs, selling, general and administrative costs and applicable income taxes for the projects.  Total revenues for the projects are expected to extend through the dates noted in the table above by acquisition.  These projections were based on estimates of market size and growth, expected trends in technology and the expected timing of new product introductions by our competitors and the Company. These estimates did not account for any potential synergies realizable as a result of the acquisition and were in line with industry averages and growth estimates. 

          The percentage of completion for the projects was determined using the percentage of research and development expenses method.  This method calculates expenses incurred up to the acquisition dates as a percentage of total research and development expenses to bring the projects to technological feasibility.

          A discount rate is used for the projects to account for the risks associated with the inherent uncertainties surrounding the successful development of the IPR&D, market acceptance of the technology, the useful life of the technology, the profitability level of such technology and the uncertainty of technological advances,

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which could impact the estimates described above.  As of December 31, 2003, all projects were completed or written-off as discussed further in Note 4.

Note 3-Goodwill and Intangible Assets

          The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. As a result, goodwill is no longer amortized, but is instead tested for impairment annually or sooner if circumstances indicate that it may no longer be recoverable. In addition, intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS No. 141, “Business Combinations” have been reclassified to goodwill.  Assembled workforce, net of accumulated amortization of $56 million, was reclassified to goodwill.

          Upon adoption, the Company completed the transitional goodwill impairment assessment required by SFAS No. 142 and concluded that goodwill was not impaired as of January 1, 2002.  The annual impairment tests performed as of December 31, 2003 and 2002 indicated that goodwill was not impaired.  For the purpose of measuring the impairment, goodwill was assigned to reporting units as defined by SFAS No. 142. The reporting units identified by the Company are Semiconductor and Storage Systems.

          Goodwill and intangible assets by reportable segment are comprised of the following (in thousands):

	December 31, 2003					December 31, 2002
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Unamortized intangible assets:
Semiconductor	$	887,992	$	—		$	887,990	$	—
Storage Systems		80,491		—			80,474		—
Total goodwill (a)		968,483		—			968,464		—
Amortized intangible assets:
Semiconductor:
Current technology		319,364		(195,837	)		372,260		(159,295	)
Trademarks		29,684		(15,981	)		37,347		(13,589	)
Subtotal		349,048		(211,818	)		409,607		(172,884	)
Storage Systems:
Current technology		50,039		(33,802	)		67,080		(32,773	)
Trademarks		3,750		(2,458	)		3,750		(1,954	)
Customer base		5,010		(2,540	)		5,010		(1,684	)
Supply agreement		7,247		(3,240	)		7,247		(820	)
Subtotal		66,046		(42,040	)		83,087		(37,231	)
Total	$	1,383,577	$	(253,858	)	$	1,461,158	$	(210,115	)

(a)  Goodwill is net of accumulated amortization immediately prior to the adoption of SFAS No. 142.

          The changes in the carrying amount of goodwill for the years ended December 31, 2002 and 2003 are as follows (in thousands):

	Semiconductor segment			Storage Systems segment		Total
Balance as of January 1, 2002	$	892,212		$	59,968	$	952,180
Goodwill acquired during the year		2,915			20,506		23,421
Adjustment to goodwill acquired in a prior year for a tax refund		(7,137	)		—		(7,137	)
Balance as of December 31, 2002	$	887,990		$	80,474	$	968,464
Adjustment to goodwill acquired in prior periods		2			17		19
Balance as of December 31, 2003	$	887,992		$	80,491	$	968,483

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          Amortization expense is comprised of the following (in thousands):

	Year Ended December 31,
	2003		2002		2001
Goodwill	$	—	$	—	$	130,339
Current technology		67,742		70,713		52,456
Trademarks		5,334		6,248		4,621
Customer base		856		836		835
Supply agreement		2,420		820		—
Total	$	76,352	$	78,617	$	188,251

          The amounts allocated to current technology, trademarks, customer base and supply agreement are being amortized over their estimated weighted average useful lives of two to six years.

          The estimated future amortization expense of intangible assets as of December 31, 2003 is as follows (in millions):

	Amount:
Fiscal year:
2004	$	70
2005		60
2006		29
2007		2
	$	161

          Pro forma net loss and pro forma net loss per share excluding amortization expense for goodwill are as follows (in thousands):

	Year Ended December 31,
	2003			2002			2001
Net loss, as reported	$	(308,547	)	$	(292,440	)	$	(991,955	)
Add back goodwill amortization		—			—			130,339
Pro forma net loss		(308,547	)		(292,440	)		(861,616	)
Basic loss per share, as reported	$	(0.82	)	$	(0.79	)	$	(2.84	)
Add back goodwill amortization		—			—			0.37
Basic pro forma loss per share	$	(0.82	)	$	(0.79	)	$	(2.47	)
Diluted loss per share, as reported	$	(0.82	)	$	(0.79	)	$	(2.84	)
Add back goodwill amortization		—			—			0.37
Diluted loss per share	$	(0.82	)	$	(0.79	)	$	(2.47	)

Note 4-Restructuring and other items

2003

          The Company recorded charges of $181 million in restructuring of operations and other items for the year ended December 31, 2003 consisting of $183 million in charges for restructuring of operations, and a gain of  $2 million for other items.  Of these charges, $166 million was recorded in the Semiconductor segment and $15 million was included in the Storage Systems segment. 

          Restructuring and impairment of long-lived assets:

          On January 1, 2003, the Company 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. 

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          First quarter of 2003:

          In February 2003, the Company downsized operations and recorded $36 million in charges for restructuring of operations and other items. Of this charge, $21 million was associated with the Semiconductor segment and $15 million was attributable to the Storage Systems segment.  The charges consisted of severance and termination benefits of $5 million for 210 employees involved in manufacturing operations, research and development and marketing and sales; $1 million for costs associated with exiting certain operating leases primarily for real estate; and write-downs of $24 million for certain acquired intangible assets, $4 million for capitalized software and $2 million for fixed assets.  During the year ended December 31, 2003, payments related to the February 2003 restructuring actions consisted of approximately $4 million for severance and termination benefits and $1 million for lease and contract terminations.

          Second quarter of 2003:

          In April 2003, the Company announced a restructuring of its operations that included a reduction in workforce and the consolidation of certain non-manufacturing facilities. A charge of $33 million was recorded in the Semiconductor segment consisting of severance and termination benefits of $9 million for 325 employees involved in manufacturing operations, research and development, marketing, sales and administration; $19 million for costs associated with exiting certain operating leases primarily for real estate; other exit costs of $0.2 million; and a write-down of $5 million for fixed assets due to impairment.  During the year ended December 31, 2003, payments related to the April 2003 restructuring actions consisted of approximately $9 million for severance and termination benefits, $3 million for lease and contract terminations and $0.1 million for other exit costs.

          In June 2003, the Company announced the decision to sell the Tsukuba, Japan manufacturing facility.  During the second quarter, a charge of $73 million was recorded in the Semiconductor segment to write down fixed assets to their fair market value.  The fair value was reclassified from property, plant and equipment to other current assets to reflect the intention to dispose of the facility within the next twelve months.  In addition, approximately $2 million in restructuring charges were recorded in the second quarter for severance and other exit costs.  See further discussion in the third quarter below. 

          In June 2003, the Company also recorded $19 million of additional fixed asset write-downs to reflect the decrease in fair market value of the assets during the period.  This write-down included a reduction in the value of the Colorado Springs fabrication facility of $16 million to reflect continued and accelerated efforts to sell the facility. 

          Third quarter of 2003:

          Agreement to sell Japan fabrication facility:

          In September 2003, the Company entered into a definitive agreement to sell the Tsukuba, Japan facility to Rohm Company Ltd. (“Rohm”), a Japanese company.  The sale closed during November 2003 for 2.82 billion yen (approximately $26 million).  As part of the definitive agreement, the Company agreed to purchase a minimum amount of production wafers from Rohm for a period of 15 months following the close of the transaction.  As a result, a charge of $4 million was recorded in cost of revenues during the third quarter of 2003.  This charge is a result of the application of our policy to accrue for non-cancelable inventory purchase commitments in excess of 12 months of estimated demand.  Included in the $4 million charge to cost of revenues is a reclassification of $3 million from restructuring expense originally recorded in the second quarter of 2003 to better reflect the terms of the definitive agreement.  Also in the quarter, $2 million was recorded for additional severance benefits to be paid and for contract termination and other exit costs associated with the definitive agreement.  During the year ended December 31, 2003, payments related to the Japan restructuring actions consisted of approximately $1 million for severance and termination benefits and $0.2 million for lease and contract terminations.

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          Other third quarter 2003 restructuring actions:

          In the third quarter of 2003, the Company continued to consolidate non-manufacturing facilities and recorded $2 million for costs associated with exiting certain operating leases for real estate as the facilities ceased being used.

          In September 2003, the Company decided to discontinue development programs and to refocus sales and marketing efforts for certain product lines in the Semiconductor segment.  As a result of an analysis of future net cash flows related to the affected product lines, it was determined that certain acquired intangible assets were impaired.  An impairment charge of $21 million related to the write-down of the acquired intangible assets to fair market value was recorded in the third quarter of 2003.  These intangible assets were originally acquired in connection with the acquisition of C-Cube Microsystems in the second quarter of 2001.  In addition, $3 million in restructuring charges were recorded in the third quarter of 2003.  These charges related to severance and termination benefits for 97 employees primarily involved in research and development and for certain contract termination costs and fixed assets write downs due to impairment. The severance benefits were paid during the third quarter of 2003.

          Fourth quarter of 2003:

          In the fourth quarter of 2003, the Company reversed approximately $2 million of previously accrued restructuring expenses.  The reversal was primarily due to the combination of a favorable negotiation to terminate leases for real property and severance payments that were lower than expected due to the timing of the sale of the Japan manufacturing facility to Rohm.  An expense of $1 million recorded to reflect the change in time value of accruals for facility lease termination costs and the write down of fixed assets due to impairment.  Certain other reclassifications were made between asset decommissioning costs and other facility closure costs to reflect changes in management estimates for the remaining costs for these activities.

          In December 2003, the Company recorded $2 million of additional fixed asset write-downs to reflect the decrease in fair market value of the assets during the period.  The Company also recorded a realized gain of $5 million on the sale of fixed assets that had previously been held for sale.

          The fair value of equipment, facilities and intangible assets determined to be impaired was the result of the use of management estimates.  Given that current market conditions for the sale of older fabrication facilities and related equipment may fluctuate, there can be no assurance that the Company will realize the current net carrying value of the assets held for sale. The Company reassesses the realizability of the carrying value of these assets at the end of each quarter until the assets are sold or otherwise disposed of and additional adjustments may be necessary.  Assets held for sale of $30 million and $74 million were included as a component of prepaid expenses and other current assets as of December 31, 2003 and December 31, 2002, respectively.  Assets classified as held for sale are not depreciated.

          The following table sets forth the Company’s restructuring reserves as of December 31, 2003, which are included in other accrued liabilities on the balance sheet:

	Balance at December 31, 2002		Restructuring Expense 2003		Release of reserve and reclassifications			Utilized during 2003			Balance at December 31, 2003
	(In thousands)
Write-down of excess assets (a)	$	6,008	$	147,454	$	(6,422	)	$	(144,379	)	$	2,661
Lease terminations and maintenance contracts (b)		6,757		23,444		(1,146	)		(8,034	)		21,021
Facility closure and other exit costs (c)		8,129		1,072		1,203			(8,268	)		2,136
Payments to employees for severance (d)		1,391		18,095		(928	)		(17,684	)		874
Total
Total	$	22,285	$	190,065	$	(7,293	)	$	(178,365	)	$	26,692

(a) The amounts utilized in 2003 reflect $142 million of non-cash write-downs of amortizable intangible and other long-lived assets in the U.S and Japan due to impairment, and $2 million in cash payments to decommission and sell assets.  The write-downs of the intangible and other long-lived assets were accounted for as a reduction of the assets and did not result in a liability. The $3 million balance as of

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	December 31, 2003 relates to machinery and equipment decommissioning costs in U.S. and estimates of selling costs for assets held for sale, which is expected to be utilized during 2004.
(b)	Amounts utilized represent cash payments.  The balance remaining for primarily real estate lease terminations and maintenance contracts will be paid during the remaining terms of these contracts, which extend through 2011.
(c)	Amounts utilized represent cash payments.  The balance remaining for facility closure and other exit costs will be paid during 2004.
(d)	Amounts utilized represent cash severance payments to 777 employees during 2003. The balance remaining for severance is expected to be paid by the end of the first quarter of 2004.

Other items:

          A gain of approximately $2.2 million was recorded in restructuring and other items, net during the second quarter of 2003 associated with additional sales of intellectual property associated with the CDMA handset product technology. 

2002

          The Company recorded approximately $67.1 million in restructuring of operations and other items for the year ended December 31, 2002, consisting of $75.2 million for restructuring of operations, and a gain of  $8.1 million for other items including the gain on sale of CDMA handset product technology.  Restructuring of operations and other items were primarily included in the Semiconductor segment; the restructuring expense included in the Storage Systems segment was not significant.

Restructuring and impairments of long-lived assets:

          In the first quarter of 2002, the Company announced a set of actions to reduce costs and streamline operations. These actions included a worldwide reduction in workforce, downsizing the Company’s manufacturing operations in Tsukuba, Japan and the decision to exit the CDMA handset product technology.  During the three months ended March 31, 2002, the Company recorded a restructuring charge for severance for 1,150 employees worldwide and exit costs primarily associated with cancelled contracts and operating leases.  As a result of the restructuring actions, the Company recorded fixed asset write-downs due to impairment in the U.S. and Japan for assets to be disposed of by sale.  In the second quarter of 2002, the Company completed the sale of CDMA handset product technology to a third party, recognizing a net gain of $6.4 million.

          During the fourth quarter of 2002, the Company reversed approximately $5 million of previously accrued restructuring expenses.  As a result of the Company’s decision to terminate fewer employees than the original plan contemplated in Tsukuba, Japan, previously accrued restructuring expenses were reversed for termination benefits including outplacement costs and certain contract termination fees of $7 million.  This was offset by additional expense accruals of $2 million for costs related to the previously announced closure of the Colorado Springs fabrication facility.  Certain other reclassifications were made between lease and contract terminations and facility closure and other exit costs to reflect changes in management estimates for the remaining costs for these activities.

          In September 2002, the Company recorded $13 million of additional fixed asset write-downs to reflect the decrease in the fair market value of the assets during the period. 

          The following table sets forth the Company’s restructuring reserves as of December 31, 2002, which are included in other accrued liabilities on the balance sheet:

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	Balance at December 31, 2001		Restructuring Expense 2002		Release of reserve and reclassifications			Utilized during 2002			Balance at December 31, 2002
	(In thousands)
Write-down of excess assets (a)	$	3,762	$	38,918	$	5,147		$	(41,819	)	$	6,008
Lease terminations and maintenance contracts(c)		10,695		12,871		(10,559	)		(6,250	)		6,757
Facility closure and other exit costs (c)		14,153		415		4,058			(10,497	)		8,129
Payments to employees for severance (b)		724		27,490		(3,150	)		(23,673	)		1,391
Total	$	29,334	$	79,694	$	(4,504	)	$	(82,239	)	$	22,285

(a)	Amounts utilized in 2002 reflect a non-cash write-down of fixed assets in the U.S. and Japan due to impairment of $38.3 million and cash payments for machinery and equipment decommissioning costs of $3.5 million. The fixed asset write-downs were accounted for as a reduction of the assets and did not result in a liability. The $6.0 million balance as of December 31, 2002 relates to machinery and equipment decommissioning costs in the U.S and selling costs for assets held for sale.
(b)	Amounts utilized represent cash severance payments to 1,290 employees during the year ended December 31, 2002. The $1.4 million balance as of December 31, 2002 was paid during 2003.
(c)	Amounts utilized represent cash payments.

Other items:

          The Company recorded a net gain of $1.7 million in other items during the first quarter of 2002, which consisted of a nonrefundable deposit paid to the Company in the first quarter of 2002 related to the termination of the agreement to sell the Colorado Springs fabrication facility during 2001, offset in part by certain costs associated with maintaining CDMA handset product technology until sold.

2001

          The Company recorded approximately $219.6 million in restructuring of operations and other items for the year ended December 31, 2001, consisting of $207.2 million for restructuring of operations and $12.4 million for other items. Restructuring of operations and other items were primarily included in the Semiconductor segment; the restructuring expense included in the Storage Systems segment was not significant.

Restructuring and impairments of long-lived assets:

          In September 2001, the Company announced the consolidation of U.S. manufacturing operations to Gresham, Oregon including the transfer of process research and development from Santa Clara, California to Gresham, Oregon.  The Company also announced the closure of certain assembly activities in Fremont, California, which would be transferred offshore.  As a result of these actions, the Company recorded a restructuring charge of $95.0 million, including fixed asset write-downs due to impairment as a result of the restructuring actions in the U.S., losses on operating leases for equipment and facilities, severance for approximately 600 employees across multiple company activities and functions in the U.S., Europe, Japan and Asia Pacific, as well as other exit costs. 

          In April 2001, the Company announced the closure of the Company’s Colorado Springs fabrication facility.  This facility was closed in the fourth quarter of 2001.  The Company recorded an impairment charge of $130.5 million relating to the facility, of which approximately $35.0 million was recorded in cost of sales and $95.5 million was recorded in restructuring charges.  The restructuring charges consisted of fixed asset write-downs due to impairment as a result of the restructuring actions, losses on operating leases for equipment, severance for 413 manufacturing employees and other exit costs.  

          During the second quarter of 2001, the Company recorded an additional $16.8 million in restructuring charges primarily associated with the write-down of fixed assets due to impairment as a result of the restructuring actions in the U.S., Japan and Hong Kong and severance charges for 240 employees across multiple company activities and functions in the U.S., Europe and Asia Pacific. 

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          The following table sets forth our restructuring reserves as of December 31, 2001, which are included in other accrued liabilities on the balance sheet:

	Restructuring Expense 2001		Utilized during 2001			Balance at December 31, 2001
	(In thousands)
Write-down of excess assets (a)	$	139,724	$	(135,962	)	$	3,762
Lease terminations and maintenance contracts(c)		26,912		(16,217	)		10,695
Facility closure and other exit costs (c)		24,242		(10,089	)		14,153
Payments to employees for severance (b)		16,346		(15,622	)		724
Total	$	207,224	$	(177,890	)	$	29,334

(a)	Amounts utilized in 2001 reflect a non-cash write-down of fixed assets in the U.S., Japan and Hong Kong due to impairment of $133.8 million and cash payments for machinery and equipment decommissioning costs of $2.2 million. The fixed asset write-downs were accounted for as a reduction of the assets and did not result in a liability. The $3.8 million balance as of December 31, 2001 relates to machinery and equipment decommissioning costs in the U.S.
(b)	Amounts utilized represent cash payments related to the severance of 1,180 employees during the year ended December 31, 2001.
(c)	Amounts utilized represent cash payments.

Other items:

          The Company recorded approximately $12.4 million in other items during 2001 as follows:

• $8.1 million in charges associated with the write-down of intangible assets due to impairment.  The majority of the intangible assets were originally acquired in the purchase of a division of NeoMagic in the second quarter of 2000.

• $4.3 million in charges primarily consisting of the write-down of an investment in a marketable equity security and related purchased intellectual property.

Note 5-License Agreement  

          In the second quarter of 1999, the Company and Silterra Malaysia Sdn. Bhd. (formerly known as Wafer Technology (Malaysia) Sdn. Bhd.) (“Silterra”) entered into a technology transfer agreement under which the Company grants licenses to Silterra with respect to certain of the Company’s wafer fabrication technologies and provides associated manufacturing training and related services.  In exchange, the Company received cash consideration of $75 million and equity consideration over four years for which transfers of technology and performance of obligations of the Company were scheduled to occur.  The equity consideration was valued at zero as of December 31, 2003.  The obligations under the technology transfer agreement were completed as of December 31, 2002.  The Company transferred technology to Silterra valued at $8 million, $20 million, $24 million and $15 million for the years ended December 31, 2002, 2001, 2000 and 1999 respectively.  The amount was recorded as an offset to the Company’s R&D expenses.  In addition, the Company provided engineering training with a value of $2 million, $4 million and $2 million for the years ended December 31, 2001, 2000 and 1999.  The amount was recorded as an offset to cost of revenues.

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Note 6- Cash, Cash Equivalents and Investments

	December 31, 2003		December 31, 2002
	(In thousands)
Cash and cash equivalents
Overnight deposits	$	103,185	$	117,899
Commercial paper		39,294		20,804
Corporate and municipal debt securities		11,370		30,524
U.S. government and agency securities		6,844		—
Total cash equivalents		160,693		169,227
Cash in financial institutions		108,989		279,620
Total cash and cash equivalents	$	269,682	$	448,847
Available-for-sale debt securities
Asset and mortgage-backed securities	$	345,625	$	102,083
U.S. government and agency securities		104,173		202,613
Corporate and municipal debt securities		90,730		180,843
Auction rate preferred stock		3,150		55,590
Foreign debt securities		329		—
Total short-term investments	$	544,007	$	541,129
Long-term investments in equity securities	$	35,455	$	37,655

          Net realized gains on sales of available-for-sale debt securities were $10 million, $8 million and $2 million for the years ended December 31, 2003, 2002 and 2001, respectively.  

          Contractual maturities of available-for-sale debt securities as of December 31, 2003 were as follows (in thousands):

Due within one year	$	26,680
Due in 1-5 years		302,831
Due in 5-10 years		70,376
Due after 10 years		144,120
Total	$	544,007

          The maturities of asset and mortgage-backed securities were allocated based on contractual principal maturities assuming no prepayments.

Investments in available-for-sale securities

	Adjusted cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
	(In thousands)
December 31, 2003
Short-term debt securities	$	544,540	$	1,900	$	(2,433	)	$	544,007
Long-term marketable equity securities		10,406		12,506		—			22,912
December 31, 2002
Long-term marketable equity securities		13,073		6,589		(2,586	)		17,076

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          During 2003, the Company realized a net pre-tax loss of $10.6 million associated with certain investments in equity securities because management believed the decline in value was other than temporary.  Of this pre-tax loss, approximately $2.7 million related to investments in marketable available-for-sale equity securities and approximately $7.9 million related to losses from investments in non-marketable equity securities.  The carrying value of the above noted impaired investments in marketable and non-marketable equity securities, as of December 31, 2003 was $9.8 million and $8.1 million, respectively. 

          During 2002, the Company realized a net pre-tax loss of $19.4 million associated with the decline in value of equity securities.  Of this pre-tax loss, approximately $6.0 million related to investments in marketable available-for-sale equity securities and approximately $13.4 million related to losses from investments in non-marketable equity securities.  The carrying value of the above noted investments in impaired marketable and non-marketable equity securities, as of December 31, 2002 was $4.8 million and $4.7 million, respectively.  The decline in value was considered by management to be other than temporary.  Sales of equity securities during 2002 were not significant. 

          During 2001, the Company sold equity securities for $8 million in the open market, realizing a pre-tax gain of approximately $5 million.  The Company also wrote down to estimated fair value equity investments in certain technology companies. The write-down was for approximately $19 million.  Of this pre-tax loss, approximately $6.5 million related to investments in marketable available-for-sale equity securities and approximately $12.5 million related to losses from investments in non-marketable equity securities.  The carrying value of the above noted investments in impaired marketable and non-marketable equity securities, as of December 31, 2001 was $12.9 million and $4.2 million, respectively. The decline in value of the investments was considered by management to be other than temporary.  In addition, a pre-tax gain of approximately $4 million was realized associated with an investment in equity securities of a certain technology company that was acquired by another technology company during the year. 

Note 7- Derivative Instruments

Foreign currency risk

          The Company has foreign subsidiaries that operate and sell the Company’s products in various global markets. As a result, the Company is exposed to changes in foreign currency exchange rates and interest rates. The Company utilizes various hedge instruments, primarily forward contracts and currency option contracts, to manage its exposure associated with firm intercompany and third-party transactions and net asset and liability positions denominated in non-functional currencies.

          The Company enters into purchased currency option contracts that are designated as foreign currency cash-flow hedges of third-party yen revenue exposures. Changes in the fair value of currency option contracts due to changes in time value are excluded from the assessment of effectiveness and are recognized in interest income and other, net. During the second quarter of 2003, the Company terminated all outstanding purchased currency options hedging previously forecasted yen revenues because the underlying revenue agreements were modified to be denominated in U.S. dollars. At the time the options were terminated, there were no unrealized gains or losses in accumulated other comprehensive income.  For the years ended December 31, 2003 and 2002, the change in option time value was approximately $1 million and $2 million, respectively.  During the years ended December 31, 2003 and 2002, amounts reclassified to revenues from other comprehensive income were not significant.  The Company did not record any gains or losses due to hedge ineffectiveness for the years ended December 31, 2003 or 2002. There were no option contracts outstanding as of December 31, 2003 and 2002. There were no unrealized gains or losses included in accumulated other comprehensive income as of December 31, 2003 and 2002.

          The Company enters into forward contracts that are designated as foreign currency cash-flow hedges of forecasted payments in euros.  Changes in the fair value of the forward contracts due to changes in time value are excluded from the assessment of effectiveness and are recognized in interest income and other, net.  As of December 31, 2003, the Company held forward contracts designated as foreign currency cash

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flow hedges of forecasted euro payment transactions that were set to expire over a twelve-month period.  There were no such hedges outstanding as of December 31, 2002.  For the year ended December 31, 2003, the change in time value of these forward contracts was not significant.  There were no unrealized gains or losses included in accumulated other comprehensive income as of December 31, 2003. There was a $1 million hedge benefit reflected in the income statement for the year ended December 31, 2003.  The Company did not record any gains or losses due to hedge ineffectiveness for the year ended December 31, 2003. 

          In October 2003, the Company entered into a forward contract to protect the U.S. dollar value of a portion of the net investment in the Company’s wholly-owned Japanese subsidiary denominated in yen.  The derivative was designated as and qualified as a net investment hedge and was recorded as an asset or liability in the statement of financial position while the forward contract was outstanding.  The forward contract was settled in December 2003 and the realized loss of approximately $0.5 million has been recorded in accumulated other comprehensive income until such time as the subsidiary has been liquidated. The time value of the forward contract was excluded from the assessment of hedge effectiveness.

          Forward exchange contracts and options are also used to hedge certain foreign currency-denominated assets or liabilities. These derivatives do not qualify for SFAS No. 133 hedge accounting treatment. Accordingly, changes in the fair value of these hedges are recorded immediately in earnings to offset the changes in fair value of the assets or liabilities being hedged. The related gains and losses included in interest income and other, net were not significant.

Interest rate risk

          With the objective of protecting cash flows and earnings of the Company from the impact of fluctuations in interest rates, while minimizing the cost of capital, the Company may enter into or terminate interest rate swaps, such as the below mentioned transactions.

          The Company entered into interest rate swap transactions (the “Swaps”) with several investment banks in June 2002.  The Swaps were entered into to convert the fixed rate interest expense on the Company’s 4% and 4.25% Convertible Subordinated Notes (the “Convertible Notes”) to a floating rate based on LIBOR (see Note 9). The Swaps qualified for hedge accounting as fair value hedges, with changes in the fair value of the interest rate risk on the Notes being offset by changes in the fair values of the Swaps recorded as a component of interest expense. 

          As a result of the buyback of a portion of the Convertible Notes during the fourth quarter of 2002 (see Note 9), and the Company’s continuing monitoring of asset and liability mismatches, the Company discontinued hedge accounting and terminated Swaps with a notional amount of $345 million.  The deferred gain of $4.2 million from the termination of these Swaps was included as a component of the Convertible Notes and was being amortized as an adjustment to interest expense using the effective-interest method over the remaining term of the hedged Convertible Notes.   

          As of December 31, 2002, Swaps with a notional amount of $740 million effectively converted fixed interest payments to LIBOR-based floating rates.  The difference between the changes in the fair values of the derivative and the hedged risk resulted in an increase in interest expense of $4 million during the year ended December 31, 2002.  The change in fair value of the hedged interest rate risk was $37 million as of December 31, 2002 and was included in long-term debt.  The fair value of the Swaps was $33 million as of December 31, 2002 and was included in other long-term assets.

          In the second quarter of 2003, the Company terminated Swaps with a notional amount of $740 million.  The deferred gain of $44 million from the termination of these Swaps was included as a component of the Convertible Notes and is being amortized as an adjustment to interest expense over the remaining term of the hedged Convertible Notes.  Before termination, the difference between the changes in the fair values of the derivative and the hedged risk resulted in a benefit to interest expense of $1 million for the year ended December 31, 2003.  Under the terms of the Swaps, the Company provided collateral to match any mark-to-market

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exposure on the swaps. Collateral of approximately $7 million included in other long-term assets as of December 31, 2002, was returned to the Company upon termination of the Swaps.

          Deferred gains on terminated swaps associated with Convertible Notes repurchased or redeemed during 2003 were written-off as part of the net gain or loss on redemption of the Convertible Notes.  As of December 31, 2003, a deferred gain of $25 million was included as a component of the Convertible Notes and is being amortized as an adjustment to interest expense using the effective-interest method over the remaining term of the hedged Convertible Notes (see Note 9).

          In the second quarter of 2003, the Company entered into an interest rate swap transaction to effectively convert the LIBOR-based floating rate interest payments on the equipment operating leases discussed in Note 13 of the Notes, with an initial notional amount of $395 million, to a fixed interest rate (the “Lease Swap”).  The Lease Swap qualifies to be accounted for as a cash-flow hedge of the forecasted interest payments attributable to the benchmark interest rate on the equipment operating leases through September 2006.  The unrealized gains or losses included in accumulated other comprehensive income will be reclassified to cost of revenues on a quarterly basis as lease payments are made.  A loss of approximately $1 million, net of tax of $1 million included in accumulated other comprehensive income as of December 31, 2003, is expected to be reclassified to cost of revenues within the next 12 months.  The loss due to ineffectiveness recorded in interest income and other, net during the year ended December 31, 2003 was not significant.  Under the terms of the Lease Swap, the Company must provide collateral to match any mark-to-market exposure on the Lease Swap.  As of December 31, 2003, collateral of approximately $8 million was included in other long-term assets.

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Note 8- Balance Sheet Detail

	December 31,
	2003			2002
	(In thousands)
Inventories:
Raw materials	$	15,352		$	18,152
Work-in-process		116,340			65,052
Finished goods		66,825			111,262
	$	198,517		$	194,466
Prepaid expenses and other current assets:
Current portion of assets and deposits	$	57,805		$	20,766
Assets held for sale		29,883			74,201
Prepaid expense and other current assets		50,843			86,643
	$	138,531		$	181,610
Property and equipment:
Land	$	37,569		$	53,013
Buildings and improvements		359,402			470,028
Equipment		667,899			1,253,061
Furniture and fixtures		30,567			46,783
Leasehold improvements		34,226			37,151
Construction in progress		26,903			18,747
		1,156,566			1,878,783
Accumulated depreciation and amortization		(675,077	)		(1,131,819	)
	$	481,489		$	746,964
Other accrued liabilities:
Accrued expenses	$	115,344		$	142,592
Sales tax payable		6,532			4,687
Interest payable		5,289			15,273
Restructuring reserves		26,692			22,285
	$	153,857		$	184,837
Accumulated other comprehensive income:
Unrealized gains on available-for-sale securities, net of tax of $4,190 and $1,401	$	7,782		$	2,599
Unrealized gain on cash-flow hedges, net of tax of $698 and $-		1,995			—
Foreign currency translation adjustments		24,436			3,127
	$	34,213		$	5,726

          The Company recorded, as a component of cost of revenues, additional excess inventory and related charges of $46 million and $211 million for the years ended December 31, 2002 and 2001, respectively.  The charges were due to underutilization related to a temporary idling of the Company’s fabrication facilities due to reduced demand, inventory production in anticipation of closing the Company’s Colorado Springs manufacturing facility during 2001 (see Note 4), and a sudden and significant decrease in forecasted revenue.  The charges were calculated in accordance with the Company’s policy, which is primarily based on inventory levels in excess of 12 months’ judged demand for each specific product.

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          An allocation of interest costs incurred on borrowings during a period required to complete construction of the asset was capitalized as part of the historical cost of acquiring certain assets. Gross capitalized interest included in property and equipment totaled $29 million at December 31, 2003 and 2002. Accumulated amortization of capitalized interest was $22 million and $20 million at December 31, 2003 and 2002, respectively.  No interest was capitalized during 2003 and 2002.

Note 9- Debt

								December 31,
	Maturity		Interest Rate *			Conversion Price		2003			2002
								(In thousands)
2003 Convertible Subordinated Notes		2010		4.00	%	$	13.4200	$	350,000		$	—
2001 Convertible Subordinated Notes		2006		4.00	%	$	26.3390		490,000		$	490,000
2000 Convertible Subordinated Notes		2005		4.00	%	$	70.2845		—			385,000
1999 Convertible Subordinated Notes		2004		4.25	%	$	15.6765		—			324,935
Change in fair value of interest rate risk on Convertible Subordinated Notes									—			36,724
Deferred gain on terminated swap									25,416			4,025
Capital lease obligations									567			894
									865,983			1,241,578
Current portion of long-term debt and capital lease obligations									(377	)		(361	)
Long-term debt and capital lease obligations								$	865,606		$	1,241,217

* The interest rate on a portion of the Convertible Subordinated Notes (“Convertible Notes”) was converted to floating rates through interest rate swaps.  Interest rate swaps with a notional amount of $740 million were terminated in the second quarter of 2003 (see Note 7).  The weighted average interest rate on the Convertible Subordinated Notes, after adjusting for the impact of the interest rate swaps, for the years ended December 31, 2003 and 2002, was 3.30% and 3.02%, respectively.

          On December 24, 2003, the Company redeemed the balance of the 2000 Convertible Subordinated Notes (the “2000 Convertible Notes”) that were outstanding on that date.  Cash of $258 million was paid to redeem the remaining 2000 Convertible Notes at a total redemption price of $1,030.33 per $1,000 principal amount of the notes consisting of $1,016.00 principal amount plus accrued interest of $14.33.  A net pre-tax loss of approximately $1 million was recognized, in interest income and other, net, on the redemption of the 2000 Convertible Notes.  The pre-tax loss is net of the write-off of debt issuance costs and the remaining deferred gain on the terminated Swap (see Note 7). 

          On September 18, 2003, the Company redeemed the balance of the 1999 Convertible Subordinated Notes (the “1999 Convertible Notes”) that were outstanding on that date.  Cash of $173 million was paid to redeem the remaining 1999 Convertible Notes at a total redemption price of $1,008.86 per $1,000 principal amount of the notes consisting of $1,008.50 principal amount plus accrued interest of $0.36.  A net pre-tax loss of approximately $1 million was recognized, in interest income and other, net, on the redemption of the 1999 Convertible Notes.  The pre-tax loss is net of the write-off of debt issuance costs and the remaining deferred gain on the terminated Swap (see Note 7).

          On May 12, 2003, the Company issued $350 million of 4% Convertible Subordinated Notes (the “2003 Convertible Notes”) due in 2010.  The 2003 Convertible Notes are subordinated to all existing and future senior debt, are convertible at the holder’s option at any time prior to the maturity date of such notes, into shares of the Company’s common stock at a conversion price of $13.42 per share.  The Company cannot

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elect to redeem the 2003 Convertible Notes prior to maturity. However, each holder of the 2003 Convertible Notes has the right to cause the Company to repurchase all of such holder’s convertible notes at 100% of their principal amount plus accrued interest upon the occurrence of any fundamental change, which includes a transaction or event such as an exchange offer, liquidation, tender offer, consolidation, merger or combination.  Interest is payable semiannually.  The Company paid approximately $11 million in debt issuance costs that are being amortized using the interest method. 

          Approximately $28 million of the proceeds from issuance of the 2003 Convertible Notes were used to purchase call spread options on LSI’s common stock (the “Call Spread Options”).  The Call Spread Options, including fees and costs, have been accounted for as capital transactions in accordance with Emerging Issues Task Force No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”  The Call Spread Options cover approximately 26.1 million shares of Company common stock, which is the number of shares that are initially issuable upon conversion of the 2003 Convertible Notes in full. The Call Spread Options are designed to mitigate dilution from conversion of the 2003 Convertible Notes in the event that the market price per share of the Company’s common stock upon exercise of the Call Spread Options is greater than $13.42 and is less than or equal to $23.875.  The Call Spread Options may be settled at the Company’s option in either net shares or in cash and expire in 2010.  Settlement of the Call Spread Options in net shares on the expiration date would result in the Company receiving a number of shares, not to exceed 26.1 million shares, of our common stock with a value equal to the amount otherwise receivable on cash settlement.  Should there be an early unwinding of the Call Spread Options, the amount of cash or net shares potentially receivable by the Company will be dependent upon then existing overall market conditions, and on the Company’s stock price, the volatility of the Company’s stock and the amount of time remaining on the Call Spread Options.

          The proceeds from the 2003 Convertible Notes were used to repurchase $153 million of the 1999 Convertible Subordinated Notes and $135 million of the 2000 Convertible Subordinated Notes during the second quarter of 2003.  A net pre-tax loss of approximately $2 million was recognized, in interest income and other, net, on the repurchases of the 1999 and 2000 Convertible Notes.  The pre-tax loss is net of the write-off of debt issuance costs and a portion of the deferred gain on the terminated Swaps (see Note 7).       

          The 2001 Convertible Notes are subordinated to all existing and future senior debt and are convertible at the holder’s option at any time after 60 days following issuance.  They are redeemable at the Company’s option, in whole or in part, on at least 30 days notice at any time on or after the call date, which is two years before the due date.  Each holder of the Convertible Notes has the right to cause the Company to repurchase all of such holder’s Convertible Notes at 100% of their principal amount plus accrued interest upon the occurrence of any fundamental change, which includes a transaction or event such as an exchange offer, liquidation, tender offer, consolidation, merger or combination.  Interest is payable semiannually.  The net proceeds from the 2001 Convertible Notes were used to repay bank debt outstanding with a balance of approximately $200 million.  The Company paid approximately $14 million for debt issuance costs related to the 2001 Convertible Notes that are being amortized using the interest method.  As of December 31, 2003 and 2002, total debt issuance costs, net of accumulated amortization was $17 million and $19 million, respectively, are included in other long-term assets.      

          At December 31, 2003, the estimated fair values of the 2003 and 2001 Convertible Notes were $390 million and $480 million, respectively. 

          Aggregate principal payments required on outstanding capital lease and debt obligations are $0.4 million, $0.2 million, and $490 million for the years ended December 31, 2004, 2005 and 2006, respectively and $350 million in 2010. 

          The Company paid $42 million, $47 million and $38 million in interest during 2003, 2002 and 2001, respectively.

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Note 10- Common Stock

          Stock option plans.  The Company has stock option plans to grant options to officers, employees and consultants.  Under these plans, the Company may grant stock options with an exercise price that is no less than the fair market value of the stock on the date of grant. The term of each option is determined by the Board of Directors and has generally been ten years. Options generally vest in annual increments of 25% per year commencing one year from the date of grant.  As of December 31, 2003, the 1999 Nonstatutory Stock Option Plan (“1999 plan”) and 1991 Equity Incentive Plan (“1991 plan”) have 19 million and 30 million shares available for future grants, respectively. In May 2003, the stockholders approved the adoption of the 2003 Equity Incentive Plan (“2003 Plan”) under which 11 million shares of common stock were reserved for issuance.  Under the terms of the 2003 Plan, the Company may grant stock options or restricted stock awards to employees with an exercise price that is no less than the fair market value of the stock on the date of grant.  No participant shall be granted options covering more than 2 million shares in any year.  The term of each option is determined by the Board of Directors. Options generally vest in annual increments of 25% per year commencing one year from the date of grant.  Under the 2003 Plan, the Company may also grant restricted stock awards.  No participant may be granted more than 0.5 million shares of restricted stock in any year.  The vesting requirements for the restricted stock awards are determined by the Board of Directors.  As of December 31, 2003, there were 11 million shares available for future grants under the 2003 Plan.  Options granted on or after February 12, 2004 for the 1991, 1999 and 2003 Plans have a term of 7 years. 

          The 1995 Director Option Plan, as amended (“1995 Director Plan”), provides for an initial grant to new directors of options to purchase 30,000 shares of common stock and subsequent automatic grants of options to purchase 30,000 shares of common stock each year thereafter.  The initial grants vest in annual increments of 25% per year, commencing one year from the date of grant.  Subsequent option grants become exercisable in full six months after the grant date.  The exercise price of the options granted is equal to the fair market value of the stock on the date of grant.  In May 2003, the stockholders approved an amendment to the 1995 Director Plan to increase the number of shares of common stock reserved for issuance thereunder by 1 million.  As of December 31, 2003, there are 1 million shares available for future grants under the 1995 Director Plan. 

          There are a total of 130 million shares of common stock reserved for issuance upon exercise of options, including options available for future grants, outstanding under all stock option plans.

          Stock option exchange program.  On August 20, 2002, the Company filed with the Securities and Exchange Commission an offer to exchange stock options outstanding under the 1991 Equity Incentive Plan and the 1999 Nonstatutory Stock Option Plan for new options.  Under the exchange offer, eligible employees had the opportunity to exchange eligible stock options for the promise to grant new options under the 1999 Nonstatutory Stock Option Plan.  Directors and executive officers of the Company were not eligible to participate in this program.  The exchange offer expired on September 18, 2002, and the Company accepted options to purchase an aggregate of 16,546,370 shares for exchange.  On March 20, 2003, the Company granted a new option that covered two shares of LSI Logic common stock for every three shares covered by an option that an employee had elected to exchange.  The exercise price per share of the new options was equal to the fair market value of the Company’s common stock on the grant date.  The Company granted options to purchase 10,691,139 shares at an exercise price of $5.06 per share.  The exchange program did not result in the recording of any compensation expense in the statement of operations. 

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          The following table summarizes the Company’s stock options for each of the years ended December 31, 2003, 2002 and 2001 (share amounts in thousands):

	2003						2002						2001
	Number of Shares			Weighted Average Exercise Price Per Share			Number of Shares			Weighted Average Exercise Price Per Share			Number of Shares			Weighted Average Exercise Price Per Share
Options outstanding at January 1,		57,065		$	18.24			73,997		$	22.44			55,164		$	24.09
Options assumed in acquisitions		—			—			—			—			10,617			15.26
Options canceled		(7,282	)		(16.39	)		(23,751	)		(30.57	)		(7,257	)		(25.89	)
Options granted		20,191			6.56			8,425			14.21			18,911			20.79
Options exercised		(808	)		(5.94	)		(1,606	)		(8.57	)		(3,438	)		(10.22	)
Options outstanding at December 31,		69,166		$	15.17			57,065		$	18.24			73,997		$	22.44
Options exercisable at December 31,		38,936		$	18.03			34,333		$	17.02			30,766		$	18.81

          Significant option groups outstanding as of December 31, 2003 are as follows (share amounts in thousands):  

	Outstanding						Exercisable
Options with exercise prices ranging from:	Number of Shares		Remaining Contractual Life (years)		Weighted Average Exercise Price Per Share		Number of Shares		Weighted Average Exercise Price Per Share
$0.06 to $5.00		650		6.97	$	3.21		468	$	2.83
$5.01 to $10.00		27,011		7.74		7.10		9,451		8.45
$10.01 to $15.00		13,121		5.49		12.37		9,282		12.57
$15.01 to $20.00		11,156		6.54		17.25		6,941		17.34
$20.01 to $25.00		8,966		6.96		22.07		5,388		22.02
$25.01 to $30.00		3,577		5.62		29.13		3,401		29.14
$30.01 to $72.25		4,685		6.19		42.31		4,005		41.41
		69,166		6.80	$	15.17		38,936	$	18.03

          All options were granted at an exercise price equal to the market value of the Company’s common stock at the date of grant, with the exception of the options assumed under the stock plans of companies acquired during 2001.  No further options may be granted under the assumed plans.

          Stock purchase plan.  The Company has an Employee Stock Purchase Plan under which rights are granted to all employees to purchase shares of common stock at 85% of the lesser of the fair market value of such shares at the beginning of a 12-month offering period or the end of each six-month purchase period within such an offering period. The maximum number of shares that can be purchased in a single purchase period is 1,000 shares per employee. Sales under the Employee Stock Purchase Plan in 2003, 2002 and 2001 were approximately 5.6 million, 4.8 million and 2.9 million shares of common stock at an average price of $4.85, $7.67 and $16.39 per share, respectively.  There were approximately 11 million shares of common stock reserved for issuance under the Employee Stock Purchase Plan as of December 31, 2003.

          Stock-based compensation.  The Company accounts for stock-based compensation, including stock options granted and shares issued under the Employee Stock Purchase Plan, using the intrinsic value method as prescribed in APB No. 25, “ Accounting for Stock Issued to Employees,” and related interpretations.  The Company provides pro forma disclosures to illustrate the effects on the results of

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operations as if the Company had recorded compensation costs based on the estimated grant date fair value, as defined by SFAS No. 123, for awards granted under its stock option plans and stock purchase plan (see Note 1).  The estimated weighted average grant date fair value, as defined by SFAS No. 123, was calculated using the Black-Scholes model. The Black-Scholes model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company’s stock option awards. This model also requires highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated grant date fair value.  The following weighted average assumptions were used in determining the estimated grant date fair values:

Employee stock options granted

	2003			2002			2001
Weighted average estimated grant date fair value	$	4.95		$	8.29		$	12.06
Assumptions in calculation:
Expected life (years)		3.85			3.84			3.79
Risk-free interest rate		2.73	%		3.97	%		4.70	%
Volatility		81.56	%		77.00	%		76.00	%
Dividend yield		—			—			—

Employee Stock Purchase Plan right to purchase stock

	2003			2002			2001
Weighted average estimated grant date fair value	$	3.09		$	3.44		$	7.95
Assumptions in calculation:
Expected life (years)		0.87			0.87			0.88
Risk-free interest rate		1.18	%		1.69	%		3.29	%
Volatility		88.59	%		80.39	%		82.07	%
Dividend yield		—			—			—

          Stock repurchase program.  On July 28, 2000, the Company’s Board of Directors authorized a new stock repurchase program in which up to 5 million shares of the Company’s common stock were authorized to be repurchased in the open market from time to time.  The Company repurchased 1.5 million shares of its common stock in the open market under this program in 2000. There were no stock repurchases in 2003, 2002 or 2001. 

         Stock purchase rights.  In November 1988, the Company implemented a plan to protect stockholders’ rights in the event of a proposed takeover of the Company. The plan was amended and restated in November 1998. Under the plan, each share of the Company’s outstanding common stock carries one Preferred Share Purchase Right. Each Preferred Share Purchase Right entitles the holder, under certain circumstances, to purchase one-thousandth of a share of Preferred Stock of the Company or its acquirer at a discounted price. The Preferred Share Purchase Rights are redeemable by the Company and will expire in 2008.

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Note 11- Income Taxes

The provision for /(benefit from) taxes consisted of the following:

	Year ended December 31,
	2003			2002			2001
	(In thousands)
Current:
Federal	$	8,679		$	(83,885	)	$	—
State		600			—			—
Foreign		15,056			24,250			6,073
Total		24,335			(59,635	)		6,073
Deferred:
Federal		—			36,775			(28,688	)
State		—			8,006			(6,192	)
Foreign		(335	)		16,604			(10,391	)
Total		(335	)		61,385			(45,271	)
Total	$	24,000		$	1,750		$	(39,198	)

          The domestic and foreign components of loss before income taxes and minority interest were as follows:

	Year ended December 31,
	2003			2002			2001
	(In thousands)
Domestic	$	(42,382	)	$	(69,078	)	$	(605,797	)
Foreign		(242,004	)		(221,326	)		(424,558	)
Loss before income taxes and minority interest	$	(284,386	)	$	(290,404	)	$	(1,030,355	)

          Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2003 and 2002 were as follows:

	December 31,
	2003			2002
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	23,244		$	46,233
Tax credit carryovers		203,027			52,598
Future deductions for purchased intangible assets		81,334			100,281
Future deductions for reserves and other		77,174			12,191
Future deductions for inventory reserves		26,265			46,721
Total deferred tax assets		411,044			258,024
Valuation allowance		(366,197	)		(178,734	)
Net deferred tax assets		44,847			79,290
Deferred tax liabilities:
Depreciation and amortization		(29,247	)		(64,315	)
Total net deferred tax assets	$	15,600		$	14,975

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          In accordance with SFAS No. 109, current and long-term net deferred taxes have been netted to the extent they are in the same tax jurisdiction. Valuation allowances reduce the deferred tax assets to the amount that, based upon all available evidence, is more likely than not to be realized.  The deferred tax assets’ valuation allowance is attributed to U.S. federal, state and certain foreign deferred tax assets primarily consisting of reserves, other one-time charges, purchased intangible assets, tax credit carryovers and net operating loss carryovers that could not be benefited under existing carry-back rules.  Approximately $91 million of the valuation allowance at December 31, 2003 relates to tax benefits of stock option deductions, which will be credited to equity if and when realized.

          At December 31, 2003, the Company had federal, state and foreign net operating loss carryovers of approximately $31 million, $110 million and $45 million, respectively.  The federal and state net operating losses will expire beginning in 2004 through 2023.  The foreign net operating losses will carry forward indefinitely.  Approximately $11 million of the federal net operating loss carryover and $12 million of the state net operating loss carryover relate to recent acquisitions and are subject to certain limitations under Internal Revenue Code of 1986, as amended, Section 382.  As of December 31, 2003, the Company had tax credits of approximately $191 million, which will expire beginning in 2004.

          Differences between the Company’s effective tax rate and the federal statutory rate were as follows:

	Year ended December 31,
	2003					2002					2001
	(In thousands)
Federal statutory rate	$	(99,535	)	(35	)%	$	(101,642	)	(35	)%	$	(360,624	)	(35	)%
State taxes, net of federal benefit		390		—			8,006		3	%		(4,025	)	—
Difference between U.S. and foreign tax rates		79,820		28	%		74,858		26	%		136,366		13	%
Foreign earnings taxed in the U.S.		59,539		21	%		—		—			—		—
Foreign tax credits		(27,469	)	(10	)%		—		—			—		—
Research and development tax credit		(15,905	)	(6	)%		—		—			(8,963	)	(1	)%
Net operating loss and future deductions not currently benefited		19,590		7	%		46,526		16	%		130,714		13	%
Alternative minimum tax		8,679		3	%		—		—			—		—
Nondeductible expenses		7,055		3	%		33,733		12	%		65,878		6	%
Benefit of net operating losses and deferred tax assets not previously recognized		(5,378	)	(2	)%		—		—			—		—
Release of income taxes previously accrued		—		—			(61,386	)	(21	)%		—		—
Other		(2,786	)	(1	)%		1,655		—			1,456		—
Effective tax rate	$	24,000		8	%	$	1,750		1	%	$	(39,198	)	(4	)%

          The Company received (refunds)/paid ($2 million), $16 million and $22 million for income taxes in 2003, 2002 and 2001, respectively.

          In 2003, the Internal Revenue Service (“IRS”) began an income tax audit of the Company’s 2001 federal income tax return.  Management of the Company believes that this income tax audit will not have a material impact on the consolidated financial statements.

          In December 2002, the IRS concluded their audit of the Company’s federal income tax returns for the fiscal years 1995 through 1996.  As part of the final closing agreement, the IRS and the Company agreed to expand the scope of the audit for the years 1995 and 1996 to all fiscal years up to and including 2000.  All adjustments for the fiscal years up to and including 2000 are final and have been reflected in the Company’s income tax expense for 2002.  Upon conclusion of the audit, the Company reassessed its reserve requirements and consequently reversed approximately $61 million of previously accrued income taxes.

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          Undistributed earnings of the Company’s foreign subsidiaries aggregate approximately $22 million at December 31, 2003, and are indefinitely reinvested in foreign operations or will be remitted substantially free of additional tax.  No material provision has been made for taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of this liability.

Note 12- Segment and Geographic Information

          The Company operates in two reportable segments: the Semiconductor segment and the Storage Systems segment. In the Semiconductor segment, the Company uses advanced process technology and comprehensive design methodologies to design, develop, manufacture and market highly complex integrated circuits.  These system-on-a-chip solutions include both application specific integrated circuits, commonly referred to as ASICs, and application specific standard products in silicon, or ASSPs.  Semiconductor segment product offerings also include RAID host bus adapters and related products, and services.  In the Storage Systems segment, the Company provides modular, high-performance, disk storage systems and sub-assemblies to server and storage original equipment manufacturers. The Storage Systems’ products are sold as complete storage systems or sub-assemblies configured from modular components, including our disk array controller boards and related enclosures, disk drive enclosures and related management software. 

          Information about profit or loss and assets. The following is a summary of operations by segment for the years ended December 31, 2003, 2002 and 2001:

	Year ended December 31,
	2003			2002			2001
	(In thousands)
Revenues:
Semiconductor	$	1,269,708		$	1,481,386		$	1,573,618
Storage Systems		423,362			335,552			211,305
Total	$	1,693,070		$	1,816,938		$	1,784,923
Income (loss) from operations:
Semiconductor	$	(295,710	)	$	(290,017	)	$	(947,156	)
Storage Systems		23,094			25,204			(58,452	)
Total	$	(272,616	)	$	(264,813	)	$	(1,005,608	)

          Intersegment revenues for the periods presented above were not significant. Restructuring of operations and other items were included in both segments.

The following is a summary of total assets by segment as of December 31, 2003, 2002 and 2001:

	December 31,
	2003		2002		2001
	(In thousands)
Total assets:
Semiconductor	$	3,115,610	$	3,721,282	$	4,200,631
Storage Systems		332,291		291,454		324,446
Total	$	3,447,901	$	4,012,736	$	4,525,077

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          Significant Customers.  The following table summarizes the number of our significant customers, each of whom accounted for 10% or more of our revenues, along with the percentage of revenues they individually represent on a consolidated basis and by segment:

	Year ended December 31,
	2003			2002			2001
Semiconductor segment:
Number of significant customers		1			1			1
Percentage of segment revenues		18	%		22	%		21	%
Storage Systems segment:
Number of significant customers		3			3			3
Percentage of segment revenues		52%, 14%, 11	%		36%, 20%, 15	%		21%, 21%, 13	%
Consolidated:
Number of significant customers		2			1			1
Percentage of consolidated revenues		15%, 13	%		18	%		18	%

          Information about geographic areas. The Company’s significant operations outside the United States include sales offices in Europe, Asia and Japan. The following is a summary of operations by entities located within the indicated geographic areas. 

	Year ended December 31,
	2003		2002		2001
	(In thousands)
Revenues:
North America	$	863,620	$	905,323	$	880,779
Asia, including Japan		677,266		748,906		630,708
Europe		152,184		162,709		273,436
Total	$	1,693,070	$	1,816,938	$	1,784,923
	December 31,
	2003		2002		2001
	(In thousands)
Long-lived assets:
North America	$	1,571,320	$	1,740,407	$	2,014,950
Asia, including Japan		474,348		633,477		679,679
Europe		4,712		5,648		7,438
Total	$	2,050,380	$	2,379,532	$	2,702,067

          Long-lived assets consist of net property and equipment, goodwill, other intangible assets, capitalized software and other long-term assets, excluding long-term deferred tax assets.

Note 13- Commitments and Contingencies

Operating Leases

          The Company uses operating leases to finance certain equipment used in its wafer fabrication facilities. As of December 31, 2003, the Company had two such operating leases.

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          On March 28, 2003, the Company entered into two lease and security agreements, each with Bank of America, National Association (“BANA”), acting as the Lessor, and Wells Fargo Bank Northwest, as the Agent, for a total of $395 million for certain wafer fabrication equipment (the “Equipment”).  The leases qualify for operating lease accounting treatment.  As of December 31, 2003, the amount under both leases was fully drawn.  Each lease has a term of 3.5 years with no option for renewal.  The Company may, at the end of the lease term, return or purchase, at a pre-determined amount, all of the Equipment.  The first lease was for $235 million and was for equipment that was previously on lease immediately prior to closing this transaction.  In October 2003, BANA, with the Company’s approval, assigned its rights as Lessor on the first lease to Bank of the West.  The second lease was for $160 million and was for Equipment that was sold to BANA and then immediately leased back in a transaction commonly referred to as a sale-leaseback.  The Equipment sold had a book value of approximately $103 million.  The resulting $57 million gain on the sale of the Equipment will be deferred until the end of the lease term and has been recorded as a non-current liability as of December 31, 2003.  The Company has $359 million in cash that is posted as collateral for the new leases.  The lessor has access to the Company’s cash collateral only in the event of a default.  Of this cash collateral, $58 million, representing the amount of cash collateral to be released in the next 12 months, is reflected in other current assets and the remaining cash collateral of $301 million is recorded in other non-current assets.  In addition, the Company is required to maintain unrestricted cash and short-term investments in an amount no less than $350 million.  The Company was in compliance with this requirement as of December 31, 2003.  

          The Company guarantees residual values related to leased equipment.  As of December 31, 2003, its maximum potential exposure to residual value guarantees was approximately $163 million and the Company does not expect to have a loss on such guarantees. 

          In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”  FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee.  In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities.  The initial recognition and initial measurement provisions of FIN 45 were applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end.  The disclosure requirements of FIN 45 were effective for financial statements of interim or annual periods ending after December 15, 2002.  The guaranteed residual values for the equipment under the Company’s operating leases are subject to FIN 45. The fair value of the guarantee of the residual value of the equipment was determined using management estimates and was recorded as a non-current asset and liability each in the amount of $7 million as of December 31, 2003.  

          In connection with the equipment operating leases described above, the Company entered into standby letters of credit for $63 million which will expire at the end of the lease term.  These instruments are off-balance sheet commitments to extend financial guarantees.  The fair value of the letters of credit approximates the contract amount.

          No officer, director or employee of the Company has any financial interest in these leasing arrangements. The minimum lease payments, excluding the residual value guarantees, under the two lease agreements are $64 million, $62 million and $45 million in 2004, 2005 and 2006, respectively. 

          The Company leases the majority of its facilities, certain equipment, and software under non-cancelable operating leases, which expire through 2011. The facilities lease agreements typically provide for base rental rates that are increased at various times during the terms of the lease and for renewal options at the fair market rental value. Future minimum payments under these operating lease agreements are $68 million, $61 million, $44 million, $18 million, $13 million and $27 million for the years ending December 31, 2004, 2005, 2006, 2007, 2008 and thereafter, respectively.

          Rental expense under all operating leases was $121 million, $125 million and $150 million for the years ended December 31, 2003, 2002 and 2001, respectively.

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Indemnifications

          The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of warranties, representations and covenants related to such matters as title to assets sold, validity of certain intellectual property rights, non-infringement of third-party rights, and certain income tax-related matters.  In each of these circumstances, payment by the Company is typically subject to the other party making a claim to and cooperating with the Company pursuant to the procedures specified in the particular contract.  This usually allows the Company to challenge the other party’s claims or, in case of breach of intellectual property representations or covenants, to control the defense or settlement of any third-party claims brought against the other party.  Further, the Company’s obligations under these agreements may be limited in terms of activity (typically to replace or correct the products or terminate agreement with a refund to the other party), duration and/or amounts.  In some instances, the Company may have recourse against third parties and/or insurance covering certain payments made by the Company. 

Guarantees

          Product warranties.

	Years ended December 31,
	2003			2002
	(in thousands)
Balance at the beginning of the period	$	6,328		$	3,756
Accruals for warranties issued during the period		9,399			10,796
Accruals related to pre-existing warranties (including changes in estimates)		3,802			702
Settlements made during the period (in cash or in kind)		(10,055	)		(8,926	)
Balance at the end of the period	$	9,474		$	6,328

          Standby letters of credit.  At December 31, 2003 and 2002, the Company had outstanding standby letters of credit of $14 million and $15 million, respectively, that are in addition to the ones mentioned above entered into in conjunction with the equipment lease.  These instruments are off-balance sheet commitments to extend financial guarantees for certain self-insured risks, import/export taxes and performance under contracts, and generally have one-year terms.  The fair value of the letters of credit approximates the contract amount. 

          Purchase commitments.   The Company maintains certain purchase commitments primarily for raw materials with suppliers and for some non-production items.  Purchase commitments for inventory materials are generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary among different suppliers.     

Legal Matters

          In February 1999, a lawsuit alleging patent infringement was filed in the United States District Court for the District of Arizona by the Lemelson Medical, Education & Research Foundation, Limited Partnership (“Lemelson”) against 88 electronics industry companies, including us. The case number is CIV990377PHXRGS. The patents involved in this lawsuit are alleged to relate to semiconductor manufacturing and computer imaging, including the use of bar coding for automatic identification of articles. The plaintiff sought an infringement judgment, an injunction, treble damages, attorneys’ fees and further relief as the court may provide. In September 1999, the Company filed an answer denying infringement, raising affirmative defenses and asserting a counterclaim for declaratory judgment of non-infringement, invalidity and unenforceability of Lemelson’s patents. As of December 31, 2003, the discovery phase was continuing. Initial patent claim construction briefs are due in March 2004. As of this

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time, no claim construction hearing or trial date has been set. While the Company cannot make any assurance regarding the eventual resolution of this matter, the Company does not believe it will have a material adverse effect on the consolidated results of operations or financial condition.

          On June 14, 2002, Plasma Physics Corporation (“Plasma Physics”) filed suit against the Company in the Eastern District of New York, alleging that the Company is willfully and deliberately infringing two U.S. patents. LSI was served with the lawsuit in December of 2002. The case is number CV 02-3462 (LDW) (WDW). The two Plasma Physics patent numbers are 5,470,784 and 6,245,648. No specific Company products were identified in the complaint. The plaintiff sought an infringement judgment, an injunction, treble damages, attorneys’ fees and further relief as the court may provide. Similar lawsuits were also filed at the same time against several other corporations. In January 2003, the Company answered the complaint denying infringement, asserting affirmative defenses and asserting counterclaims for judgments declaring patent non-infringement, declaring patent invalidity, and declaring the patents unenforceable. The parties currently are to be prepared for trial by April 30, 2004. While the Company cannot make any assurance regarding the eventual resolution of this matter, the Company does not believe it will have a material adverse effect on the consolidated results of operations or financial condition.

          The Company is a party to other litigation matters and claims that are normal in the course of its operations, and while the results of such litigation and claims cannot be predicted with certainty, the Company believes that the final outcome of such matters is not expected to have a material adverse effect on the Company’s consolidated results of operations and financial condition.

NOTE 14 –Separation of LSI Logic Storage Systems, Inc.

          In November 2003, the Company announced its intention to separate its wholly-owned subsidiary, LSI Logic Storage Systems, Inc. (“Storage Systems”) from the Company and create an independent storage systems company.  The separation of the Storage Systems from the Company, including the transfer of related assets, liabilities and intellectual property rights, was substantially completed in December 2003.  The Company has entered into agreements to address various arrangements between Storage Systems and the Company as discussed below.  The following are the major separation agreements. 

          Master Separation Agreement.  The master separation agreement contains the framework with respect to Storage Systems separation from the Company and provides for the execution of various ancillary agreements summarized herein that further specify the terms of the separation.

          General Assignment and Assumption Agreement.  The general assignment and assumption agreement governs the transfer of assets and assumption of liabilities relating to Storage Systems’ business, to the extent that the other separation ancillary agreements do not provide for the specific transfer of those assets or the assumption of those liabilities.  The agreement also describes when and how these transfers and assumptions will occur.

          Intellectual Property Agreement.  The intellectual property agreement provides mechanisms by which, the technology and intellectual property rights that relate only to Storage System’s business (but to which the Company has legal title or that are licensed by the Company) reside with Storage Systems.  This technology and intellectual property includes software and other technology, the copyrights on that software and technology, the applications, trademarks and domain names.  The intellectual property agreement provides that, where legal title to technology and intellectual property allocated to Storage Systems is owned by the Company, the Company will transfer and assign to Storage Systems the legal title in that technology and intellectual property. 

          In addition to the allocations of technology and intellectual property, pursuant to the intellectual property agreement, the Company grants Storage Systems non-exclusive licenses under patents and other intellectual property rights included in Storage Systems’ products or used in Storage Systems’ business. The Company also grants Storage Systems a right to use, for a limited time, specified Company trademarks related to or used to identify Storage Systems’ business or products but not owned by Storage Systems.  Storage Systems

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grants the Company a non-exclusive license, under Storage Systems’ patent and other intellectual property rights, to operate and conduct the Company’s retained businesses.

          Employee Matters Agreement.  Storage Systems has entered into an employee matters agreement with the Company to allocate assets, liabilities, and responsibilities relating to Storage Systems’ current and former U.S. employees as well as certain designated non-U.S. employees assigned to Storage Systems’ business and their participation in the employee benefits plans that the Company currently sponsors and maintains.

          Storage Systems’ eligible employees generally will remain able to participate in the Company’s benefit plans for a period of time.  Storage Systems intends to have its own benefit plans established by the time its employees no longer are eligible to participate in the Company’s benefit plans.  Once Storage Systems’ own benefit plans are established, the Company will have the ability to modify or terminate each plan in accordance with the terms of those plans and its policies. 

          Indemnification and Insurance Matters Agreement.  This agreement provides that, effective as of the separation date, Storage Systems and the Company will each release the other from any liabilities arising from events occurring on or before the separation date.  The agreement also contains provisions governing indemnification.  In general, Storage Systems and the Company will each indemnify the other for all liabilities arising from their respective businesses, liabilities, contracts or breaches of the separation agreement.  In addition, Storage Systems has agreed to indemnify the Company with respect to any liability arising from any untrue statement of material fact or an omission of a material fact in the prospectus relating to Storage Systems’ initial public offering.  The agreement also contains cross-indemnification provisions regarding liabilities resulting from environmental conditions.

          The Company and Storage Systems also intend to enter into a tax sharing agreement, a real estate matters agreement and a transition services agreement.

          The Storage Systems Board of Directors adopted the 2004 Equity Incentive Plan in February 2004.  The Equity Incentive Plan Provides for the grant of the following types of incentive awards: (1) stock options; (2) stock appreciation rights; (3) restricted stock; (4) performance units; and (5) performance shares.  The Compensation Committee of the Storage Systems Board of Directors will administer the plan.  There are 7.5 million shares of Storage Systems stock reserved for grant under the 2004 Equity Incentive Plan.  On February 12, 2004, 1,675,000 options to purchase Class A common stock of Storage Systems were granted to several employees at an exercise price of $10.00 per share representing the fair value on the grant date as determined by the Storage Systems Board of Directors.  The options granted vest 25% at every anniversary from the date of grant.

          On February 19, 2004, Storage Systems filed a registration statement on Form S-1 with the Securities and Exchange Commission. The Company currently plans to receive the net proceeds of the offering in the form of a dividend from Storage Systems. The Company may sell shares of Storage Systems’ common stock in the public market or in private transactions, which may not include the sale of a controlling interest in Storage Systems.

          The Company currently intends to distribute to its stockholders, by the summer of 2005, all remaining shares of Storage Systems’ common stock held by the Company at such time.  We will determine the timing, structure and all terms of the distribution taking into account factors such as market conditions.  Completion of the distribution would also be contingent upon the receipt of a favorable tax ruling from the Internal Revenue Service and/or a favorable opinion from the Company’s tax advisor as to the tax-free nature of the distribution for U.S. federal income tax purposes.  The Company is not obligated to undertake the distribution, and the distribution may not occur by the contemplated time or at all. 

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Report of Independent Auditors

To the Board of Directors and Shareholders of LSI Logic Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 96 present fairly, in all material respects, the financial position of LSI Logic Corporation and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.  We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangibles Assets.

PricewaterhouseCoopers LLP
San Jose, California
January 28, 2004, except for Note 14, as to which the date is
February 19, 2004

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Supplementary Financial Data

Interim Financial Information (Unaudited)

	Quarter
	First			Second			Third			Fourth
	(In thousands, except per share amounts)
Year Ended December 31, 2003
Revenues	$	372,785		$	407,213		$	450,227		$	462,845
Gross profit		124,717			168,744			184,984			198,760
Net (loss)/income		(122,425	)		(162,084	)		(31,652	)		7,614
Basic (loss)/income per share:
Net (loss)/income	$	(0.33	)	$	(0.43	)	$	(0.08	)	$	0.02
Diluted (loss)/income per share:
Net (loss)/income	$	(0.33	)	$	(0.43	)	$	(0.08	)	$	0.02
Year Ended December 31, 2002
Revenues	$	412,509		$	437,768		$	486,964		$	479,697
Gross profit		105,846			163,364			198,531			180,975
Net loss		(171,753	)		(62,291	)		(27,626	)		(30,770	)
Basic loss per share:
Net loss	$	(0.47	)	$	(0.17	)	$	(0.07	)	$	(0.08	)
Diluted loss per share:
Net loss	$	(0.47	)	$	(0.17	)	$	(0.07	)	$	(0.08	)

          During the first, second, third and fourth quarters of 2003, the Company recorded charges for restructuring of operations and other items of approximately $36 million, $125 million, $24 million and $(4) million, respectively.  See Note 4 of the Notes.

          During the first and second quarters of 2002, the Company recorded additional excess inventory and related charges of approximately $41 million and $5 million, respectively.  During the first, second, third and fourth quarters of 2002, the Company recorded charges for restructuring of operations and other items of approximately $65 million, $(6) million, $13 million and $(5) million, respectively.  See Note 4 and 8 of the Notes.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          Not applicable.

Item 9A. Controls and Procedures.

          Our management evaluated, with the participation of our chief executive officer and our chief financial officer, the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Securities Exchange Act as of December 31, 2003. . Based on this evaluation, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

          There was no change in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  We are aware that any system of control, however well designed and operated, can only provide reasonable, and not absolute, assurance that the objectives of this system are met, and that maintenance of disclosure controls and procedures is an ongoing process that may change over time.

PART III

          Certain information required by Part III is omitted from this Report in that the Company will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A (the

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“Proxy Statement”) for its Annual Meeting of Stockholders to be held May 6, 2004, and certain of the information to be included therein is incorporated by reference herein.

Item 10.  Directors and Executive Officers of the Registrant

          The information regarding the Company’s executive officers required by this Item is incorporated by reference from the section entitled “Executive Officers of the Company” in Part I of this Form 10-K.

          The information regarding the Company’s directors is incorporated by reference from “Election of Directors” in the Company’s Proxy Statement.

          The information concerning Section 16(a) reporting is incorporated by reference from “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement.

          The Company has adopted a Code of Ethics for principal executive and senior financial officers.  A copy of this Code of Ethics is located on the Company’ website at www.lsilogic.com.

Item 11.  Executive Compensation

          The information required by this Item is incorporated by reference from “Executive Compensation” in the Company’s Proxy Statement. 

Item 12.   Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated by reference from “Equity Compensation Plan Information” in the Company’s Proxy Statement. 

          The information required by this Item is incorporated by reference from “Security Ownership” in the Company’s Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

          The information required by this Item is incorporated by reference to “Certain Transactions” in the Company’s Proxy Statement.

Item 14.  Principal Accountant Fees and Services

          The information required by this Item is incorporated by reference to  the report of the Audit Committee of the Board of Directors in the Company’s Proxy Statement. 

PART IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

          (a) The following documents are filed as a part of this Report:

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1. FINANCIAL STATEMENTS. The following Consolidated Financial Statements of LSI Logic Corporation and Report of Independent Accountants are contained in this Form 10-K:   

	PAGE IN THE FORM 10-K
Consolidated Balance Sheets — As of December 31, 2003 and 2002	55
Consolidated Statements of Operations — For the Three Years Ended December 31, 2003, 2002 and 2001	56
Consolidated Statements of Stockholders’ Equity — For the Three Years Ended December 31, 2003, 2002 and 2001	57
Consolidated Statements of Cash Flows — For the Three Years Ended December 31, 2003, 2002 and 2001	58
Notes to Consolidated Financial Statements	59
Report of Independent Auditors	93

          Fiscal years 2003, 2002 and 2001 were 52-week years with a December 31 fiscal year end.

          2. FINANCIAL STATEMENT SCHEDULES. 

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)

Column A Description	Column B Balance at beginning of period		Column C Additions charged to costs, expenses or other accounts		Column D Deductions *			Column E Balance at end of period
2003
Allowance for doubtful accounts	$	7	$	5	$	(5	)	$	7
2002
Allowance for doubtful accounts	$	20	$	9	$	(22	)	$	7
2001
Allowance for doubtful accounts	$	8	$	15	$	(3	)	$	20

* Deductions include write-offs of uncollectable accounts and collections of amounts previously reserved. 

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          3. EXHIBITS:

2.1	Agreement and Plan of Reorganization and Merger dated February 21, 1999, by and between the Registrant, Stealth Acquisition Corporation and SEEQ Technology Inc.  Incorporated by reference to Exhibit 99.1 filed with the Registrant’s Current Report on Form 8-K filed on February 23, 1999.
2.2	Agreement and Plan of Reorganization dated May 20, 2000 by and among Registrant, Diamond Acquisition Corporation, DataPath Systems, Inc., and certain individuals named therein.  Incorporated by reference to exhibits filed with Registrant’s Form 8-K filed on May 24, 2000.
2.3	Agreement and Plan of Reorganization dated March 26, 2001 by and between Registrant, Clover Acquisition Corporation and C-Cube Microsystems Inc.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-4 (No. 333-58862) on April 13, 2001.
2.4	Master Separation Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.5	General Assignment and Assumption Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.6	Intellectual Property Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.7	Indemnification and Insurance Matters Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.8	Employee Matters Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003. Said document is included as an exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
3.1	Restated Certificate of Incorporation of Registrant.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-46436) on September 22, 2000.
3.2	Amended and Restated By-laws of Registrant.  Incorporated by reference to exhibits filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
4.1	Amended and Restated Preferred Shares Rights Agreement dated as of November 20, 1998, between LSI Logic Corporation and BankBoston N.A.  Incorporated by reference to exhibits filed with the Registrant’s Form 8-A12G/A on December 8, 1998.
4.2	Indenture dated March 15, 1999 between LSI Logic Corporation and State Street Bank and Trust Company of California, N.A., Trustee, covering $345,000,000 principal amount of 4 ¼% Convertible Subordinated Notes due 2004.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-3 (No. 333-80611), on June 14, 1999.
4.3	Indenture dated February 15, 2000 between LSI Logic Corporation and State Street Bank and Trust Company of California, N.A., as Trustee.  Incorporated by reference to exhibits filed with the Registrant’s Current Report on Form 8-K on February 24, 2000.
4.4	Indenture dated as of October 30, 2001, between LSI Logic Corporation and State Street Bank and Trust Company of California, N.A., as Trustee.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-3 (No. 333-81434) on January 25, 2002.
4.5	Indenture dated as of May 16, 2003, between LSI Logic Corporation and U.S. Bank, N.A., as Trustee.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
4.6	See Exhibit 3.1.
10.1	Registrant’s 1982 Incentive Stock Option Plan, as amended, and forms of Stock Option Agreement.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1988.*
10.2	Lease Agreement dated November 22, 1983, for 48580 Kato Road, Fremont, California between the Registrant and BankAmerica Realty Investors.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1983.
10.3	Form of Indemnification Agreement between Registrant and our officers, directors and certain key employees.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1987.*

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10.4	Amended and Restated LSI Logic Corporation 1991 Equity Incentive Plan. Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-96543) on July 16, 2002.*
10.5	Lease Agreement dated February 28, 1991 for 765 Sycamore Drive, Milpitas, California between the Registrant and the Prudential Insurance Company of America.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991.
10.6	Stock Purchase Agreement dated as of January 20, 1995; Promissory Note dated January 26, 1995; Note Purchase Agreement dated as of January 26, 1995 in connection with our purchase of the minority interest in one of our Japanese subsidiaries.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995.
10.7	1995 Director Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-106205) on June 17, 2003.*
10.8	LSI Logic Corporation International Employee Stock Purchase Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-98807) on August 27, 2002.*
10.9	Form of LSI Logic Corporation Change in Control Severance Agreement between LSI Logic Corporation and each of its executive officers.  Said document is included as an Exhibit to this Form 10-K for the year ended December 31, 2003. *
10.10	Technology Transfer Agreement between LSI Logic Corporation and Wafer Technology (Malaysia) Sdn. Bhd., dated September 8, 1999.  Incorporated by reference to exhibits filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
10.11	Mint Technology, Inc. Amended 1996 Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-34285) on August 25, 1997.
10.12	Registrant’s Amended and Restated Employee Stock Purchase Plan. Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-96555) on July 16, 2002.*
10.13	Symbios Logic, Inc. 1995 Stock Plan.  Incorporated by reference to exhibits filed with the Registrant’s Form S-8 (No. 333-62159) on August 25, 1998.
10.14	LSI Logic Corporation 1999 Nonstatutory Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-96549) on July 16, 2002.
10.15	SEEQ Technology, Inc. Amended and Restated 1982 Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-81435) on June 24, 1999.
10.16	SEEQ Technology, Inc. 1989 Non-Employee Director Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-81435) filed on June 24, 1999.
10.17	Amended and Restated Participation Agreement by and among Registrant, ABN AMRO Bank N.V., ABN AMRO Bank N.V. as agent for Lessors and Participants dated April 18, 2000.  Incorporated by reference to exhibits with Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2000.
10.18	Second Amended and Restated Credit Agreement dated as of April 21, 2000, by and among Registrant, LSI Logic Japan Semiconductor, ABN AMRO Bank and Lenders.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.
10.19	IntraServer Technology, Inc. 1998 Stock Option Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-38746) on June 7, 2000.
10.20	DataPath Systems, Inc. Amended 1994 Stock Option Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-42888) on August 2, 2000.
10.21	DataPath Systems, Inc. Amended and Restated 1997 Stock Option Plan. Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-42888) on August 2, 2000.
10.22	Syntax Systems, Inc. Restated Stock Option Plan of January 5, 1999.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-52050) on December 18, 2000.
10.23	C-Cube Microsystems Inc. Director Stock Option Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-62960) on June 14, 2001.
10.24	C-Cube Microsystems Inc. 2000 Stock Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-62960) on June 14, 2001.
10.25	Wilfred J. Corrigan Employment Agreement dated as of September 20, 2001.  Incorporated by reference to exhibits filed with the Annual Report on Form 10-K for the year ended December 31, 2001.*
10.26	First Amendment to Amended and Restated Participation Agreement by and among LSI Logic, ABN Amro Bank N.V., Keybank National Association, FBTC Leasing Corp. as Lessor, ABN Amro Bank N.V., as agent for Lessors and Participants, dated as of August 2, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.27	Second Amendment to Amended and Restated Participation Agreement by and among LSI Logic, ABN

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	Amro Bank N.V., Keybank National Association, FBTC Leasing Corp. as Lessor, ABN Amro Bank N.V., as agent for Lessors and Participants, dated as of August 17, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.28	Third Amendment to Participation Agreement and Omnibus Amendment by and among LSI Logic, Banc of America Leasing & Capital LLC, as Lessor, Fleet National Bank, as Lessor Agent and as Agent and Participants, dated as of September 28, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.29	Participation Agreement by and among LSI Logic, First Security Bank, N.A. as Certificate Trustee, First Security Trust Company of Nevada, as Agent and Participants, dated as of April 20, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.30	First Amendment to Participation Agreement by and among LSI Logic, Wells Fargo Bank Northwest, N.A. (f/k/a First Security Bank, N.A.), as Certificate Trustee, First Security Trust Company of Nevada, as Agent and Participants, dated as of August 2, 2001.  Incorporated by reference to exhibits field with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.31	Second Amendment to Participation Agreement by and among LSI Logic, Wells Fargo Bank Northwest, N.A. (f/k/a First Security Bank, N.A.), as Certificate Trustee, First Security Trust Company of Nevada, as Agent and Participants, dated as of August 17, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.32	Third Amendment to Participation Agreement and Omnibus Amendment by and among LSI Logic, Wells Fargo Bank Northwest, N.A., (f/k/a First Security Bank, N.A.), as Certificate Trustee, Wells Fargo Bank Nevada, National Association (f/k/a First Security Trust Company of Nevada), as Agent and Participants, dated as of September 28, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.33	Manufacturing Technology Joint Development and Foundry Supply Agreement dated as of March 30, 2001 by and between the Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.  Incorporated by reference to exhibits filed with Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002.
10.34	LSI Logic Corporation 2003 Equity Incentive Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on From S-8 (No. 333-106206) on June 17, 2003.*
10.35	Lease and Security Agreement (Lease A) among Wells Fargo Bank Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.36	Lease and Security Agreement (Lease B) among Wells Fargo Bank Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.37	Assignment of Cash Collateral Accounts (Lease A) by and between LSI Logic Corporation as Pledgor and Bank of America, N.A., as Lessor, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.38	Assignment of Cash Collateral Accounts (Lease B) by and between LSI Logic Corporation as Pledgor and Bank of America, N.A., as Lessor, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.39	Letter of Credit and Reimbursement Agreement, between LSI Logic as Applicant, and Wachovia Bank, N.A., dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.40	First Amendment to Lease and Security Agreement (Lease A) among Wells Fargo Bank Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 31, 2003. Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.41	First Amendment to Lease and Security Agreement (Lease B) among Wells Fargo Bank Northwest, N.A., as

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	Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 31, 2003. Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.42	Form of Control Agreement among LSI Logic Corporation, as Lessee, Bank of America, N.A., as Lessor and various entities, as Securities Intermediaries, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.43	Amendment No. 1 to Amended and Restated Preferred Shares Rights Agreement between LSI Logic Corporation, Fleet Bank f/k/a BankBoston, N.A., dated as of August 16, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.44	Amendment to Amended and Restated Preferred Shares Rights Agreement between LSI Logic Corporation, Fleet Bank, f/k/a BankBoston, N.A., dated as of August 16, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.45	Registration Rights Agreement between LSI Logic Corporation and Morgan Stanley & Co., Inc., dated May 16, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
10.46	Change of Control Severance Agreement between the Registrant and Thomas Georgens, dated as of November 20, 2003. Said document is included as an exhibit to this Form10-K for the year ended December 31, 2003.*
21.1	List of Subsidiaries.
23.1	Consent of Independent Accountants.
24.1	Power of Attorney (See page 102).
31.1	Certification of the Chief Executive Officer pursuant to Securities and Exchange Act Rules 13a-15(e) and 15d-1(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Securities and Exchange Act Rules 13a-15(e) and 15de-1(e), as adopted pursuant to Section 302 of the Sarbanes-0xley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

* Denotes management contract or compensatory plan or arrangement

** Furnished, not filed.

          (b) REPORTS ON FORM 8-K.

          During the fourth quarter ended December 31, 2003, we filed the following Current Reports on Form 8-K:

On October 22, 2003, we filed a Current Report on Form 8-K pursuant to Items 5 and furnished it pursuant to Items 7 and 12 to report financial results set forth in the Registrant’s news release dated October 21, 2003. 

On November 13, 2003, we filed a Current Report on Form 8-K pursuant to Items 5, 7 and 9 to report the events set forth in the Registrant’s news release dated November 13, 2003.

          (c) EXHIBITS.

          See Item 14(a)(3), above.

          (d) FINANCIAL STATEMENT SCHEDULES

          See Item 15(a)(2), above.

TRADEMARK ACKNOWLEDGMENTS

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          The LSI Logic logo design, ATMizer, CoreWare, G10, GigaBlaze, HyperPHY, MegaRAID, MetaStor, MiniRISC, and SeriaLink are registered trademarks of LSI Logic Corporation; Cablestream, ContinuStor, FusionMPT, G11, G12, Gflx, HotScale, LogicStor, Merlin, RapidChip, RapidSlices, Right First Time, On Time, StreamSlice, SANtricity, and SANshare are trademarks of LSI Logic Corporation.

          ARM is a registered Trademark of Advanced RISC Machines Limited, used under license. All other brand and product names appearing in this report are the trademarks of their respective companies.

101

SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

LSI LOGIC CORPORATION
By:	/s/  WILFRED J. CORRIGAN
	Wilfred J. Corrigan Chairman of the Board and Chief Executive Officer

Dated: March 15, 2004

POWER OF ATTORNEY

          KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Wilfred J. Corrigan and David G. Pursel, jointly and severally, their attorneys-in-fact, each with the power of substitution, for them in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  WILFRED J. CORRIGAN	Chairman of the Board, Chief	March 15, 2004
	Executive Officer (Principal Executive
(Wilfred J. Corrigan)	Officer) and Director
/s/  BRYON LOOK	Executive Vice President and Chief	March 15, 2004
	Financial Officer (Principal Financial
(Bryon Look)	Officer and Principal Accounting Officer)
/s/  T.Z. CHU	Director	March 15, 2004
(T.Z. Chu)
/s/  MALCOLM R. CURRIE	Director	March 15, 2004
(Malcolm R. Currie)
/s/  JAMES H. KEYES	Director	March 15, 2004
(James H. Keyes)
/s/  R. DOUGLAS NORBY	Director	March 15, 2004
(R. Douglas Norby)
/s/  MATTHEW O’ROURKE	Director	March 15, 2004
(Matthew O’Rourke)

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Signature	Title	Date
/s/  GREGORIO REYES	Director	March 15, 2004
(Gregorio Reyes)
/s/  LARRY W. SONSINI	Director	March 15, 2004
(Larry W. Sonsini)

103

INDEX TO EXHIBITS

2.1	Agreement and Plan of Reorganization and Merger dated February 21, 1999, among the Registrant, Stealth Acquisition Corporation and SEEQ Technology Inc.  Incorporated by reference to Exhibit 99.1 filed with the Registrant’s Current Report on Form 8-K as of February 23, 1999.
2.2	Agreement and Plan of Reorganization dated May 20, 2000 by and among Registrant, Diamond Acquisition Corporation, DataPath Systems, Inc., and certain individuals named therein.  Incorporated by reference to exhibits filed with Registrant’s Form 8-K filed on May 24, 2000.
2.3	Agreement and Plan of Reorganization dated March 26, 2001 by and among Registrant, Clover Acquisition Corporation and C-Cube Microsystems Inc.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-4 (No. 333-58862) on April 13, 2001.
2.4	Master Separation Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.5	General Assignment and Assumption Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.6	Intellectual Property Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.7	Indemnification and Insurance Matters Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
2.8	Employee Matters Agreement between Registrant and LSI Logic Storage Systems, Inc., effective as of December 31, 2003. Said document is included as an exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003.
3.1	Restated Certificate of Incorporation of Registrant.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-46436) on September 22, 2000.
3.2	By-laws of Registrant.  Incorporated by reference to exhibits filed with the Registrant’s Quarterly Report on Form 10-Q for the year ended March 30, 2003.
4.1	Amended and Restated Preferred Shares Rights Agreement dated as of November 20, 1998, between LSI Logic Corporation and BankBoston N.A.  Incorporated by reference to exhibits filed with the Registrant’s Form 8-A12G/A on December 8, 1998.
4.2	Indenture dated March 15, 1999 between LSI Logic Corporation and State Street Bank and Trust Company of California, N.A., Trustee, covering $345,000,000 principal amount of 4 ¼% Convertible Subordinated Notes due 2004.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-3 (No. 333-80611), on June 14, 1999.
4.3	Indenture dated February 15, 2000 between LSI Logic Corporation and State Street Bank and Trust Company of California, N.A., as Trustee.  Incorporated by reference to exhibits filed with the Registrant’s Current Report on Form 8-K on February 24, 2000.
4.4	Indenture dated as of October 30, 2001, between LSI Logic Corporation and State Street Bank and Trust Company of California, N.A., as Trustee.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-3 (No. 333-81434) on January 25, 2002.
4.5	Indenture dated as of May 16, 2003, between LSI Logic Corporation and U.S. Bank, N.A., as Trustee.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
4.6	See Exhibit 3.1.
10.1	Registrant’s 1982 Incentive Stock Option Plan, as amended, and forms of Stock Option Agreement.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1988.*
10.2	Lease Agreement dated November 22, 1983, for 48580 Kato Road, Fremont, California between the Registrant and BankAmerica Realty Investors.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1983.

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10.3	Form of Indemnification Agreement between Registrant and our officers, directors and certain key employees.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1987.*
10.4	Amended and Restated LSI Logic Corporation 1991 Equity Incentive Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-96543) on July 16, 2002. *
10.5	Lease Agreement dated February 28, 1991 for 765 Sycamore Drive, Milpitas, California between the Registrant and the Prudential Insurance Company of America.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991.
10.6	Stock Purchase Agreement dated as of January 20, 1995; Promissory Note dated January 26, 1995; Note Purchase Agreement dated as of January 26, 1995 in connection with our purchase of the minority interest in one of our Japanese subsidiaries.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995.
10.7	1995 Director Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-106205) on June 17, 2003.*
10.8	LSI Logic Corporation International Employee Stock Purchase Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-98807) on August 27, 2002.*
10.9	Form of LSI Logic Corporation Change in Control Severance Agreement between LSI Logic Corporation and each of its executive officers.  Said document is included as an Exhibit to this Annual Report on Form 10-K for the year ended December 31, 2003*
10.10	Technology Transfer Agreement between LSI Logic Corporation and Wafer Technology (Malaysia) Sdn. Bhd., dated September 8, 1999.  Incorporated by reference to exhibits filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
10.11	Mint Technology, Inc. Amended 1996 Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-34285) on August 25, 1997.
10.12	Registrant’s Amended and Restated Employee Stock Purchase Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-96555) on July 16, 2002.*
10.13	Symbios Logic, Inc. 1995 Stock Plan.  Incorporated by reference to exhibits filed with the Registrant’s Form S-8 (No. 333-62159) on August 25, 1998.
10.14	LSI Logic Corporation 1999 Nonstatutory Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-96549) on July 16, 2002.
10.15	SEEQ Technology, Inc. Amended and Restated 1982 Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-81435) on June 24, 1999.
10.16	SEEQ Technology, Inc. 1989 Non-Employee Director Stock Option Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-8 (No. 333-81435) filed on June 24, 1999.
10.17	Amended and Restated Participation Agreement by and among Registrant, ABN AMRO Bank N.V., ABN AMRO Bank N.V. as agent for Lessors and Participants dated April 18, 2000.  Incorporated by reference to exhibits with Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2000.
10.18	Second Amended and Restated Credit Agreement dated as of April 21, 2000, by and among Registrant, LSI Logic Japan Semiconductor, ABN AMRO Bank and Lenders.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.
10.19	IntraServer Technology, Inc. 1998 Stock Option Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-38746) on June 7, 2000.
10.20	DataPath Systems, Inc. Amended 1994 Stock Option Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-42888) on August 2, 2000.
10.21	DataPath Systems, Inc. Amended and Restated 1997 Stock Option Plan. Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-42888) on August 2, 2000.
10.22	Syntax Systems, Inc. Restated Stock Option Plan of January 5, 1999.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-52050) on December 18, 2000.
10.23	C-Cube Microsystems Inc. Director Stock Option Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-62960) on June 14, 2001.
10.24	C-Cube Microsystems Inc. 2000 Stock Plan.  Incorporated by reference to exhibits filed with Registrant’s Registration Statement on Form S-8 (No. 333-62960) on June 14, 2001.
10.25	Wilfred J. Corrigan Employment Agreement dated as of September 20, 2001.  Incorporated by reference to exhibits to the Annual Report on Form 10-K for the year ended December 31, 2001.*
10.26	First Amendment to Amended and Restated Participation Agreement by and among LSI Logic, ABN Amro Bank N.V., Keybank National Association, FBTC Leasing Corp. as Lessor, ABN Amro Bank N.V., as agent

105

	for Lessors and Participants, dated as of August 2, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.27	Second Amendment to Amended and Restated Participation Agreement by and among LSI Logic, ABN Amro Bank N.V., Keybank National Association, FBTC Leasing Corp. as Lessor, ABN Amro Bank N.V., as agent for Lessors and Participants, dated as of August 17, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.28	Third Amendment to Participation Agreement and Omnibus Amendment by and among LSI Logic, Banc of America Leasing & Capital LLC, as Lessor, Fleet National Bank, as Lessor Agent and as Agent and Participants, dated as of September 28, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.29	Participation Agreement by and among LSI Logic, First Security Bank, N.A. as Certificate Trustee, First Security Trust Company of Nevada, as Agent and Participants, dated as of April 20, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.30	First Amendment to Participation Agreement by and among LSI Logic, Wells Fargo Bank Northwest, N.A. (f/k/a First Security Bank, N.A.), as Certificate Trustee, First Security Trust Company of Nevada, as Agent and Participants, dated as of August 2, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.31	Second Amendment to Participation Agreement by and among LSI Logic, Wells Fargo Bank Northwest, N.A. (f/k/a First Security Bank, N.A.), as Certificate Trustee, First Security Trust Company of Nevada, as Agent and Participants, dated as of August 17, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.32	Third Amendment to Participation Agreement and Omnibus Amendment by and among LSI Logic, Wells Fargo Bank Northwest, N.A., (f/k/a First Security Bank, N.A.), as Certificate Trustee, Wells Fargo Bank Nevada, National Association (f/k/a First Security Trust Company of Nevada), as Agent and Participants, dated as of September 28, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
10.33	Manufacturing Technology Joint Development and Foundry Supply Agreement dated as of March 30, 2001 by and between the Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.  Incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002.
10.34	LSI Logic Corporation 2003 Equity Incentive Plan.  Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on From S-8 (No. 333-106206) on June 17, 2003.*
10.35	Lease and Security Agreement (Lease A) among Wells Fargo Bank Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.36	Lease and Security Agreement (Lease B) among Wells Fargo Bank Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.37	Assignment of Cash Collateral Accounts (Lease A) by and between LSI Logic Corporation as Pledgor and Bank of America, N.A., as Lessor, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.38	Assignment of Cash Collateral Accounts (Lease B) by and between LSI Logic Corporation as Pledgor and Bank of America, N.A., as Lessor, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.39	Letter of Credit and Reimbursement Agreement, between LSI Logic as Applicant, and Wachovia Bank, N.A., dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.40	First Amendment to Lease and Security Agreement (Lease A) among Wells Fargo Bank Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 31, 2003. Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for

106

	the quarter ended March 30, 2003.
10.41	First Amendment to Lease and Security Agreement (Lease B) among Wells Fargo Bank Northwest, N.A., as Agent, LSI Logic Corporation as Lessee and Bank of America, N.A., as Lessor, Fleet National Bank as Documentation Agent and Societe Generale Financial Corporation, as Syndication Agent, dated as of March 31, 2003. Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.42	Form of Control Agreement among LSI Logic Corporation, as Lessee, Bank of America, N.A., as Lessor and various entities, as Securities Intermediaries, dated as of March 28, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.43	Amendment No. 1 to Amended and Restated Preferred Shares Rights Agreement between LSI Logic Corporation, Fleet Bank f/k/a BankBoston, N.A., dated as of August 16, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.44	Amendment to Amended and Restated Preferred Shares Rights Agreement between LSI Logic Corporation, Fleet Bank, f/k/a BankBoston, N.A., dated as of August 16, 2001.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.
10.45	Registration Rights Agreement between LSI Logic Corporation and Morgan Stanley & Co., Inc., dated May 16, 2003.  Incorporated by reference to exhibits filed with Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
10.46	Change of Control Severance Agreement between the Registrant and Thomas Georgens, dated as of November 20, 2003. Said document is included as an exhibit to this Form10-K for the year ended December 31, 2003.*
21.1	List of Subsidiaries.
23.1	Consent of Independent Accountants.
24.1	Power of Attorney (See page 102).
31.1	Certification of the Chief Executive Officer pursuant to Securities and Exchange Act Rules 13a-15(e) and 15d-1(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Securities and Exchange Act Rules 13a-15(e) and 15de-1(e), as adopted pursuant to Section 302 of the Sarbanes-0xley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

* Denotes management contract or compensatory plan or arrangement

** Furnished, not filed.

107

EX-99

Exhibit 2.4

Master Separation Agreement

between

LSI Logic Corporation

and

LSI Logic Storage Systems, Inc.

December 31, 2003

TABLE OF CONTENTS

			Page
ARTICLE I SEPARATION			1
	1.1	Separation Date	1
	1.2	Closing of Transactions	1
ARTICLE II DOCUMENTS AND ITEMS TO BE DELIVERED ON AND AFTER THE SEPARATION DATE			2
	2.1	Documents to Be Delivered by LSI Logic on the Separation Date	2
	2.2	Documents to Be Delivered by SSI on the Separation Date	2
	2.3	Documents to Be Delivered by LSI Logic after the Separation Date	2
	2.4	Documents to Be Delivered by SSI after the Separation Date	3
ARTICLE III REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER MATTERS			3
	3.1	Other Agreements	3
	3.2	Further Instruments	3
	3.3	Agreement for Exchange of Information	4
	3.4	Auditors and Audits; Annual and Quarterly Statements and Accounting	6
	3.5	Payment of Expenses	7
	3.6	Foreign Subsidiaries	7
	3.7	Dispute Resolution	8
	3.8	Governmental Approvals	9
	3.9	No Representation or Warranty	9
	3.10	Cooperation in Obtaining New Agreements	9
	3.11	Assistance Regarding Consents to Assignment, Delegation or Novation	9
	3.12	Authority	9
	3.13	Confidentiality of Information	10
ARTICLE IV MISCELLANEOUS			11
	4.1	Limitation of Liability	11
	4.2	Entire Agreement	11
	4.3	Governing Law	12
	4.4	Termination	12
	4.5	Notices	12
	4.6	Counterparts	13
	4.7	Binding Effect; Assignment	13
	4.8	Severability	13
	4.9	Failure or Indulgence Not Waiver; Remedies Cumulative	13
	4.10	Amendment	13
	4.11	Interpretation	13
	4.12	Conflicting Agreements	14

ARTICLE V DEFINITIONS			14
	5.1	AAA	14
	5.2	Affiliated Company	14
	5.3	Ancillary Agreements	14
	5.4	Assets	14
	5.5	Confidential Information	14
	5.6	Disclosing Party	14
	5.7	Dispute	14
	5.8	Dispute Resolution Commencement Date	14
	5.9	Exchange Act	14
	5.10	Governmental Approvals	14
	5.11	Governmental Authority	14
	5.12	Information	15
	5.13	Liabilities	15
	5.14	LSI Logic Group	15
	5.15	LSI Logic’s Auditors	15
	5.16	Non-US Plan	15
	5.17	Person	15
	5.18	Receiving Party	15
	5.19	Residual Information	15
	5.20	Sarbanes-Oxley Act	15
	5.21	Separation	15
	5.22	Separation Date	15
	5.23	SSI Assets	15
	5.24	SSI Group	15
	5.25	SSI’s Auditors	16
	5.26	Subsidiary	16
	5.27	WSGR	18

EXHIBITS

Exhibit A	General Assignment and Assumption Agreement
Exhibit B	Intellectual Property Agreement
Exhibit C	Employee Matters Agreement
Exhibit D	Indemnification and Insurance Matters Agreement
Exhibit E	Tax Sharing Agreement
Exhibit F	Transition Services Agreement
Exhibit G	Real Estate Matters Agreement
Exhibit H	Investor Rights Agreement
Exhibit I	Reorganization of Operations Outside the United States (Non-US Plan)

MASTER SEPARATION AGREEMENT

          This Master Separation Agreement (this “Agreement”) is entered into as of December 31, 2003 between LSI Logic Corporation, a Delaware corporation (“LSI Logic”), and LSI Logic Storage Systems, Inc., a Delaware corporation (“SSI”).  Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in Article V hereof.

RECITALS

          1.           LSI Logic currently owns all of the issued and outstanding capital stock of SSI.

          2.           Heretofore, LSI Logic and SSI have conducted their businesses separately. 

          3.           LSI Logic and SSI now desire to enter into certain agreements to delineate and clarify their relationship and to further separate the businesses conducted by LSI Logic and SSI (the “Separation”).  

          4.           The parties intend in this Agreement, including the exhibits and schedules hereto, to set forth the principal arrangements between them regarding the Separation.

          NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows:

ARTICLE I

SEPARATION

          1.1          Separation Date.  Unless otherwise provided in this Agreement or any Ancillary Agreement, or in any exhibit or schedule hereto or thereto, the effective time and date of the allocation of Assets and Liabilities (and if necessary, the contribution of Assets and assumption of Liabilities) in connection with the Separation shall be 12:01 a.m., Pacific Time, December 31, 2003 (the “Separation Date”).

          1.2                Closing of Transactions.  Unless otherwise provided herein or agreed by the parties, the closing of the transactions contemplated in Article II shall occur upon the exchange and delivery of the items required to be delivered pursuant to Section 2.1 and Section 2.2.  The closing shall occur at the offices of Wilson Sonsini Goodrich & Rosati (“WSGR”), 650 Page Mill Road, Palo Alto, California 94304.

ARTICLE II

DOCUMENTS AND ITEMS TO BE DELIVERED ON AND AFTER THE SEPARATION DATE

          2.1          Documents to Be Delivered by LSI Logic on the Separation Date.  On the Separation Date, unless otherwise agreed by the parties, LSI Logic shall deliver (and if necessary, shall cause its appropriate Subsidiaries to deliver) to SSI all of the following items and agreements:

                         (a)          A duly executed General Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit A;

                         (b)          A duly executed Intellectual Property Agreement substantially in the form attached hereto as Exhibit B;

                         (c)          A duly executed Employee Matters Agreement substantially in the form attached hereto as Exhibit C;

                         (d)          A duly executed Indemnification and Insurance Matters Agreement substantially in the form attached hereto as Exhibit D;

                         (e)          To the extent deemed appropriate by LSI Logic, the resignation as an officer and/or director of LSI Logic of each person who is an officer or director of LSI Logic or its Subsidiaries immediately prior to the Separation Date if such person will be an employee of SSI immediately after the Separation Date; and

                         (f)          Such other agreements, documents or instruments as the parties may agree are necessary or desirable in order to achieve the purposes hereof.

          2.2          Documents to Be Delivered by SSI on the Separation Date.  On the Separation Date, unless otherwise agreed by the parties, SSI shall deliver (and if necessary, shall cause its appropriate Subsidiaries to deliver) to LSI Logic all of the following:

                         (a)          With respect to any item or agreement referred to in Section 2.1 to which SSI is a party, a duly executed counterpart of such item or agreement; and

                         (b)          To the extent requested by LSI Logic, the resignation as an officer and/or director of SSI of each person who is an officer or director of SSI immediately prior to the Separation Date if such person will be an employee of LSI Logic immediately after the Separation Date.

          2.3          Documents to Be Delivered by LSI Logic after the Separation Date.  As soon as practicable after the Separation Date, LSI Logic shall deliver (and if necessary, shall cause its appropriate Subsidiaries to deliver) to SSI all of the following items and agreements:

                         (a)          A duly executed Tax Sharing Agreement, which shall be attached hereto as Exhibit E at the time of delivery.

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                         (b)          A duly executed Transition Services Agreement, which shall be attached hereto as Exhibit F at the time of delivery;

                         (c)          A duly executed Real Estate Matters Agreement, which shall be attached hereto as Exhibit G at the time of delivery;

                         (d)          A duly executed Investor Rights Agreement, which shall be attached hereto as Exhibit H at the time of delivery;

                         (e)          A plan of Reorganization of Operations Outside the United States (the “Non-US Plan”), which shall be attached hereto as Exhibit I at the time of delivery; and

                         (f)          Such additional agreements, documents or instruments as the parties may agree are necessary or desirable in order to achieve the purposes hereof.

          2.4          Documents to Be Delivered by SSI after the Separation Date.  As soon as practicable after the Separation Date, SSI shall deliver (and if necessary, shall cause its appropriate Subsidiaries to deliver) to LSI Logic all of the following:

                         (a)          With respect to any item or agreement referred to in Section 2.3 to which SSI is a party, a duly executed counterpart of such item or agreement.

ARTICLE III

REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER MATTERS

          3.1          Other Agreements.  In addition to the Ancillary Agreements, LSI Logic and SSI agree to execute or cause to be executed by the appropriate parties and deliver such other agreements, instruments and documents as may be necessary or desirable to effect the purposes of this Agreement and the Ancillary Agreements.

          3.2          Further Instruments. 

                         (a)          At the request of SSI, and without further consideration, LSI Logic shall execute and deliver, and shall cause its applicable Subsidiaries to execute and deliver, to SSI and its Subsidiaries such other instruments of transfer, conveyance, assignment, substitution and confirmation and take such action as SSI may reasonably deem necessary or desirable to transfer, convey and assign to SSI and its Subsidiaries and confirm SSI’s and its Subsidiaries’ title to all of the Assets contemplated to be transferred to SSI and its Subsidiaries pursuant to this Agreement, the Ancillary Agreements and any documents referred to therein, to put SSI and its Subsidiaries in actual possession and operating control thereof and to permit SSI and its Subsidiaries to exercise all rights with respect thereto as described or contemplated in this Agreement, the Ancillary Agreements and any documents referred to therein (including, without limitation, rights under contracts and other arrangements as to which the consent of any third party to the transfer thereof shall not have been obtained). 

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                         (b)          At the request of LSI Logic and without further consideration, SSI shall execute and deliver, and shall cause its applicable Subsidiaries to execute and deliver, to LSI Logic and its Subsidiaries all instruments, assumptions, novations, undertakings, substitutions or other documents and to take such other actions as LSI Logic may reasonably deem necessary or desirable to have SSI fully and unconditionally assume and discharge the Liabilities contemplated to be assumed by SSI under this Agreement, the Ancillary Agreements and any document referred to therein and to relieve the LSI Logic Group of any obligation with respect thereto and to evidence the same to third parties. 

                         (c)          Neither LSI Logic nor SSI shall be obligated, in connection with the foregoing, to incur expenses other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees.  Furthermore, each party, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable to consummate the transactions contemplated hereby.

          3.3          Agreement for Exchange of Information. 

                         (a)          Generally.  Each of LSI Logic and SSI shall provide, or cause to be provided, to each other, as soon as practicable after written request therefor, any Information in the possession or under the control of such party that the requesting party reasonably requests (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative or other proceeding, (iii) to satisfy audit, accounting, regulatory, litigation or other similar requirements, (iv) to comply with its obligations under this Agreement or any Ancillary Agreement or (v) in connection with the ongoing businesses of the requesting party; provided, however, that in the event that either party determines that any such provision of Information could be commercially detrimental to such party, violate any law or agreement, or waive any attorney-client privilege, the parties shall take all commercially reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence and, if such harm or consequence cannot be so avoided, the relevant party shall not be required to provide such Information.

                         (b)          Internal Accounting Controls; Financial Information.  Subject to the other subsections of this Section 3.3 (including but not limited to Section 3.3(d) and Section 3.3(e)), (i) each party shall maintain in effect at its own cost and expense adequate systems and controls (including internal accounting and disclosure controls) for its business to the extent necessary to enable the other party to satisfy its reporting, accounting, audit and other obligations, and (ii) each party shall provide, or cause to be provided, to the other party and its Subsidiaries in such form as such requesting party shall reasonably request, all financial and other data and Information, to the extent such Information is existing and reasonably available, as the requesting party determines necessary or advisable in order to prepare its financial statements and reports or filings with any Governmental Authority.  At the time such Information is requested by a party, the parties shall negotiate in good faith as to the allocation of the cost of providing such Information.  The foregoing obligations shall include, without limitation, the obligations of each party to maintain such internal accounting and disclosure controls as are necessary to enable both parties, and both parties’ directors and officers, to meet their respective certification, disclosure and reporting requirements, without

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any qualification, limitation or exception whatsoever, under the federal securities laws, rules and regulations, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the laws, rules and regulations promulgated thereunder (including, without limitation, Sections 302, 404 and 906 of such act) and any other applicable laws, rules and regulations.  In addition, each party shall cause its officers and other employees, as appropriate, to furnish such certifications and representations as the other party shall reasonably request in order for such party, and such party’s directors and officers, to meet their respective certification, disclosure and reporting requirements under any applicable laws, rules or regulations and to have reasonable assurances that any certifications, disclosures or reports furnished by such party are accurate and complete in all respects.  The foregoing shall include, without limitation, each party’s obligations imposed by any self-regulatory organization (such as The New York Stock Exchange, Inc., The National Association of Securities Dealers, Inc. and Nasdaq) and under any applicable state laws.

                         (c)          Ownership of Information.  Any Information owned by a party that is provided to a requesting party pursuant to this Section 3.3 shall be deemed to remain the property of the providing party.  Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.

                         (d)          Record Retention.  To facilitate the possible exchange of Information pursuant to this Section 3.3 and other provisions of this Agreement after the Separation Date, each party agrees to use its commercially reasonable efforts to retain all Information in its respective possession or control on the Separation Date substantially in accordance with the policies of LSI Logic as in effect on the Separation Date as set forth in LSI Logic’s official records retention policy.  However, except as set forth in the Tax Sharing Agreement, at any time after the Separation Date, each party may amend its respective record retention policies at such party’s discretion so as to diverge from LSI Logic’s policy with respect to the Information; provided, however, that if a party desires to effect the amendment within three (3) years after the Separation Date, the amending party must give thirty (30) days prior written notice of such change in the policy to the other party to this Agreement.  No party shall destroy, or permit any of its Subsidiaries to destroy, any Information that exists on the Separation Date (other than Information that is permitted to be destroyed under the current record retention policies of LSI Logic) and that falls under the categories listed in Section 3.3(a), without first notifying the other party of the proposed destruction and giving the other party the reasonable opportunity to take possession of such Information prior to such destruction.

                         (e)          Limitation of Liability.  Except in the case of gross negligence or willful misconduct by the party providing such Information, no party shall have any liability to any other party in the event that any Information exchanged or provided pursuant to this Section 3.3 is found to be inaccurate.  No party shall have any liability to the other party if any Information is destroyed or lost, unless such party fails to use commercially reasonable efforts to comply with the provisions of Section 3.3(d).

                         (f)          Production of Witnesses; Records; Cooperation.  After the Separation Date, except in the case of a legal or other proceeding by one party against the other party (which shall be governed by such discovery rules as may be applicable under Section 3.7 or otherwise), each party hereto shall use its commercially reasonable efforts to make available to the other party, upon written request, the former, current and future directors, officers, employees, other personnel and

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agents of such party and any books, records or other documents within its control, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any legal, administrative or other proceeding in which the requesting party may from time to time be involved, regardless of whether such legal, administrative or other proceeding is a matter with respect to which indemnification may be sought hereunder.  The requesting party shall bear all costs and expenses in connection therewith.

          3.4          Auditors and Audits; Annual and Quarterly Statements and Accounting.  Each party agrees that, for so long as LSI Logic is required by United States generally accepted accounting principles to consolidate SSI’s results of operations and financial position:

                         (a)          Selection of Auditors.  SSI shall not select a different accounting firm (“SSI’s Auditors”) from that used by LSI Logic to serve as its (and its Subsidiaries’) independent certified public accountants (“LSI Logic’s Auditors”) for purposes of providing an opinion on its consolidated financial statements; provided, however, that SSI’s Auditors may be different from LSI Logic’s Auditors if necessary to comply with applicable laws regarding auditor independence and qualifications (provided, however, that SSI shall not take any actions, and shall use reasonable efforts to cause its directors, officers and employees not to take any actions, that could reasonably be expected to require SSI to engage auditors other than LSI Logic’s Auditors).

                         (b)          Date of Auditors’ Opinion and Quarterly Reviews.  SSI shall use its commercially reasonable efforts to cause SSI’s Auditors to complete their audit such that they will date their opinion on SSI’s audited annual financial statements on the same date that LSI Logic’s Auditors date their opinion on LSI Logic’s audited annual financial statements, and to enable LSI Logic to meet its timetable for the printing, filing and public dissemination of LSI Logic’s annual financial statements.  SSI shall use its reasonable commercial efforts to cause SSI’s Auditors to complete their quarterly review procedures on SSI’s quarterly financial statements on the same date that LSI Logic’s Auditors complete their quarterly review procedures on LSI Logic’s quarterly financial statements.

                         (c)          Annual and Quarterly Financial Statements.  SSI shall promptly provide to LSI Logic all Information that LSI Logic reasonably requests to prepare, print, file, and publicly disseminate LSI Logic’s annual and quarterly financial statements in accordance with LSI Logic’s obligations under the Exchange Act.  Without limiting the generality of the foregoing, SSI shall provide all required financial Information with respect to SSI and its Subsidiaries to SSI’s Auditors in a sufficient and reasonable time and in sufficient detail to permit SSI’s Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to LSI Logic’s Auditors with respect to financial Information to be included or contained in LSI Logic’s annual and quarterly financial statements.  Similarly, LSI Logic shall provide to SSI on a timely basis all financial Information that SSI reasonably requires to meet its schedule for the preparation, printing, filing, and public dissemination of SSI’s annual and quarterly financial statements.  Without limiting the generality of the foregoing, LSI Logic shall provide all required financial Information with respect to LSI Logic and its Subsidiaries to LSI Logic’s Auditors in a sufficient and reasonable time and in sufficient detail to permit LSI Logic’s Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to SSI’s Auditors with respect to Information to be included or

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contained in SSI’s annual and quarterly financial statements.  The Information required to be provided by this Section 3.4(c) shall include such back-up or similar certificates signed by the appropriate officers or employees or LSI Logic or SSI, as other party may request, necessary or appropriate to comply with the certifications required by the Sarbanes-Oxley Act and the rules of the Securities and Exchange Commission promulgated thereunder.

                         (d)          Identity of Personnel Performing the Annual Audit and Quarterly Reviews.  SSI shall instruct SSI’s Auditors to make available to LSI Logic’s Auditors both the personnel who performed or will perform the annual audits and quarterly reviews of SSI and work papers related to the annual audits and quarterly reviews of SSI, in all cases within a reasonable time prior to SSI’s Auditors’ opinion date, so that LSI Logic’s Auditors are able to perform the procedures they consider necessary to take responsibility for the work of SSI’s Auditors as it relates to LSI Logic’s Auditors’ report on LSI Logic’s financial statements, all within sufficient time to enable LSI Logic to meet its timetable for the printing, filing and public dissemination of LSI Logic’s annual and quarterly statements in accordance with LSI Logic’s obligations under the Exchange Act. 

                         (e)          Access to Books and Records.  SSI shall provide LSI Logic’s internal auditors and their designees access to SSI’s and its Subsidiaries’ books and records so that LSI Logic may conduct reasonable audits relating to the financial statements provided by SSI pursuant hereto as well as to the internal accounting controls and operations of SSI and its Subsidiaries.

                         (f)          Notice of Change in Accounting Principles.  SSI shall give LSI Logic as much prior notice as reasonably practical of any proposed determination of, or any significant changes in, its accounting estimates or accounting principles from those in effect on the Separation Date.  SSI shall consult with LSI Logic and, if requested by LSI Logic, SSI shall consult with LSI Logic’s independent public accountants with respect thereto. 

                         (g)          Conflict with Third-Party Agreements.  Nothing in Section 3.3 or Section 3.4 shall require either party to violate any confidentiality agreement with any third party; provided, however, that in the event that either party is required under Section 3.3 or Section 3.4 to disclose any such Information, such party shall use all commercially reasonable efforts to seek to obtain such third party’s consent to the disclosure of such Information; and provided further, that if disclosure is required by law, it may be disclosed.

          3.5          Payment of Expenses.  Except as otherwise provided in this Agreement, the Ancillary Agreements or any other agreement between the parties relating to the Separation, SSI and LSI Logic shall each be responsible for their own fees, costs and expenses incurred in connection with the Separation

          3.6          Foreign Subsidiaries.  LSI Logic and SSI shall cause each of their foreign subsidiaries to execute such local transfer agreements, assignments, assumptions, novations and other documents as shall be necessary to carry out the Non-US Plan.

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          3.7          Dispute Resolution. 

                         (a)          If a dispute, controversy or claim (“Dispute”) arises between the parties relating to the interpretation or performance of this Agreement or the Ancillary Agreements, appropriate senior executives of each party who shall have the authority to resolve the matter shall attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the “Dispute Resolution Commencement Date.”  Discussions and correspondence relating to the resolution of such Dispute shall be exempt from discovery or production and shall not be admissible in any court or arbitration proceeding.  If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute shall be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation.  Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation.  The parties shall share the costs of the mediation equally, except that each party shall bear its own costs and expenses, including attorneys’ fees, witness fees, travel expenses, and preparation costs.  The parties may agree to replace mediation with some other form of non-binding or binding alternative dispute resolution.

                         (b)          Any Dispute that the parties cannot resolve through mediation (or other form of non-binding or binding alternative dispute resolution) within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association (“AAA”), by three (3) arbitrators in Santa Clara County, California.  Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the AAA’s Commercial Arbitration Rules.  The arbitrators shall be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration.  The prevailing party in such arbitration shall be entitled to expenses, including costs and reasonable attorneys’ and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation or the Dispute).  The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction.  The use of any alternative dispute resolution procedures shall not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. 

                         (c)          Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction:

                                        (i)          breach of any obligation of confidentiality; or

                                        (ii)         any other claim pursuant to which interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others.  However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. 

                         (d)          Unless otherwise agreed in writing, the parties shall continue to be bound by and to perform each party’s obligations under this Agreement and each Ancillary Agreement during

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the course of dispute resolution pursuant to the provisions of this Section 3.7 with respect to all matters not subject to the pending Dispute.

          3.8          Governmental Approvals.  To the extent that the Separation requires any Governmental Approvals, the parties shall use their commercially reasonable efforts to obtain any such Governmental Approvals.

          3.9          No Representation or Warranty.  LSI Logic does not, in this Agreement or any other agreement, instrument or document contemplated by this Agreement, make any representation as to, warranty of or covenant with respect to:

                         (a)          the value of any Asset to be contributed or transferred to SSI;

                         (b)          the freedom from encumbrance of any Asset to be contributed or transferred to SSI;

                         (c)          the absence of defenses or freedom from counterclaims with respect to any claim to be transferred to SSI; or

                         (d)          the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset upon its execution, deliver and filing.

          Except as set forth herein or in any Ancillary Agreement, all Assets to be transferred to SSI shall be transferred “AS IS, WHERE IS,” and SSI shall bear the economic and legal risk that any conveyance shall prove to be insufficient to vest in SSI good and marketable title to such Asset, free and clear of any lien, claim, equity or other encumbrance.

          3.10        Cooperation in Obtaining New Agreements.  LSI Logic understands that, prior to the Separation Date, SSI has derived benefits under certain agreements and relationships between LSI Logic and its third-party service providers and suppliers, which agreements and relationships are not being assigned or transferred to SSI in connection with the Separation.  Upon the request of SSI and for a period of one (1) year hereafter, LSI Logic agrees to make introductions of appropriate SSI personnel to LSI Logic’s contacts at such third-party service providers and suppliers and agrees to provide reasonable assistance to SSI so that SSI may enter into agreements or relationships with such third-party service providers and suppliers.

          3.11        Assistance Regarding Consents to Assignment, Delegation or Novation.  LSI Logic understands that certain agreements between LSI Logic and third parties that are being assigned to SSI in connection with the Separation may require the consent of the applicable third party.  Subject to any similar provisions contained in the Ancillary Agreements, LSI Logic shall assist SSI in seeking and obtaining the consent of such third parties to the assignment, delegation or novation of such agreements (to the extent such consents have not been obtained prior to the Separation).

          3.12        Authority.  Each of the parties hereto represents to the other that: (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, the Ancillary Agreements and the exhibits and schedules attached hereto and thereto, (b) the execution, delivery and performance of this Agreement, the Ancillary Agreements that will be signed

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concurrently herewith and the exhibits and schedules attached hereto and thereto by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, the Ancillary Agreements that will be signed concurrently herewith and the exhibits and schedules attached hereto and thereto, and (d) each of this Agreement, the Ancillary Agreements that will be signed concurrently herewith and the exhibits and schedules attached hereto and thereto is a legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.

          3.13        Confidentiality of Information. 

                         (a)          Confidential Information.  Information shall be deemed to be “Confidential Information” if such Information: (i) is disclosed by one party (the “Disclosing Party”) to the other (the “Receiving Party”), and which, if in written, graphic, machine-readable or other tangible form is marked as “confidential” or “proprietary,” or (ii) is reasonably understood to be proprietary and confidential to either SSI or LSI Logic, or (iii) is otherwise deemed to be “confidential” in this Agreement or the Ancillary Agreements.

                         (b)          Confidential Information Exclusions.  Notwithstanding the provisions of Section 3.13(a), Confidential Information excludes Information that the Receiving Party can demonstrate: (i) was independently developed by the Receiving Party without any use of the Disclosing Party’s Confidential Information or by the Receiving Party’s employees or other agents (or independent contractors hired by the Receiving Party) who have not been exposed to the Disclosing Party’s Confidential Information; (ii) becomes known to the Receiving Party, without restriction, from a source (other than the Disclosing Party) that had a right to disclose it without breach of this Agreement or the Ancillary Agreements; (iii) was in the public domain at the time it was disclosed or enters the public domain through no act or omission of the Receiving Party; or (iv) was rightfully known to the Receiving Party, without restriction, at the time of disclosure.

                         (c)          Confidentiality Obligations.    The Receiving Party shall treat as confidential all of the Disclosing Party’s Confidential Information and shall not use that Confidential Information except as expressly permitted under this Agreement or the Ancillary Agreements.  Without limiting the foregoing, the Receiving Party shall use at least the same degree of care that it uses to prevent the disclosure of its own confidential Information of like importance, but in no event with less than reasonable care, to prevent the disclosure of the Disclosing Party’s Confidential Information.

                         (d)          Residuals.  The restrictions set forth in Section 3.13(c) do not apply to a Receiving Party’s use of Residual Information, and Residual Information is not considered Confidential Information.  “Residual Information” means Information that is retained in the unaided memories of the Receiving Party’s employees who have had access to Confidential Information of the Disclosing Party or which otherwise constitutes the general knowledge or skills of those employees.

                         (e)          Disclosure to LSI Logic or SSI.  Except as explicitly provided in this Agreement, one party shall not disclose to the other party any Information that the Disclosing Party considers Confidential Information prior to obtaining the Receiving Party’s consent to receive such

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Information as Confidential Information.  Each party consents to receive any Information that the other party is required to disclose under Section 3.3 or Section 3.4 of this Agreement as Confidential Information.  Any Information disclosed by SSI to LSI Logic, or by LSI Logic to SSI, without that consent is not considered Confidential Information of the Disclosing Party, and the Receiving Party is free to use and disclose that Information without restriction.  

                         (f)          Remedies.  Unauthorized use by a party of the other party’s Confidential Information will diminish the value of that Information.  Therefore, if a party breaches any of its obligations with respect to confidentiality or use of Confidential Information, the other party may seek both equitable relief (including injunctive relief) and money damages to protect its interest in that Confidential Information.

                         (g)          Required Disclosure. Notwithstanding anything to the contrary in this Agreement or any Ancillary Agreement, the Receiving Party is permitted to disclose the Disclosing Party’s Confidential Information to the extent required by applicable law or regulation (including, without limitation, any rule, regulation or policy statement of any national securities exchange, market or automated quotation systems on which any of the Receiving Party’s securities are listed or quoted) or under the order or requirement of a court, administrative agency, or other Governmental Authority.  If the Receiving Party must disclose the Disclosing Party’s Confidential Information under the order or requirement of a court, administrative agency, or other Governmental Authority, the Receiving Party shall provide prompt notice thereof to the Disclosing Party and shall use its reasonable efforts to obtain a protective order or otherwise prevent public disclosure of such Information.

                         (h)          Public Announcements.  Neither SSI nor LSI Logic shall make any initial public announcement relating to this Agreement or the Ancillary Agreements until both SSI and LSI Logic approve the timing, form and content of a public announcement, which approval may not unreasonably be withheld or delayed.

ARTICLE IV

MISCELLANEOUS

          4.1          Limitation of Liability.  IN NO EVENT SHALL ANY MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP BE LIABLE TO ANY OTHER MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT.

          4.2          Entire Agreement.  This Agreement, the Ancillary Agreements and the exhibits and schedules referenced or attached hereto and thereto, constitute the entire agreement between the

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parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.

          4.3          Governing Law.  This Agreement shall be construed in accordance with, and all Disputes hereunder shall be governed by, the laws of the State of California, excluding its conflict of law rules, and the United Nations Convention on Contracts for the International Sale of Goods.  The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 3.7 above.

          4.4          Termination.  This Agreement and all Ancillary Agreements may be terminated at any time prior to any issuance of SSI stock to persons other than LSI Logic, LSI Logic Affiliated Companies, or employees, consultants or directors of LSI Logic or SSI by and in the sole discretion of LSI Logic without the approval of SSI.  This Agreement and all Ancillary Agreements may be terminated at any time after any issuance of SSI stock to persons other than LSI Logic, LSI Logic Affiliated Companies, or employees, consultants or directors of LSI Logic or SSI by mutual consent of LSI Logic and SSI.  In the event of termination pursuant to this Section 4.4, no party shall have any liability of any kind to the other party.  

          4.5          Notices.  Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties at the following addresses:

                         if to LSI Logic:

                                                  LSI Logic Corporation
                                                  1621 Barber Lane
                                                  Milpitas, CA 95035
                                                  Attention:  General Counsel
                                                  Fax:  (408) 433-6896

                         if to SSI:

                                                  LSI Logic Storage Systems, Inc.
                                                  1621 Barber Lane
                                                  Milpitas, CA 95035
                                                  Attention:  General Counsel
                                                  Fax:  (408) 433-8323

or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein.   Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested.  All other notices may also be sent by fax, confirmed by first class mail.  All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark.

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          4.6          Counterparts.  This Agreement, the Ancillary Agreements and the exhibits and schedules attached hereto and thereto may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.

          4.7          Binding Effect; Assignment.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors in interest, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  This Agreement may be enforced separately by each member of the LSI Logic Group and each member of the SSI Group.  Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void.  Any permitted assignee shall agree to perform the obligations of the assignor of this Agreement, and this Agreement shall inure to the benefit of and be binding upon any permitted assignee.

          4.8          Severability.  If any term or other provision of this Agreement or the exhibits or schedules attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

          4.9          Failure or Indulgence Not Waiver; Remedies Cumulative.  No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise or waiver of any such right preclude other or further exercise thereof or of any other right.  All rights and remedies existing under this Agreement or the exhibits or schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.

          4.10         Amendment.  No change or amendment shall be made to this Agreement or the exhibits or schedules attached hereto except by an instrument in writing signed on behalf of each of the parties to such agreement.

          4.11         Interpretation.  The headings contained in this Agreement, in any exhibit or schedule attached hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Any capitalized term used in any exhibit or schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement.  When a reference is made in this Agreement to an article, section, exhibit or schedule, such reference shall be to an article or section of, or an exhibit or schedule to, this Agreement, unless otherwise indicated.

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          4.12         Conflicting Agreements.  In the event of conflict between this Agreement and any Ancillary Agreement, the provisions of such Ancillary Agreement shall prevail.

ARTICLE V

DEFINITIONS

          5.1          AAA.    “AAA” has the meaning set forth in Section 3.7(b) hereof.

          5.2          Affiliated Company.  “Affiliated Company” of any Person means any entity that controls, is controlled by, or is under common control with such Person; provided, however that neither LSI Logic nor any other entity that is an Affiliated Company of LSI Logic but not a Subsidiary of SSI shall be an “Affiliated Company” of SSI.  As used herein, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise.

          5.3          Ancillary Agreements.    “Ancillary Agreements” means the items and agreements (together with all documents attached thereto) referred to in Section 2.1 and Section 2.3 hereof.

          5.4          Assets.    “Assets” has the meaning set forth in the General Assignment and Assumption Agreement.

          5.5          Confidential Information.    “Confidential Information” has the meaning set forth in Section 3.13(a) hereof.

          5.6          Disclosing Party.    “Disclosing Party” has the meaning set forth in Section 3.13(a) hereof.

          5.7          Dispute.    “Dispute” has the meaning set forth in Section 3.7(a) hereof.

          5.8          Dispute Resolution Commencement Date.    “Dispute Resolution Commencement Date” has the meaning set forth in Section 3.7(a) hereof.

          5.9          Exchange Act.    “Exchange Act” means Securities Exchange Act of 1934, as amended.

          5.10        Governmental Approvals.    “Governmental Approvals” means any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority.

          5.11        Governmental Authority.    “Governmental Authority” means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority.

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          5.12        Information.    “Information” means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.

          5.13        Liabilities.    “Liabilities” has the meaning set forth in the General Assignment and Assumption Agreement.

          5.14        LSI Logic Group.    “LSI Logic Group” means LSI Logic, each Subsidiary and Affiliated Company of LSI Logic (other than any member of the SSI Group) immediately after the Separation Date and each Person that becomes a Subsidiary or Affiliated Company of LSI Logic after the Separation Date.

          5.15        LSI Logic’s Auditors.    “LSI Logic’s Auditors” has the meaning set forth in Section 3.4(a) hereof.

          5.16        Non-US Plan.    “Non-US Plan” has the meaning set forth in Section 2.3 hereof.

          5.17        Person.    “Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

          5.18        Receiving Party.    “Receiving Party” has the meaning set forth in Section 3.13(a) hereof.

          5.19        Residual Information.    “Residual Information” has the meaning set forth in Section 3.13(d) hereof.

          5.20        Sarbanes-Oxley Act.    “Sarbanes-Oxley Act” has the meaning set forth in Section 3.3(b) hereof.

          5.21        Separation.    “Separation” has the meaning set forth in the Recitals hereof.

          5.22        Separation Date.    “Separation Date” has the meaning set forth in Section 1.1 hereof.

          5.23        SSI Assets.    “SSI Assets” has the meaning set forth in the General Assignment and Assumption Agreement.

          5.24        SSI Group.    “SSI Group” means SSI, each Subsidiary and Affiliated Company of SSI immediately after the Separation Date and each Person that becomes a Subsidiary or Affiliated Company of SSI after the Separation Date.

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          5.25        SSI’s Auditors.    “SSI’s Auditors” has the meaning set forth in Section 3.4(a) hereof.

          5.26        Subsidiary.  “Subsidiary” of any Person means a corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person.

          5.27        WSGR.    “WSGR” has the meaning set forth in Section 1.2 hereof.

[remainder of the page intentionally left blank]

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          IN WITNESS WHEREOF, the parties have signed this Master Separation Agreement effective as of the date first set forth above.

LSI LOGIC CORPORATION		LSI LOGIC STORAGE SYSTEMS, INC.
By:	/s/ WILFRED J. CORRIGAN	By:	/s/ THOMAS GEORGENS
Name:	Wilfred J. Corrigan	Name:	Thomas Georgens
Title:	Chairman/C.E.O.	Title:	President

[SIGNATURE PAGE TO MASTER SEPARATION AGREEMENT]

EX-99

Exhibit 2.5

General Assignment and Assumption Agreement

between

LSI Logic Corporation

and

LSI Logic Storage Systems, Inc.

December 31, 2003

TABLE OF CONTENTS

			Page
ARTICLE I CONTRIBUTION AND ASSUMPTION			1
	1.1	Contribution of Assets and Assumption of Liabilities	1
	1.2	SSI Assets	2
	1.3	SSI Liabilities	3
	1.4	Methods of Transfer and Assumption	5
	1.5	Governmental Approvals and Consents	6
	1.6	Nonrecurring Costs and Expenses	7
	1.7	Novation of Assumed SSI Liabilities	7
	1.8	Shared Contracts and Certain SSI Contracts	7
	1.9	LSI Logic Contracts	8
ARTICLE II MISCELLANEOUS			8
	2.1	Limitation of Liability	8
	2.2	Entire Agreement	8
	2.3	Governing Law	8
	2.4	Dispute Resolution	9
	2.5	Notices	9
	2.6	Counterparts	9
	2.7	Binding Effect; Assignment	9
	2.8	Severability	10
	2.9	Failure or Indulgence Not Waiver; Remedies Cumulative	10
	2.10	Amendment	10
	2.11	Interpretation	10
	2.12	Conflicting Agreements	10
ARTICLE III DEFINITIONS			10
	3.1	Action	10
	3.2	Ancillary Agreement	11
	3.3	Assets	11
	3.4	Contracts	12
	3.5	Dispute	12
	3.6	Distribution	12
	3.7	Distribution Date	12
	3.8	Employee Matters Agreement	12
	3.9	Excluded Assets	12
	3.10	Excluded Liabilities	13
	3.11	Governmental Approvals	13
	3.12	Governmental Authority	13
	3.13	Indemnification and Insurance Matters Agreement	13
	3.14	Insurance Policies	13
	3.15	IP	13
	3.16	Intellectual Property Agreement	13
	3.17	LSI Logic Contracts	13

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TABLE OF CONTENTS
(continued)

		Page
3.18	LSI Logic Employees	13
3.19	LSI Logic Employment Liabilities	13
3.20	LSI Logic Group	13
3.21	LSI Logic Storage Business	13
3.22	Liabilities	13
3.23	Non-US Plan	14
3.24	Other Financial Liabilities	14
3.25	Person	14
3.26	Restriction	14
3.27	Security Interest	14
3.28	Separation	14
3.29	Separation Agreement	14
3.30	Separation Date	14
3.31	Shared Contracts	14
3.32	SSI Assets	15
3.33	SSI Balance Sheet	15
3.34	SSI Business	15
3.35	SSI Contingent Gain	15
3.36	SSI Contingent Liability	16
3.37	SSI Contracts	16
3.38	SSI Employees	17
3.39	SSI Employment Liabilities	17
3.40	SSI Group	17
3.41	SSI Liabilities	17
3.42	SSI Payables	17
3.43	SSI Receivables	17
3.44	Subsidiary	17
3.45	Taxes	17
3.46	Tax Sharing Agreement	17
3.47	Transition Services Agreement	17

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SCHEDULES

Schedule 1.2(a)(i)	Specific SSI Assets to be Transferred
Schedule 1.2(b)(i)	Specific Excluded Assets
Schedule 1.3(a)(i)	Specific SSI Liabilities
Schedule 1.3(a)(ix)	Divested Businesses Which Contain Liabilities to be Transferred to SSI
Schedule 1.3(b)(i)	Specific Excluded Liabilities
Schedule 3.17	LSI Logic Contracts
Schedule 3.31	Shared Contracts
Schedule 3.37	SSI Contracts

GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT

          This General Assignment and Assumption Agreement (this “Agreement”) is entered into as of December 31, 2003 between LSI Logic Corporation, a Delaware corporation (“LSI Logic”), and LSI Logic Storage Systems, Inc., a Delaware corporation (“SSI”).  Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Article III hereof.

RECITALS

          1.          LSI Logic and SSI are entering into a Master Separation Agreement dated as of December 31, 2003 (the “Separation Agreement”) and other Ancillary Agreements to delineate and clarify their relationship and further separate the businesses conducted by LSI Logic and SSI (the “Separation”).

          2.          In connection with the Separation, the parties wish to clarify that LSI Logic has no continuing rights and obligations in certain Assets and Liabilities related to the SSI Business, and LSI Logic and SSI desire that LSI Logic contribute to SSI any right, title or interest that it holds in any such Asset and that SSI assume any LSI Logic obligation with respect to any such Liability.

          NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows:

ARTICLE I

CONTRIBUTION AND ASSUMPTION

          1.1          Contribution of Assets and Assumption of Liabilities. 

                         (a)          Transfer of Assets.  To the extent LSI Logic has any right, title or interest in any SSI Asset, effective on the Separation Date, LSI Logic hereby assigns, transfers, conveys and delivers (or shall cause any applicable Subsidiary to assign, transfer, convey and deliver) to SSI or to any applicable SSI Subsidiary, and SSI hereby accepts from LSI Logic, or applicable LSI Logic Subsidiary, and agrees to cause its applicable SSI Subsidiary to accept, all of LSI Logic’s and its applicable Subsidiaries’ respective right, title and interest, if any, in each SSI Asset, provided, however, that any SSI Assets that are specifically assigned or transferred pursuant to another Ancillary Agreement, including but not limited to any Assets assigned or transferred pursuant to the Intellectual Property Agreement, shall not be assigned or transferred pursuant to this Section 1.1(a).  Any transfers of SSI Assets are intended to be treated as capital contributions for federal income tax purposes.

                         (b)          Assumption of Liabilities.  Effective on the Separation Date, to the extent LSI Logic has any responsibility or liability with respect to the SSI Liabilities, SSI hereby assumes and agrees to perform and fulfill (or shall cause any applicable Subsidiary to assume, perform and

fulfill) all the SSI Liabilities in accordance with their respective terms.  Thereafter, SSI shall be responsible (or shall cause any applicable Subsidiary to be responsible) for, and shall perform and fulfill, all SSI Liabilities, regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, on or after the date hereof, regardless of where or against whom such Liabilities are asserted or determined (including any SSI Liabilities arising out of claims made by LSI Logic’s or SSI’s respective directors, officers, consultants, independent contractors, employees or agents against any member of the LSI Logic Group or the SSI Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation by any member of the LSI Logic Group or the SSI Group or any of their respective directors, officers, employees or agents.

                         (c)          Misallocated Assets.  Unless otherwise governed by the provisions of the Intellectual Property Agreement, in the event that at any time or from time to time (whether prior to, on or after the Separation Date), any party hereto (or any member of such party’s respective Group) shall retain, receive or otherwise possess any Asset that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such party shall promptly transfer, or cause to be transferred, such Asset to the Person so entitled thereto.  Prior to any such transfer, the Person retaining, receiving or possessing such Asset shall hold such Asset in trust for any such other Person.

          1.2          SSI Assets. 

                         (a)          Included Assets.  For purposes of this Agreement, “SSI Assets” shall mean (without duplication) the following Assets, except as otherwise provided for in any other Ancillary Agreement:

                                        (i)          all Assets that are expressly listed on Schedule 1.2(a)(i);

                                        (ii)         all Assets reflected in the SSI Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the SSI Balance Sheet;

                                        (iii)        all Assets that are used primarily by the SSI Business at the Separation Date that have been written off, expensed or fully depreciated that, had they not been written off, expensed or fully depreciated, would have been reflected in the SSI Balance Sheet in accordance with the principles and accounting policies under which the SSI Balance Sheet was prepared;

                                        (iv)        all Assets that are used primarily by the SSI Business acquired or received by LSI Logic or its Subsidiaries after the date of the SSI Balance Sheet that, had such Assets been acquired or received prior to the date of the SSI Balance Sheet, would have been reflected in SSI Balance Sheet in accordance with the principles and accounting policies under which the SSI Balance Sheet was prepared;

                                        (v)          all Assets that are used primarily by the SSI Business at the Separation Date but are not reflected in the SSI Balance Sheet due to mistake or unintentional omission; provided, however, that no Asset shall be an SSI Asset requiring any transfer by LSI Logic unless

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SSI or its Subsidiaries have, on or before the second anniversary of the Separation Date, given LSI Logic or its Subsidiaries notice that such Asset is an SSI Asset;

                                        (vi)         all SSI Contingent Gains;

                                        (vii)        all SSI Contracts;

                                        (viii)       all SSI Receivables;

                                        (ix)         to the extent permitted by law and subject to the Indemnification and Insurance Matters Agreement, all rights of any member of the SSI Group under any of LSI Logic’s Insurance Policies or other insurance policies issued by Persons unaffiliated with LSI Logic;  and

                                        (x)          all other Assets that are expressly contemplated by this Agreement, the Separation Agreement or any other Ancillary Agreement (or any other exhibit or schedule hereto or thereto) as Assets to be transferred to SSI or any other member of the SSI Group.

Notwithstanding the foregoing, the SSI Assets shall not include the Excluded Assets referred to in Section 1.2(b) below.

                         (b)          Excluded Assets.  For the purposes of this Agreement, “Excluded Assets” shall mean:

                                        (i)          all Assets that are expressly listed or described on Schedule 1.2(b)(i); and

                                        (ii)         all other Assets that are expressly contemplated by the Separation Agreement, this Agreement or any other Ancillary Agreement (or the exhibits or schedules hereto or thereto) as Assets to be retained by LSI Logic or any other member of the LSI Logic Group.

          1.3          SSI Liabilities. 

                         (a)          Included Liabilities.  For the purposes of this Agreement, “SSI Liabilities” shall mean (without duplication) the following Liabilities, except as otherwise provided for in any other Ancillary Agreement:

                                        (i)          all Liabilities that are expressly listed on Schedule 1.3(a)(i);

                                        (ii)         all Liabilities reflected in the SSI Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the SSI Balance Sheet;

                                        (iii)        all Liabilities of LSI Logic or its Subsidiaries that arise after the date of the SSI Balance Sheet that, had such Liability arisen before the date of the SSI Balance Sheet, would have been reflected in the SSI Balance Sheet in accordance with the same principles and accounting policies under which the SSI Balance Sheet was prepared, including any such Liabilities that are related primarily to the Assets described in Section 1.2(a)(iii) and Section 1.2(a)(iv) ;

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                                        (iv)        all Liabilities that are related primarily to the SSI Business at the Separation Date but are not reflected in the SSI Balance Sheet due to mistake or unintentional omission; provided, however, that no Liability shall be an SSI Liability unless LSI Logic or its Subsidiaries, on or before the second anniversary of the Separation Date, has given SSI or its Subsidiaries notice that such Liability is an SSI Liability;

                                        (v)          all SSI Contingent Liabilities;

                                        (vi)         all SSI Payables;

                                        (vii)        all SSI Employment Liabilities;

                                        (viii)       all Liabilities whether arising before, on or after the Separation Date, primarily relating to, arising out of or resulting from:

                                                       (1)          the operation of the SSI Business, as conducted at any time prior to, on or after the Separation Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative of LSI Logic or any LSI Logic Subsidiary, including SSI (whether or not such act or failure to act is or was within such Person’s authority));

                                                       (2)          the operation of any business conducted by any member of the SSI Group at any time after the Separation Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative of LSI Logic or any LSI Logic Subsidiary, including SSI (whether or not such act or failure to act is or was within such Person’s authority)); or

                                                       (3)          any SSI Assets;

                                        (ix)          all Liabilities relating to, arising out of or resulting from any of the terminated, divested or discontinued businesses and operations listed or described on Schedule 1.3(a)(ix); and

                                        (x)          all other Liabilities that are expressly contemplated by this Agreement, the Separation Agreement or any other Ancillary Agreement (or the exhibits or schedules hereto or thereto) as Liabilities to be retained or assumed by SSI or any member of the SSI Group, and all agreements, obligations and Liabilities of any member of the SSI Group under this Agreement or any of the Ancillary Agreements.

Notwithstanding the foregoing, the SSI Liabilities shall not include the Excluded Liabilities referred to in Section 1.3(b) below.

                         (b)          Excluded Liabilities.  For the purposes of this Agreement, “Excluded Liabilities” shall mean:

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                                        (i)          all Liabilities that are expressly listed or described in Schedule 1.3(b)(i); and

                                        (ii)         all other Liabilities that are expressly contemplated by this Agreement, the Separation Agreement or any other Ancillary Agreement (or the exhibits or schedules hereto or thereto) as Liabilities to be retained or assumed by LSI Logic or any other member of the LSI Logic Group, all LSI Logic Employment Liabilities and all agreements and obligations of any member of the LSI Logic Group under the Separation Agreement, this Agreement or any other Ancillary Agreement.

          1.4          Methods of Transfer and Assumption. 

                         (a)          Terms of Other Ancillary Agreements Govern.  The parties shall enter into the other Ancillary Agreements on or about the date of this Agreement, or as soon thereafter as practicable.  To the extent that the transfer of any SSI Asset or the assumption of any SSI Liability is expressly provided for by the terms of any other Ancillary Agreement (including by not limited to any Assets allocated, assigned or transferred pursuant to the Intellectual Property Agreement), the terms of such other Ancillary Agreement shall effect and determine the manner of, such transfer or assumption.  The transfer and assumption of all SSI Assets and SSI Liabilities hereunder shall be made effective as of the Separation Date; provided, however, the transactions contemplated by the Non-US Plan may require the transfer of certain Assets and the assumption of certain Liabilities to occur in such other manner and at such other time as shall be set forth in the Non-US Plan.

                         (b)          Mistaken Assignments and Assumptions.  With respect to (i) Assets that the parties determine were transferred to SSI in contravention of this Agreement or the other Ancillary Agreements, or (ii) Liabilities that the parties determine were assumed by SSI in contravention of this Agreement or the other Ancillary Agreements, the parties shall cooperate in good faith to effect as promptly as practicable the transfer or re-transfer of such Assets, and/or the assumption or re-assumption of such Liabilities, to or by the appropriate party so as to effect the original intent of the parties hereto.  Each party shall, in its sole discretion, either reimburse the other or make other financial adjustments (e.g., without limitation, cash reserves) or other adjustments to remedy any mistakes or omissions relating to any of the Assets transferred hereby or any of the Liabilities assumed hereby.

                         (c)          Documents Relating to Other Transfers of Assets and Assumption of Liabilities.  Simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, (i) LSI Logic shall execute and deliver, and shall cause its Subsidiaries to execute and deliver, such bills of sale, stock powers, certificates of title, deed, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of LSI Logic’s and its Subsidiaries’ right, title and interest in and to the SSI Assets to SSI and (ii) SSI shall execute and deliver to LSI Logic and its Subsidiaries such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the SSI Liabilities by SSI.  Notwithstanding the foregoing, with respect to those SSI Contracts for which the parties are allocating the benefits and burdens as of the Separation but not undertaking to assign to SSI, or have

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SSI assume, until the Distribution, such instructions of assignment assumption, or documentation of assignment, will be provided in connection with the Distribution.

          1.5          Governmental Approvals and Consents. 

                         (a)          Transfer In Violation of Laws.  If and to the extent that the valid, complete and perfected transfer assignment or novation to the SSI Group of any Assets intended to be SSI Assets would be a violation of applicable laws or require any consent or Governmental Approval in connection with the Separation, then, unless LSI Logic shall otherwise determine, the transfer, assignment or novation to the SSI Group, as the case may be, of such Assets shall be automatically deemed deferred and any such purported transfer, assignment or novation shall be null and void until such time as all legal impediments are removed and/or such consents or Governmental Approvals have been obtained.  Notwithstanding the foregoing, if such Assets (or the benefits thereof) are available for use in the SSI Business, then such Assets shall still be considered SSI Assets for purposes of determining whether any Liability is an SSI Liability.  Further, for each SSI Contract for which such consent is not obtained initially, the parties shall address that SSI Contract pursuant to Section 1.8 hereof, and for other Assets, if such consents or Governmental Approvals shall have not been obtained within two years of the Separation Date, the parties shall use their reasonable commercial efforts to achieve an alternative solution in accordance with the parties’ intentions.

                         (b)          Transfers Not Consummated Prior to Separation Date.  If the transfer, assignment or novation of any Assets or Liabilities intended to be transferred or assigned hereunder, including pursuant to the Non-US Plan, is not consummated prior to or on the Separation Date, whether as a result of the provisions of Section 1.5(a) or for any other reason, then the Person retaining such Asset or Liabilities shall thereafter hold such Asset or Liabilities for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such Asset shall take such other actions as may be reasonably requested by the Person to whom such Asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such SSI Assets, including possession, use, risk of loss, potential for gain, and dominion, control and command over such Assets, are to inure from and after the Separation Date to the SSI Group.  If and when the consents and/or Governmental Approvals, the absence of which caused the deferral of transfer of any Asset pursuant to Section 1.5(a), are obtained, the transfer of the applicable Asset shall be effected in accordance with the terms of this Agreement and/or such other applicable Ancillary Agreement.  With respect to SSI Contracts, if LSI Logic retains such SSI Contracts then Section 1.8 shall apply, in addition to Section 1.6 and Section 1.7 and the other terms of this Agreement.

                         (c)          Expenses.  The Person retaining an Asset due to the deferral of the transfer of such Asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such Asset.

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          1.6          Nonrecurring Costs and Expenses.  Notwithstanding anything herein to the contrary, any nonrecurring costs and expenses incurred by the parties hereto to effect the transactions contemplated hereby that are not allocated pursuant to the terms of the Separation Agreement, this Agreement or any other Ancillary Agreement shall be the responsibility of the party that incurs such costs and expenses.

          1.7          Novation of Assumed SSI Liabilities. 

                         (a)          Reasonable Commercial Efforts.  Each of LSI Logic and SSI shall use its reasonable commercial efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate (including with respect to any federal government contract) or assign any assumed rights and obligations under agreements, leases, licenses and other obligations or Liabilities (including SSI Other Financial Liabilities) of any nature whatsoever that constitute SSI Liabilities or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the SSI Group, so that, in any such case, SSI and its Subsidiaries shall be solely responsible for such Liabilities; provided, however, that neither LSI Logic, SSI nor their Subsidiaries shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested.

                         (b)          Inability to Obtain Novation.  If, after using its reasonable commercial efforts, LSI Logic or SSI is unable to obtain, or to cause to be obtained, any such required consent, approval, release, substitution or amendment, the applicable member of the LSI Logic Group shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof (except to the extent expressly set forth in this Agreement, the Separation Agreement or any other Ancillary Agreement), SSI shall, as agent or subcontractor for LSI Logic or such other Person, as the case may be, pay, perform and discharge fully, or cause to be paid, transferred or discharged all the obligations or other Liabilities of LSI Logic or such other Person, as the case may be, thereunder from and after the date hereof. LSI Logic shall, without further consideration, pay and remit, or cause to be paid or remitted, to SSI or its appropriate Subsidiary promptly all money, rights and other consideration received by it or any member of its respective Group in respect of such performance (unless any such consideration is an Excluded Asset).  If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, LSI Logic shall thereafter assign, or cause to be assigned, all its rights, obligations and other Liabilities thereunder or any rights or obligations of any member of its respective Group to SSI without payment of further consideration and SSI shall, without the payment of any further consideration, assume such rights and obligations.

          1.8          Shared Contracts and Certain SSI Contracts.  For each Shared Contract, and for each SSI Contract for which a consent is required and not obtained, or for which the parties have determined to delay assignment of such SSI Contract until the Distribution, the parties shall determine a reasonable method of providing the benefits under such Shared Contract or SSI Contract to SSI from LSI Logic or, if applicable, to LSI Logic from SSI.  Such method may include provision of services under a schedule to the Transition Services Agreement, a sub-license or another

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arrangement such as that described in Section 1.7(b), but in any event the parties shall share in the costs or fees under such Shared Contract or SSI Contract in proportion to the value of goods, services or IP such party receives out of the total value of goods, services or IP provided under such Shared Contract or SSI Contract.  To the extent LSI Logic has the right to do so without Restriction, LSI Logic agrees to grant and hereby does grant SSI a sub-license under such Shared Contract or SSI Contract, of the same scope and subject to the same terms and conditions as SSI enjoys under such Shared Contract or SSI Contract prior to the Separation Date, to the extent a grant of such a sub-license is possible without a Restriction.  Some Shared Contracts may be Shared Contracts between the Separation Date and the Distribution Date, but as of the Distribution Date shall become SSI Contracts; such Shared Contracts, if any, are identified on the appropriate schedule to this Agreement and such schedule shall be updated as necessary or appropriate.

          1.9          LSI Logic Contracts.  Effective on the Separation Date, SSI hereby assigns, transfers, conveys and delivers to LSI Logic, and LSI Logic hereby accepts from SSI all of SSI’s right, title and interest, if any, in each LSI Logic Contract.  To the extent a consent or novation is required to fully transfer and assign such LSI Logic Contract to LSI Logic, the parties shall use their reasonable efforts to obtain such consent or novation.

ARTICLE II

MISCELLANEOUS

          2.1          Limitation of Liability.  IN NO EVENT SHALL ANY MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP BE LIABLE TO ANY OTHER MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT.

          2.2          Entire Agreement.  This Agreement, the Separation Agreement, the other Ancillary Agreements and the exhibits and schedules referenced or attached hereto and thereto, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.

          2.3          Governing Law.  This Agreement shall be construed in accordance with, and all Disputes hereunder shall be governed by, the laws of the State of California, excluding its conflict of law rules, and the United Nations Convention on Contracts for the International Sale of Goods.  The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 2.4 below.

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          2.4          Dispute Resolution.  Any Disputes under this Agreement shall be addressed using the same procedure set forth in the Separation Agreement.

          2.5          Notices.  Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties at the following addresses:

                         if to LSI Logic:

                                                  LSI Logic Corporation
                                                  1621 Barber Lane
                                                  Milpitas, CA  95035
                                                  Attention:  General Counsel
                                                  Fax:  (408) 433-6896

                         if to SSI:

                                                  LSI Logic Storage Systems, Inc.
                                                  1621 Barber Lane
                                                  Milpitas, CA  95035
                                                  Attention:  General Counsel
                                                  Fax:  (408) 433-8323

or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein.   Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested.  All other notices may also be sent by fax, confirmed by first class mail.  All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark.

          2.6          Counterparts.  This Agreement, including the exhibits and schedules hereto, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.

          2.7          Binding Effect; Assignment.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors in interest, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  This Agreement may be enforced separately by each member of the LSI Logic Group and each member of the SSI Group.  Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void.  Any permitted assignee shall agree to perform the obligations of the assignor of this Agreement, and this Agreement shall inure to the benefit of and be binding upon any permitted assignee.

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          2.8          Severability.  If any term or other provision of this Agreement or the exhibits or schedules attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

          2.9          Failure or Indulgence Not Waiver; Remedies Cumulative.  No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise or waiver of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the exhibits or schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.

          2.10         Amendment.  No change or amendment shall be made to this Agreement or the exhibits or schedules attached hereto except by an instrument in writing signed on behalf of each of the parties to such agreement.

          2.11         Interpretation.  The headings contained in this Agreement, in any exhibit or schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any exhibit or schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an article, section, exhibit or schedule, such reference shall be to an article or section of, or an exhibit or schedule to, this Agreement, unless otherwise indicated.

          2.12         Conflicting Agreements.  Except as otherwise provided herein, in the event of conflict between this Agreement and any other Ancillary Agreement (excluding for this purpose the Separation Agreement) or other agreement executed in connection herewith, the provisions of such other agreement shall prevail.

ARTICLE III

DEFINITIONS

          3.1          Action.  “Action” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding, mediation or investigation by or before any federal, state, local, foreign or international governmental authority or any arbitration or mediation tribunal.

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          3.2          Ancillary Agreement.  “Ancillary Agreement” has the meaning set forth in the Separation Agreement.

          3.3          Assets.  “Assets” means assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following:

                         (a)          all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form;

                         (b)          all apparatus, computers and other electronic data processing equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property, but excluding fixtures, machinery, equipment, furniture and office equipment;

                         (c)          all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products;

                         (d)          all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest, lessor, sublessor, lessee, sublessee or otherwise;

                         (e)          all interests in any capital stock or other equity interests of any Subsidiary or any other Person; all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person; all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person; and all other investments in securities of any Person;

                         (f)          all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments;

                         (g)          all deposits, letters of credit and performance and surety bonds;

                         (h)          all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties;

                         (i)          all IP and licenses from third Persons granting the right to use any IP;

                         (j)          to the extent not included in Section 3.3(i), all computer applications, programs and other software, including operating software, network software, firmware, middleware, design software, design tools, systems documentation and instructions;

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                         (k)          to the extent not included in Section 3.3(i), all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents;

                         (l)          all prepaid expenses, trade accounts and other accounts and notes receivables;

                         (m)         all rights under contracts or agreements, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all claims, choses in action or similar rights, whether accrued or contingent;

                         (n)          all rights under Insurance Policies and all rights in the  nature of insurance, indemnification or contribution;

                         (o)          all licenses (including radio and similar licenses), permits, approvals and authorizations which have been issued by any Governmental Authority;

                         (p)          cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and

                         (q)          interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements.

          3.4          Contracts.  “Contracts” means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under applicable law.

          3.5          Dispute.  “Dispute” has the meaning set forth in the Separation Agreement.

          3.6          Distribution.  “Distribution” shall mean a distribution of SSI stock by LSI Logic to LSI Logic’s shareholders in a transaction intended to qualify as a tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as amended from time to time.

          3.7          Distribution Date.  “Distribution Date” means the effective date of a Distribution.

          3.8          Employee Matters Agreement.  “Employee Matters Agreement” means the Employee Matters Agreement attached as Exhibit C to the Separation Agreement.

          3.9          Excluded Assets.  “Excluded Assets” has the meaning set forth in Section 1.2(b) hereof.

          3.10        Excluded Liabilities.  “Excluded Liabilities” has the meaning set forth in Section 1.3(b) hereof.

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          3.11        Governmental Approvals.  “Governmental Approvals” has the meaning set forth in the Separation Agreement.

          3.12        Governmental Authority.  “Governmental Authority” has the meaning set forth in the Separation Agreement.

          3.13        Indemnification and Insurance Matters Agreement.  “Indemnification and Insurance Matters Agreement” means the Indemnification and Insurance Matters Agreement attached as Exhibit D to the Separation Agreement.

          3.14        Insurance Policies.  “Insurance Policies” has the meaning set forth in the Indemnification and Insurance Matters Agreement.

          3.15        IP.  “IP” has the meaning set forth in the Intellectual Property Agreement.

          3.16        Intellectual Property Agreement.  “Intellectual Property Agreement” means the Intellectual Property Agreement attached as Exhibit B to the Separation Agreement.

          3.17        LSI Logic Contracts.  “LSI Logic Contracts” means those Contracts that may be related to the SSI Business, or to which SSI may be a party, but that are primarily related to LSI Logic’s retained businesses; the material items of which are set forth on Schedule 3.17. LSI Logic Contracts excludes any contracts that are listed as License Agreements under the Intellectual Property Agreement.

          3.18        LSI Logic Employees.  “LSI Logic Employees” has the meaning set forth in the Employee Matters Agreement.

          3.19        LSI Logic Employment Liabilities.  “LSI Logic Employment Liabilities” means all employment-related Liabilities by or regarding LSI Logic Employees and all employment-related Liabilities by or regarding SSI Employees that arise out of facts, acts or omissions occurring prior to the Distribution Date.

          3.20        LSI Logic Group.  “LSI Logic Group” has the meaning set forth in the Separation Agreement.

          3.21        LSI Logic Storage Business.  “LSI Logic Storage Business” has the meaning set forth in the Intellectual Property Agreement.

          3.22        Liabilities.  “Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.

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          3.23        Non-US Plan.  “Non-US Plan” has the meaning set forth in the Separation Agreement.

          3.24        Other Financial Liabilities.  “Other Financial Liabilities” mean all liabilities, obligations, contingencies, instruments and other Liabilities of any member of the LSI Logic Group of a financial nature with third parties existing on the date hereof or entered into or established between the date hereof and the Separation Date, including any of the following:

                         (a)          foreign exchange contracts;

                         (b)          letters of credit;

                         (c)          guarantees of third party loans to customers;

                         (d)          surety bonds (excluding surety for workers’ compensation self-insurance);

                         (e)          interest support agreements on third party loans to customers;

                         (f)          performance bonds or guarantees issued by third parties;

                         (g)          swaps or other derivatives contracts; and

                         (h)          recourse arrangements on the sale of receivables or notes.

          3.25        Person.  “Person” has the meaning set forth in the Separation Agreement.

          3.26        Restriction.  “Restriction” has the meaning set forth in the Intellectual Property Agreement.

          3.27        Security Interest.  “Security Interest” means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever.

          3.28        Separation.  “Separation” has the meaning set forth in the Recitals hereof.

          3.29        Separation Agreement.  “Separation Agreement” has the meaning set forth in the Recitals hereof.

          3.30        Separation Date.  “Separation Date” means the effective date and time of each transfer of property, assumption of liability, license, undertaking, or agreement in connection with the Separation, which shall be 12:01 a.m., Pacific Time, December 31, 2003, or such date as may be fixed by the Board of Directors of LSI Logic.

          3.31        Shared Contracts.  “Shared Contracts” means those contracts between either SSI and a third party or LSI Logic and a third party that the parties have identified should be either allocated

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to LSI Logic and shared with SSI or allocated to SSI and shared with LSI Logic, the material items of which are set forth on Schedule 3.31 hereto, excluding any LSI Logic Contracts and excluding any contract listed as a License Agreement under the Intellectual Property Agreement:

                         (a)          Contracts initially identified as SSI Contracts, but for which the parties are unable to effect a transfer, assignment or novation pursuant to the terms and under the conditions in this Agreement;

                         (b)          Contracts to which LSI Logic or a Subsidiary of LSI Logic is a party as of the Separation Date, that are used in or related to the SSI Business and also used in or related to one of LSI Logic’s businesses; and

                         (c)          Contracts to which SSI or a Subsidiary of SSI is a party as of the Separation Date, that are used in or related to the LSI Logic Storage Business or another of LSI Logic’s retained businesses, and also used in or related to the SSI Business.

          3.32        SSI Assets.  “SSI Assets” has the meaning set forth in Section 1.2(a) hereof.

          3.33        SSI Balance Sheet.  “SSI Balance Sheet” means the audited consolidated balance sheet (including the notes thereto) of the SSI Business as of December 31, 2003.

          3.34        SSI Business.  “SSI Business” has the meaning set forth in the Intellectual Property Agreement. 

          3.35        SSI Contingent Gain.  “SSI Contingent Gain” means any claim or other right, other than any matters relating to Taxes (which are governed by the Tax Sharing Agreement), of a member of the LSI Logic Group or the SSI Group that primarily relates to the SSI Business, whenever arising, against any Person other than a member of the LSI Logic Group or the SSI Group, if and to the extent that (i) such claim or right arises out of the events, acts or omissions occurring on or prior to the Separation Date (based on then existing law) and (ii) the existence or scope of the obligation of such other Person as of the Separation Date was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Separation Date or as a result of the failure of such claim or other right to have been discovered or asserted as of the Separation Date. A claim or right meeting the foregoing definition shall be considered an SSI Contingent Gain regardless of whether there was any Action pending, threatened or contemplated as of the Separation Date with respect thereto.  In the case of any claim or right a portion of which arises out of events, acts or omissions occurring prior to the Separation Date and a portion of which arises out of events, acts or omissions occurring on or after the Separation Date, only that portion that arises out of events, acts or omissions occurring prior to the Separation Date shall be considered an SSI Contingent Gain.  For purposes of the foregoing, a claim or right shall be deemed to have accrued as of the Separation Date if all the elements of the claim necessary for its assertion shall have occurred on or prior to the Separation Date, such that the claim or right, were it asserted in an Action on or prior to the Separation Date, would not be dismissed by a court on ripeness or similar grounds.

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          3.36        SSI Contingent Liability.  “SSI Contingent Liability” means any Liability, other than Liabilities for Taxes (which are governed by the Tax Sharing Agreement), of a member of the LSI Logic Group or the SSI Group that primarily relates to the SSI Business, whenever arising, to any Person other than a member of the LSI Logic Group or the SSI Group, if and to the extent that (i) such Liability arises out of the events, acts or omissions occurring on or prior to the Separation Date and (ii) the existence or scope of the obligation of a member of the LSI Logic Group or the SSI Group as of the Separation Date with respect to such Liability was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Separation Date or as a result of the failure of such Liability to have been discovered or asserted as of the Separation Date (it being understood that the existence of a litigation or other reserve with respect to any Liability shall not be sufficient for such Liability to be considered acknowledged, fixed or determined). In the case of any such Liability a portion of which arises out of events, acts or omissions occurring prior to the Separation Date and a portion of which arises out of events, acts or omissions occurring on or after the Separation Date, only that portion that arises out of events, acts or omissions occurring prior to the Separation Date shall be considered an SSI Contingent Liability.  For purposes of the foregoing, a Liability shall be deemed to have arisen out of events, acts or omissions occurring prior to the Separation Date if all the elements necessary for the assertion of a claim with respect to such Liability shall have occurred on or prior to the Separation Date, such that the claim, were it asserted in an Action on or prior to the Separation Date, would not be dismissed by a court on ripeness or similar grounds.  For purposes of clarification of the foregoing, the parties agree that no Liability relating to, arising out of or resulting from any obligation of any Person to perform the executory portion of any contract or agreement existing as of the Separation Date, or to satisfy any obligation accrued under any Plan (as defined in the Employee Matters Agreement) as of the Separation Date, shall deemed to be an SSI Contingent Liability.

          3.37        SSI Contracts.  “SSI Contracts” means the following contracts and agreements to which LSI Logic is a party or by which it or any of its Assets is bound, whether or not in writing, the material items of which are set forth in the attached Schedule 3.37, except for any such contract or agreement that is a Shared Contract, an LSI Logic Contract, is contemplated to be retained by LSI Logic or any member of the LSI Logic Group pursuant to any provision of this Agreement or any other Ancillary Agreement, or is listed as a License Agreement  under the Intellectual Property Agreement:

                         (a)          any contract or agreement entered into in the name of, or expressly on behalf of, any division or business unit of SSI;

                         (b)          any contract or agreement that relates primarily to, or the Assets obtained thereunder are used primarily in, the SSI Business;

                         (c)          any contract or agreement that is otherwise expressly contemplated pursuant to this Agreement, the Separation Agreement or any of the other Ancillary Agreements to be assigned to SSI, including without limitation those on the attached Schedule 3.37;

                         (d)          any guarantee, indemnity, representation, warranty or other Liability of any member of the SSI Group or the LSI Logic Group in respect of any other SSI Contract, any SSI

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Liability or the SSI Business (including guarantees of financing incurred by customers or other third parties in connection with purchases of products or services from the SSI Business); and

                         (e)          any SSI Other Financial Liability.

          3.38        SSI Employees.  “SSI Employees” has the meaning set forth in the Employee Matters Agreement.

          3.39        SSI Employment Liabilities.  “SSI Employment Liabilities” means all employment-related Liabilities regarding SSI Employees that arise out of facts, acts or omissions occurring on or after the Distribution Date relating to, arising out of, or resulting from their employment with SSI.

          3.40        SSI Group.  “SSI Group” has the meaning set forth in the Separation Agreement.

          3.41        SSI Liabilities.  “SSI Liabilities” has the meaning set forth in Section 1.3(a) hereof.

          3.42        SSI Payables.  “SSI Payables” means all accounts payable and other obligations of payment for goods or services purchased, leased or otherwise received in the conduct of the SSI Business that as of the Separation Date are payable to a third Person by LSI Logic or any of LSI Logic’s Subsidiaries (including SSI), whether past due, due or to become due, including any interest, sales or use taxes, finance charges, late or returned check charges and other obligations of LSI Logic or any of LSI Logic’s Subsidiaries with respect thereto.

          3.43        SSI Receivables.  “SSI Receivables” means all accounts receivable and other rights to payment for goods or services sold, leased or otherwise provided in the conduct of the SSI Business that as of the Separation Date are payable by a third Person to LSI Logic or any of LSI Logic’s Subsidiaries (including SSI), whether past due, due or to become due, including any interest, sales or use taxes, finance charges, late or returned check charges and other obligations of the account debtor with respect thereto, and any proceeds of any of the foregoing.

          3.44        Subsidiary.  “Subsidiary” has the meaning set forth in the Separation Agreement.

          3.45        Taxes.  “Taxes” has the meaning set forth in the Tax Sharing Agreement.

          3.46        Tax Sharing Agreement.  “Tax Sharing Agreement” means the Tax Sharing Agreement attached as Exhibit E to the Separation Agreement.

          3.47        Transition Services Agreement.  “Transition Services Agreement” means the Transition Services Agreement attached as Exhibit F to the Separation Agreement.

[remainder of the page intentionally left blank]

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          IN WITNESS WHEREOF, the parties have signed this General Assignment and Assumption Agreement effective as of the date first set forth above.

LSI LOGIC CORPORATION		LSI LOGIC STORAGE SYSTEMS, INC.
By:	/s/ WILFRED J. CORRIGAN	By:	/s/ THOMAS GEORGENS
Name:	Wilfred J. Corrigan	Name:	Thomas Georgens
Title:	Chairman/C.E.O.	Title:	President

[SIGNATURE PAGE TO GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT]

EX-99

Exhibit 2.6

Intellectual Property Agreement

Between

LSI Logic Corporation

and

LSI Logic Storage Systems, Inc.

December 31, 2003

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS AND CONSTRUCTION		1
1.1	Definitions from Separation Agreement	1
1.2	Other Definitions	2
1.3	Construction	5
ARTICLE II SSI IP ALLOCATION		6
2.1	IP to be Allocated to SSI IP	6
2.2	Assignment of SSI IP	7
2.3	Assignment of LSI Logic IP	7
2.4	Future Assignment to SSI of Certain SSI IP	7
2.5	No Other Transfers; Prior Grants; Removal of Restrictions	8
ARTICLE III TECHNOLOGY AND PATENT LICENSES		8
3.1	IP to be Licensed to SSI	8
3.2	License to SSI of LSI Logic Storage IP	9
3.3	Sublicensing of LSI Logic Storage IP; Have Made Rights	9
3.4	License to SSI of LSI Logic Retained Patents	10
3.5	License to LSI Logic Licensed Marks	10
3.6	License from SSI to LSI Logic	11
3.7	Sublicensing of SSI IP; Have Made Rights	12
3.8	No Improvements	12
3.9	Reservation of Rights; Restrictions	13
3.10	License to Santricity Software	13
ARTICLE IV IP DELIVERY, TRANSFER OF LEGAL TITLE, AND SCHEDULE MODIFICATIONS		13
4.1	Delivery	13
4.2	SSI IP Schedules	14
4.3	Cooperation and Legal Transfers	14
4.4	Dispute Procedures	15
ARTICLE V NON-COMPETE		16
5.1	Restrictions	16
5.2	Separate Covenants	16
5.3	Necessary to Preserve Value	16
5.4	Injunctive Relief	17
ARTICLE VI LICENSE AGREEMENTS WITH THIRD PARTIES		17
6.1	License Agreements	17
6.2	Assignments, Delegation and Novation of SSI License Agreements	17
6.3	Shared License Agreements	18

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ARTICLE VII CONFIDENTIAL INFORMATION and LSI LOGIC EMPLOYEE AGREEMENTS		19
7.1	Confidential Information Exclusions	19
7.2	Confidentiality Obligations	19
7.3	Residuals	19
7.4	Disclosure to LSI Logic or SSI	19
7.5	Remedies	20
7.6	Required Disclosure	20
7.7	Public Announcements	20
7.8	LSI Logic Employee Agreements	20
ARTICLE VIII REPRESENTATIONS AND WARRANTIES		21
8.1	Representations and Warranties	21
8.2	Completeness of Schedules	22
8.3	Warranty Disclaimers	22
8.4	LSI Logic Disclaimer	22
ARTICLE IX TERM AND TERMINATION		23
9.1	Term	23
ARTICLE X MISCELLANEOUS		23
10.1	Further Instruments and Assistance	23
10.2	Bankruptcy	23
10.3	Limitation of Liability	23
10.4	Entire Agreement	24
10.5	Governing Law	24
10.6	Dispute Resolution	24
10.7	Notices	24
10.8	Counterparts	25
10.9	Binding Effect	25
10.10	Assignment and Transfer	25
10.11	Severability	25
10.12	Failure or Indulgence Not Waiver; Remedies Cumulative	25
10.13	Amendment	26
10.14	Interpretation	26
10.15	Conflicting Agreements	26

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SCHEDULES AND EXHIBITS

Schedules
Schedule 1.2(b)	Excluded IP
Schedule 1.2(h)	LSI Logic Licensed Marks
Schedule 1.2(l)	LSI Logic Storage IP
Schedule 1.2(m)	License Agreements
Schedule 1.2(n)	Marked Items
Schedule 1.2(x)	SSI Products
Schedule 1.2(v)(i)	SSI Patents
Schedule 1.2(v)(ii)	SSI Copyrights and Maskworks
Schedule 1.2(v)(iv)	SSI Internet Properties
Schedule 1.2(v)(v)	Other SSI Intellectual Property Rights
Schedule 1.2(v)(iii)	SSI Marks
Schedule 1.2(v)(vi)	SSI Technology
Schedule 3.5	Guidelines for Use of LSI Logic Licensed Marks

Exhibits
Exhibit 4.3(d)(i)	Form of Patent Assignment
Exhibit 4.3(d)(ii)	Form of Trademark Assignment
Exhibit 4.3(d)(iii)	Registrar Information for Internet Properties
Exhibit 4.3(d)(iv)	Form of Copyright Assignment

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INTELLECTUAL PROPERTY AGREEMENT

          This Intellectual Property Agreement (this “Agreement”) is entered into as of December 31, 2003 between LSI Logic Corporation, a Delaware corporation (“LSI Logic”), and LSI Logic Storage Systems, Inc., a Delaware corporation (“SSI”).  LSI Logic and SSI are referred to in this Agreement collectively as the “Parties” and individually as a “Party.”  Capitalized terms have the meanings set forth below.

RECITALS

          1.  SSI is engaged in the storage systems business, which is independent of the businesses of LSI Logic.

          2.  SSI has developed or uses certain Technology and Intellectual Property Rights in connection with the operation of its business.

          3.  LSI Logic and SSI are entering into a Master Separation Agreement and other Ancillary Agreements to delineate and clarify their relationship with respect to the independent businesses of by LSI Logic and SSI (the “Separation”).

          4.  In connection with the Separation, LSI Logic and SSI wish to set forth the allocation of rights to certain Technology and related Intellectual Property Rights associated with SSI’s business, and LSI Logic wishes to transfer to SSI legal title to certain of the foregoing Technology and related Intellectual Property Rights.

          5.  LSI Logic and SSI wish to enter into license arrangements with respect to certain rights of SSI, and other Technology and Intellectual Property Rights, all on the terms and conditions herein.

          NOW, THEREFORE, in consideration of the foregoing and of the mutual promises contained in this Agreement, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND CONSTRUCTION

          1.1     Definitions from Separation Agreement.  The following capitalized terms have the meanings set forth in the Separation Agreement: Ancillary Agreements, Confidential Information, Dispute, Distribution Date, LSI Logic Group, Person, Separation, Separation Date, SSI Contract, SSI Group, Subsidiary, and Transition Services Agreement.

          1.2     Other Definitions.  The following capitalized terms have the meanings set forth below.

                    (a)     “Control” (including the terms “Controlling,” and “Controlled by”) means the direct or indirect ownership, possession, or power to vote by voting agreement or other arrangement, by the controlling entity of (i) voting shares or other securities, representing more than a specified percentage of the outstanding shares or securities entitled to vote for the election of the board of directors or similar managing authority of such controlled entity, or (ii) if such controlling entity does not have voting shares or other securities, more than the specified percentage of the ownership interest that represents the right to make decisions, including the election of directors, for such controlled entity.  For the purposes of this definition, the “specified percentage” means the percentage referred to when this definition is used herein.

                    (b)     “Excluded IP” means: (i) IP (1) that is first owned by LSI Logic following the Separation Date (except for that IP described in Section 1.2(v)(A)), or (2) that comes into existence or is created following the Separation Date (except as provided in Section 4.2(b)(i) with respect to Patents, where the underlying subject matter was in existence prior to the Patent coming into existence. and except for that IP described in Section 1.2(v)(A)), or (3) the benefits of which are provided by SSI to LSI Logic pursuant to the Transition Services Agreement, or (4) which is listed on Schedule 1.2(b) (if any); and (ii) with respect to Technology, any Technology for which only one substantiation exists, which is material to the LSI Logic Storage Business or another retained business of LSI Logic, and which is not capable of being replicated without material cost.

                    (c)     “IP” means Technology, Marks, and Intellectual Property Rights.

                    (d)     “IP Schedule(s)” means any one or more of the following schedules that list certain IP to be licensed or transferred hereunder:  Schedule 1.2(b) (Excluded IP), Schedule 1.2(l) (LSI Logic Storage Patents), Schedule 1.2(h) (LSI Logic Licensed Marks), Schedule 1.2(v)(i) (SSI Patents), Schedule 1.2(v)(ii) (SSI Copyrights and Maskworks), Schedule 1.2(v)(iv) (SSI Internet Properties), Schedule 1.2(v)(v) (Other SSI Intellectual Property Rights), Schedule 1.2(v)(iii) (SSI Marks), and Schedule 1.2(v)(vi) (SSI Technology). 

                    (e)     “Intellectual Property Rights” means any or all of the following and all rights in, arising out of, or associated therewith:  (i) all United States and foreign patents and utility models and applications therefor, and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or similar rights anywhere in the world in inventions and discoveries (“Patents”); (ii) trade secret rights and all other rights in or to Proprietary Information (as defined below); (iii) mask works, mask work registrations and applications therefor, and any equivalent or similar rights in semiconductor masks, layouts architecture or topology throughout the world (“Mask Works”); (iv) all copyrights, copyrights registrations and applications therefor and all other similar or equivalent rights corresponding thereto throughout the world (“Copyrights”); (v) all industrial designs and any registrations and applications therefor throughout the world (“Industrial Designs”); (vi) all rights in WWW addresses, uniform resource locators and domain names and applications and registrations therefor (“Internet Properties”); (vii) any similar, corresponding or equivalent rights to any of the foregoing anywhere

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in the world.  Intellectual Property Rights specifically excludes Marks and rights in and to Marks, and also specifically excludes contractual rights, including license grants.

                    (f)     “LSI Logic Employee Agreement” means the Employee Invention and Confidential Information Agreement in the United States and corresponding agreements in foreign countries executed by each LSI Logic employee.

                    (g)     “LSI Logic IP” means Pre-Separation IP that is not SSI IP.

                    (h)     “LSI Logic Licensed Marks” means the Marks of LSI Logic that are listed on Schedule 1.2(h) in accordance with Section 3.1(b) (as such Schedule may revised pursuant to Section 4.2).

                    (i)     “LSI Logic Retained Patents” means any Patents of LSI Logic included in Pre-Separation IP that are not SSI Patents or LSI Logic Storage Patents.

                    (j)     “LSI Logic Storage Business” means the business being conducted by LSI Logic as of the Separation Date, of designing, manufacturing, selling and supporting storage components.  LSI Logic Storage Business does not include the SSI Business.

                    (k)     “LSI Logic Storage IP” means (a) LSI Logic Storage Patents, (b) Technology that as of the Separation Date is LSI Logic IP, is in the possession of SSI, is related to the SSI Business, and is either used in the SSI Business or reasonably intended to be used in the SSI Business following the Separation Date, and (c) Intellectual Property Rights (other than Patents) that as of the Separation Date are LSI Logic IP, and that are (i) embodied in the Software and other Technology used in the SSI Business as of the Separation Date or prior to the Separation Date during any period in which SSI was a Subsidiary of LSI Logic, or (ii) embodied in the Software or other Technology in the possession of the SSI Business as of the Separation Date and reasonably intended to be used in the SSI Business following the Separation Date, or (iii) incorporated in the SSI Products as of the Separation Date.  In all of the foregoing (c)(i), (c)(ii) and (c)(iii), LSI Logic Storage IP includes Intellectual Property Rights within Pre-Separation IP that are not included in SSI IP or are not transferred or assigned to SSI under Section 2.2 (for whatever reason) but which would be infringed by making, using, selling, offering for sale or importing Technology that is SSI IP. 

                    (l)     “LSI Logic Storage Patents” means Patents listed on Schedule 1.2(k) in accordance with Section 3.1 (as such Schedule may be revised pursuant to Section 4.2).

                    (m)     “License Agreement” means a written license of Intellectual Property Rights, to the extent in effect as of the Separation Date, that the Parties have determined is material to the SSI Business or to the Separation, as set forth on Schedule 1.2(m).

                    (n)     “Marked Items” means goods and services that may be identified using an SSI Licensed Mark, as set forth on Schedule 1.2(n).

                    (o)     “Marks” means all trade names, logos, trademarks and service marks; trademark and service mark registrations and applications (including intent-to-use registrations and applications).

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                    (p)     “Pre-Separation IP” means IP of either LSI Logic or SSI immediately prior to the Separation Date. 

                    (q)     “Restriction” means that an action hereunder would or would be likely to trigger any of the following: (i) a material violation of the terms of any current agreement or other current arrangement with any third party; (ii) an expansion of existing rights or licenses from LSI Logic to a third party; or (iii) a requirement to pay any material royalty or other consideration to any third party that would not have been required had the applicable right or license not been provided under this Agreement.

                    (r)     “Separation Agreement” means the Master Separation Agreement entered into by and between LSI Logic and SSI as of even date herewith.

                    (s)     “Shared License Agreements” means those License Agreements between either SSI and a third party or LSI Logic and a third party that the Parties have identified should be either allocated to LSI Logic and shared with SSI or allocated to SSI and shared with LSI Logic, all designated on Schedule 1.2(m) as “Shared License Agreements,” excluding those License Agreements removed as Shared License Agreements pursuant to Section 6.3(c).

                    (t)     “SSI Employee” means any individual who: (i) is actively employed by SSI in the United States on the Separation Date; (ii) moves to the employ of SSI in the United States from the employ of LSI Logic at any time prior to the Distribution Date; (iii) is an employee or group of employees designated as SSI Employees by LSI Logic and SSI, by mutual agreement; or (iv) is an individual in the United States hired by SSI on or after the Separation Date.

                    (u)     “SSI Business” means the business being conducted by SSI as of the Separation Date, of designing, manufacturing, selling and supporting storage systems and subsystems, including the SSI Products and related services and operations, and including the development and other activities in which substantial resources have been invested as of the Separation Date.  “SSI Business” shall not include (a) the processes relating to or products resulting from designing, simulating, testing, packaging or fabricating integrated circuits, or (b) the business of designing, manufacturing, selling and supporting storage components.

                    (v)     “SSI IP” means (A) any Technology or Intellectual Property Rights created by an SSI Employee engaged in the SSI Business between the Separation Date and the Distribution Date, and (B) Pre-Separation IP to be allocated to SSI, including:

                                (i)     the Patents listed on Schedule 1.2(v)(i) in accordance with Section 2.1(a)(i) (as such Schedule may be revised pursuant to Section 4.2);

                               (ii)     the Copyrights or Maskworks listed on Schedule 1.2(v)(ii) in accordance with Section 2.1(a)(ii) (as such Schedule may be revised pursuant to Section 4.2), or otherwise identified in Section 2.1(a)(ii);

                              (iii)     the Marks (and associated goodwill) listed on Schedule 1.2(v)(iii) in accordance with Section 2.1(b) (as such Schedule may be revised pursuant to Section 4.2);

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                               (iv)     the Internet Properties listed on Schedule 1.2(v)(iii) in accordance with Section 2.1(a)(iii) (as such Schedule may be revised pursuant to Section 4.2);

                                (v)     the other Intellectual Property Rights listed on Schedule 1.2(v)(v) in accordance with Section 2.1(a)(iv) (as such Schedule may be revised pursuant to Section 4.2), or otherwise identified in Section 2.1(a)(iv); and

                               (vi)     the Technology listed on Schedule 1.2(v)(vi) in accordance with Section 2.1(c) (as such Schedule may be revised pursuant to Section 4.2), or otherwise identified in Section 2.1(c).

                    (w)     “SSI License Agreement” means those License Agreements between LSI Logic and a third party or between or SSI and a third party that the Parties have determined are material and are to be allocated to SSI, all designated on Schedule 1.2(m) as “SSI License Agreements.”

                    (x)     “SSI Products” means (i) those SSI products listed on Schedule 1.2(x), and (ii) other products that result from development activities of SSI in which, as of the Separation Date, substantial resources have been invested.

                    (y)     “Technology” means any and all of the following tangible or intangible items or things, in any format, but specifically excluding any Intellectual Property Rights therein or thereto:

                                (i)     computer software and code, including assemblers, applets, compilers, source code, object code, data (including image and sound data), design tools and user interfaces, including documentation, annotations or comments, and including all related algorithms, data and data structures (“Software”);

                               (ii)     trade secrets and confidential information, including without limitation invention disclosures, know-how, show-how, techniques, algorithms, routines, works of authorship, processes, devices, prototypes, net list, mask works, test methodologies, hardware development tools, materials that document design or design processes (including failed designs), or that document research or testing (both design, processes and results) (“Proprietary Information”);

                              (iii)     databases and data collections; and

                               (iv)     any media on which any of the foregoing is recorded, and any other tangible embodiments or copies of any of the foregoing.

          1.3.     Construction.  For purposes of this Agreement, whenever the context requires: (i) the singular number includes the plural, and vice versa; the masculine gender includes the feminine and neuter genders; the feminine gender includes the masculine and neuter genders; and the neuter gender includes the masculine and feminine genders; (ii) any rule of construction to the effect that ambiguities are to be resolved against the drafting Party will not be applied in the construction or interpretation of this Agreement; and (iii) the words “include” and “including” and variations

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thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.”

ARTICLE II

SSI IP ALLOCATION

          2.1.     IP to be Allocated to SSI IP.  Certain Pre-Separation IP shall be allocated, in accordance with this Section 2.1, to SSI, and to the extent not owned by SSI prior to the Separation Date, assigned to SSI in accordance with Section 2.2.  Such IP shall, following the Separation Date, be SSI IP.  All such IP that is subject to a governmental registration or that is material and capable of being scheduled will be set forth on a Schedule referred to in this Section.  Prior to the Separation Date, the Parties will use reasonable efforts to compile such schedules and will use reasonable efforts to complete or correct such schedules following the Separation Date in accordance with Section 4.2.

                    (a)     Intellectual Property Rights.  The following Pre-Separation IP shall be allocated to SSI as of the Separation Date:

                                (i)     Patents.  All of those Patents:

                                         (1)  that are listed on Schedule 1.2(v)(i) as of the date hereof, or

                                         (2)  that would be entitled or required to designate as inventors only individuals that were engaged in the SSI Business (including any predecessor to the SSI Business) at the time such invention was made, and that are added to Schedule 1.2(v)(i) pursuant to Section 4.2; 

                               (ii)     Copyrights and Maskworks.  All (A) Copyrights that are embodied in or constitute an SSI Product that exists as of the Separation Date, (B) Maskworks for integrated circuits that were designed specifically for the SSI Business, and (C) other Copyrights and Maskworks that are listed on Schedule 1.2(v)(ii);

                              (iii)     Internet Properties.  All of those Internet Properties:

                                         (1)  that are listed on Schedule 1.2(v)(iv), to the extent such scheduled Internet Properties are associated with the SSI Business and are not primarily associated with the LSI Logic Storage Business or other retained businesses of LSI Logic, or

                                         (2)  that are associated with the SSI Business and are not primarily associated with the LSI Logic Storage Business or other retained businesses of LSI Logic, and are added to Schedule 1.2(v)(iv), pursuant to Section 4.2; and

                               (iv)     Other Intellectual Property Rights.  Any other Intellectual Property Rights that are listed on Schedule 1.2(v)(v).

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                    (b)     Marks.  The following Marks and associated goodwill shall be allocated to SSI as of the Separation Date:  All of those Marks:

                               (i)     that are listed on Schedule 1.2(v)(iii), to the extent such scheduled Marks are associated with the SSI Business or used in connection with SSI Products as of the Separation Date and are not primarily associated with the LSI Logic Storage Business or the other retained businesses of LSI Logic, or

                              (ii)     that as of the Separation Date are associated with the SSI Business or are used in connection with SSI Products, are not primarily associated with the LSI Logic Storage Business or the other retained businesses of LSI Logic, and are added to Schedule 1.2(v)(iii) pursuant to Section 4.2.

                    (c)     Technology that is SSI IP.  Technology (including Software) that is Pre-Separation IP will be allocated to SSI under Section 2.2 if it is primarily used in or necessary to the SSI Business (including the manufacture, use or sale of the SSI Products that exist as of the Separation Date), or if it is incorporated in the SSI Products that exist as of the Separation Date.  The material items of Technology that are SSI IP are identified on Schedule 1.2(v)(vi).

          2.2     Assignment of SSI IP.  To the extent legal ownership of an item within SSI IP does not reside with SSI as of the Separation Date, and subject to the last sentence of this Section 2.2, LSI Logic agrees to assign and transfer, and hereby does assign and transfer to SSI, effective as of the Separation Date, and to take such action as is necessary or appropriate therefor, as such actions are more fully set forth in Section 4.3 and Section 10.1:

                    (a)     all Intellectual Property Rights constituting SSI IP, including all causes of action and the right to past and future damages for infringement of such Intellectual Property Rights;

                    (b)     the SSI Marks and all associated goodwill, and all causes of action and the right to past and future damages for infringement of such Marks; and

                    (c)     all Technology constituting SSI IP.

          Notwithstanding anything to the contrary set forth in this Section, no Excluded IP shall be allocated, transferred or assigned to SSI hereunder; to the extent, however, that such Excluded IP is Excluded IP due to Restriction with respect to transfer or assignment by LSI Logic, then such Excluded IP will cease to be Excluded IP if and when such Restriction is removed pursuant to Section 2.5(c).

          2.3     Assignment of LSI Logic IP.  To the extent that SSI owns or has the right to assign to LSI Logic any LSI Logic IP, SSI shall assign and hereby does assign to LSI Logic all of its right title and interest in and to such LSI Logic IP, including all causes of action and the right to past and future damages for infringement of Intellectual Property Rights included therein and the goodwill associated with any Marks included therein.

          2.4     Future Assignment to SSI of Certain SSI IP.  With respect to Technology or Intellectual Property Rights that are SSI IP because of the creation thereof by an SSI Employee

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engaged in the SSI Business between the Separation Date and the Distribution Date (i.e., under Section 1.2(v)(A) and not Section 1.2(v)(B)), but that are owned by LSI Logic, either as works made for hire or pursuant to an LSI Logic Employee Agreement between an SSI Employee and LSI Logic, LSI Logic shall assign and hereby does assign to SSI all of its right title and interest in and to such SSI IP, including all causes of action and the right to past and future damages for infringement of Intellectual Property Rights included therein.

          2.5     No Other Transfers; Prior Grants; Removal of Restrictions. 

                    (a)     Subject to compliance with Section 4.2, any IP not allocated or assigned by one Party to the other in accordance with this ARTICLE II shall remain the property of the Party holding legal title to such IP as of the Separation Date. 

                    (b)     SSI acknowledges and agrees that the foregoing assignments are subject to any and all licenses or other rights that may have been granted by LSI Logic or its Subsidiaries with respect to the SSI Patents or other SSI IP prior to the Separation Date.  LSI Logic shall respond to reasonable inquiries from SSI regarding any such prior grants. 

                    (c)     To the extent any IP to be transferred cannot be transferred because it is Excluded IP due to a Restriction, the Parties will use reasonable efforts to remove that Restriction; provided that neither Party will be required to pay any material consideration (monetary or non-monetary) to any third party to remove such Restriction.

ARTICLE III

TECHNOLOGY AND PATENT LICENSES

          3.1     IP to be Licensed to SSI.  Certain rights in or to Pre-Separation IP, to the extent those rights are LSI Logic Storage IP, LSI Logic Retained Patents, or LSI Logic Licensed Marks, are allocated by license to SSI as described in Sections 3.2, 3.3, 3.4 or 3.5.  If such licenses are under Intellectual Property Rights required to be scheduled, then prior to the Separation Date the Parties will use reasonable efforts to compile such schedules and will use reasonable efforts to correct or complete such schedules following the Separation Date in accordance with Section 4.2. 

                    (a)     The following Patents that are Pre-Separation IP shall be included in LSI Logic Storage Patents and are licensed to SSI:  All of those Patents: (i) that are listed on Schedule 1.2(k), or (ii) that designate, or would be entitled or required to designate, as inventors only individuals that were engaged in the SSI Business (including any predecessor to the SSI Business) at the time such invention was made and are added to Schedule 1.2(k) pursuant to Section 4.2.

                    (b)     The following Marks that are Pre-Separation IP shall be included in LSI Logic Licensed Marks and are licensed to SSI:  All of those Marks: (i) that are listed on Schedule 1.2(h), to the extent they are used by SSI as of the Separation Date to identify the source or origin of the SSI Business or SSI Products and are not SSI Marks, and (ii) that that are used by SSI as of the

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Separation Date to identify the source or origin of the SSI Business or SSI Products and are not SSI Marks, and are added to Schedule 1.2(h) pursuant to Section 4.2.

          3.2     License to SSI of LSI Logic Storage IP.  Effective as of the Separation Date and subject to Section 3.9, SSI hereby retains, and without limiting the foregoing LSI Logic agrees to grant and hereby does grant (and shall cause its Subsidiaries to grant) SSI a perpetual, irrevocable, non-terminable, fully paid-up, royalty-free, non-exclusive, non-transferable (except as provided in Section 10.10) right and license:

                    (a)     under the Copyrights in the LSI Logic Storage IP, to copy, create derivative works from, distribute, publicly perform and display, and transmit any Technology within the LSI Logic Storage IP or any product or Technology in which such Technology is embodied; and grant sublicenses under the foregoing rights in connection with the distribution, licensing and sale of the SSI Products and other of SSI’s products and services;

                    (b)     under the Maskworks in the LSI Logic Storage IP, to make and have made semiconductor devices;

                    (c)     under the LSI Logic Storage Patents, to make, have made (subject to Section 3.3), use, sell, offer for sale and import any product, to practice any process, method or procedure claimed in any such Patent, and to otherwise exercise the license granted in Section 3.2(a) and Section 3.2(b); and

                    (d)     under all other Intellectual Property Rights in the LSI Logic Storage IP, to fully exercise, use and exploit SSI IP and to conduct the SSI Business following the Separation Date; provided that the foregoing license shall be subject to any restrictions with respect to Confidential Information of LSI Logic set forth in Section 7.2 and 7.4.

          3.3     Sublicensing of LSI Logic Storage IP; Have Made Rights. 

                    (a)     Patent Sublicensing.  The license under the LSI Logic Storage Patents set forth in Section 3.2(c) shall not be sublicensable by SSI except to (i) an entity that is Subsidiary of SSI but only while such entity is a Subsidiary of SSI, and (ii) a third party which SSI Controls at the ten percent (10%) or greater level and in connection with the transfer or licensing of substantial other IP of SSI to such entity.  In either case the sublicensed entity must agree to be bound by the relevant license restrictions in this Agreement, and SSI shall be responsible for performance by any sublicensee. 

                    (b)     Sublicensing of LSI Logic Storage IP other than LSI Logic Storage Patents.  SSI may grant sublicenses with respect to LSI Logic Storage IP other than LSI Logic Storage Patents, and the licenses in Section 3.2 (other than Section 3.2(c)) include the right to grant such sublicenses, in the ordinary course of its business, subject to any restrictions set forth in Sections 7.2 and 7.4.with respect to disclosure of the Confidential Information of LSI Logic.

                    (c)     Have Made Rights.  SSI’s rights to have products made for it by third parties under the licenses granted in Section 3.2(c) shall apply only when (i) SSI creates and furnishes to the third party manufacturer the designs, specifications and working drawings for the manufacture of

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such products, (ii) the product manufactured by the third party is sold to SSI, and (iii) the product manufactured by the third party is identified with SSI’s Marks.  SSI understands and acknowledges that the licenses granted in Section 3.2(c) and in Section 3.3(a) hereunder are intended to cover only the products of SSI and its permitted sublicensees, and are not intended to cover manufacturing activities that SSI or a sublicensee may undertake on behalf of third parties (patent laundering activities); similarly, the licenses granted in Section 3.2(c) and in Section 3.3(a) are not intended to cover services provided by SSI or its sublicensees to the extent that such services are provided to or on behalf of a third party using tangible or intangible materials provided by or on behalf of the third party.  SSI shall not exercise the have made rights granted in Section 3.2(c) in a manner that would circumvent, or could reasonably be expected to result in the circumvention of the limitations on sublicensing set forth in this Section 3.3(a), unless and to the extent expressly permitted in this Section 3.3(c).

          3.4     License to SSI of LSI Logic Retained Patents.  Effective as of the Separation Date and subject to Section 3.9, SSI hereby retains, and without limiting the foregoing LSI Logic agrees to grant and hereby does grant (and shall cause its Subsidiaries to grant) SSI a personal, fully paid up, royalty-free, non-exclusive, non-transferable, non-assignable right and license, without any right to grant or authorize sublicenses, under the LSI Logic Retained Patents, to make, but not to have made, and to use, sell, offer for sale and import SSI Products and future products of the SSI Business, but not to perform any activities, or to make, have made, use, offer for sale, sell, import or otherwise exploit any products or services within the Excluded Field.  For purposes of this Agreement, “Excluded Field” means storage components and design, testing, packaging or fabrication of any integrated circuits or elements thereof.  The foregoing licenses are for the life of the LSI Logic Retained Patents.

          3.5     License to LSI Logic Licensed Marks.  Effective as of the Separation Date and continuing until twenty-four (24)months thereafter, and subject to Section 3.9, SSI hereby retains, and without limiting the foregoing LSI Logic agrees to grant and hereby does grant (and shall cause its Subsidiaries to grant) SSI a royalty-free, non-exclusive right and license, with the right to sublicense (as described below), under the LSI Logic Licensed Marks, to use those LSI Logic Licensed Marks for the purposes of describing the SSI Business and promoting and offering Marked Items, all in territories in which LSI Logic owns the rights to those LSI Logic Licensed Marks, and all in accordance with any guidelines or restrictions set forth on Schedule 3.5.  The licenses in this Section 3.5 are not transferable (except as provided in Section 10.9), and are not sublicensable except (i) to a Subsidiary of SSI, during the period in which that Subsidiary remains a Subsidiary of SSI, and (ii) in connection with the sale or transfer of all or substantially all of one or more products or product lines of SSI or its Subsidiaries that includes Marked Items; provided, however, that the respective successor shall not have any rights or licenses under the LSI Logic Licensed Marks separate or apart from the Marked Items within the product line(s) so transferred.  In all of the foregoing cases, the sublicensee must agree to be bound by the relevant license restrictions in this Agreement, and SSI is responsible for performance by any sublicensee.

                    (a)     All goodwill associated with or that arises from use of the LSI Logic Licensed Marks under this Section 3.5 inures to the sole benefit of LSI Logic.

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                    (b)     SSI shall not use LSI Logic Licensed Marks in a manner that is disparaging to, or that otherwise would harm the goodwill associated with, those LSI Logic Licensed Marks.  The quality of the Marked Items must be at least as high as the quality of the good and services with which LSI Logic has used those LSI Logic Licensed Marks.  Unless otherwise agreed in advance in writing, all representations of the LSI Logic Licensed Marks that SSI intends to use must first be submitted to LSI Logic for approval (which will not be unreasonably withheld or delayed) of design, color and other details, or will be exact copies of those used by LSI Logic.  Without limiting the foregoing, upon LSI Logic’s request, SSI shall, at no charge to LSI Logic, provide LSI Logic with: (i) a description, and where appropriate, access, at LSI Logic facilities, to, or samples of, the Marked Items; and (ii) the form and manner in which SSI uses or intends to use the LSI Logic Licensed Marks.

                    (c)     If LSI Logic reasonably determines that SSI’s use of the LSI Logic Licensed Marks would be harmful to the goodwill associated with those LSI Logic Licensed Marks, then LSI Logic shall provide SSI with a written description of the basis for its determination. SSI shall promptly modify its use of the LSI Logic Licensed Marks or the quality of the Marked Item with which those LSI Logic Licensed Marks are used so as to conform to LSI Logic’s directions.

                    (d)     SSI shall not use or attempt to register in its own name any Mark confusingly similar to the LSI Logic Licensed Marks.

                    (e)     If any act or omissions of SSI detracts from or is likely to detract from the goodwill of LSI Logic in the LSI Logic Licensed Marks, LSI Logic may, upon sixty (60) days’ notice to SSI, terminate all licenses to those LSI Logic Licensed Marks if the act or omission of SSI is not remedied to LSI Logic’s reasonable satisfaction during that sixty (60) day period.

                    (f)     To the extent necessary to properly protect LSI Logic’s rights, LSI Logic and SSI shall enter into registered user agreements with respect to the LSI Logic Licensed Marks under applicable trademark law requirements in countries outside the United States. SSI will be responsible for proper filing of the registered user agreement with appropriate government authorities and shall pay all costs or fees associated with that filing.

          3.6     License from SSI to LSI Logic.  Effective as of the Separation Date, SSI agrees to grant, and hereby does grant (and shall cause its Subsidiaries to grant) LSI Logic a perpetual, irrevocable, non-terminable, fully paid-up, royalty-free, non-exclusive, non-transferable (except as provided in Section 10.10) right and license:

                    (a)     under the Copyrights in SSI IP, to copy, create derivative works from, distribute, publicly perform and display, and transmit any Technology within SSI IP or products or technology in which such Technology is embodied; and to sublicense the foregoing rights in connection with the distribution, licensing and sale of LSI Logic’s products and services;

                    (b)     under the Maskworks in SSI IP, to make and have made semiconductor devices;

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                    (c)     under the Patents in SSI IP, to make, have made, use, sell, offer for sale and import any product, practice any process, method or procedure, claimed in any such Patent and to otherwise exercise the license granted in Section 3.6(a); and

                    (d)     under all other Intellectual Property Rights of SSI in SSI IP, to fully exercise, use and exploit the Technology that is SSI IP and to conduct the LSI Logic Storage Business and LSI Logic’s other retained businesses following the Separation Date; provided that the foregoing license shall be subject to any restrictions with respect to Confidential Information of SSI set forth in Sections 7.2 and 7.4 and the non-compete in ARTICLE V.

          3.7     Sublicensing of SSI IP; Have Made Rights. 

                    (a)     Patent Sublicensing.  The license under the Patents in *** set forth in Section 3.6(c) shall not be sublicensable by LSI Logic except to (i) an entity that is Subsidiary of LSI Logic but only while such entity is a Subsidiary of LSI Logic, or (ii) a third party which LSI Logic Controls at the ten percent (10%) or greater level and in connection with the transfer or licensing of substantial other IP of LSI Logic to such entity.  In either case the sublicensed entity must agree to be bound by the relevant license restrictions in this Agreement, and LSI Logic shall be responsible for performance by any sublicensee. 

                    (b)     Sublicensing of Other SSI IP.  LSI Logic may grant sublicenses with respect to SSI IP other than SSI Patents, and the licenses in Section 3.6 (other than Section 3.6(c)) include the right to grant such sublicenses, in the ordinary course of its business, subject to any restrictions set forth in Sections 7.2 and 7.4 with respect to disclosure of Confidential Information of SSI.

                    (c)     Have Made Rights.  LSI Logic’s rights to have products made for it by third parties under the licenses granted in Section 3.6(c) shall apply only when (i) LSI Logic creates and furnishes to the third party manufacturer the designs, specifications and working drawings for the manufacture of such products, (ii) the product manufactured by the third party is sold to LSI Logic, and (iii) the product manufactured by the third party is identified with LSI Logic’s Marks.  SSI understands and acknowledges that the licenses granted in Section 3.6(c) and in Section 3.7(a) hereunder are intended to cover only the products of LSI Logic and its permitted sublicensees, and are not intended to cover manufacturing activities that LSI Logic or a sublicensee may undertake on behalf of third parties (patent laundering activities); similarly, the licenses granted in Section 3.6(c) and in Section 3.7(a) are not intended to cover services provided by LSI Logic or its sublicensees to the extent that such services are provided to or on behalf of a third party using tangible or intangible materials provided by or on behalf of the third party.  LSI Logic shall not exercise the have made rights granted in Section 3.6(c) in a manner that would circumvent, or could reasonably be expected to result in the circumvention of the limitations on sublicensing set forth in this Section 3.6(a), unless and to the extent expressly permitted in this Section 3.7(c).

          3.8     No Improvements.  Neither Party has an obligation to disclose or license to the other Party any improvement or updates made to any IP, including the Pre-Separation IP, SSI IP, LSI Logic Storage IP or LSI Logic Retained Patents, after the Separation Date.

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          3.9     Reservation of Rights; Restrictions.  Each Party reserves all rights not expressly granted. Without limiting the foregoing, all licenses granted by either Party to the other under this Agreement are subject to any and all licenses and other agreements between the granting Party and any third party or parties entered into prior to the date hereof.  No rights are granted or licensed to SSI with respect to any IP for which such license would be subject to a Restriction.

          3.10    License to Santricity Software.  SSI will grant to LSI Logic, under reasonable terms and conditions to be negotiated between the Parties in good faith, a royalty free, paid up, non-exclusive license to the Santricity Software.  For purposes hereof, “Santricity Software” means that software referred to internally at LSI Logic as “Santricity,” including but not limited to any user interfaces, functionality and algorithms included or incorporated therein, as such may be more fully defined in connection with negotiating the terms and conditions for the above license.

ARTICLE IV

IP DELIVERY, TRANSFER OF LEGAL TITLE, AND SCHEDULE MODIFICATIONS

          4.1     Delivery. 

                    (a)     Unless otherwise expressly provided herein (including under Section 4.1(c)), each Party shall retain in its possession all items of Technology currently in its possession.

                    (b)     To the extent not already in SSI’s possession and upon SSI’s reasonable notice given within twelve (12) months following the Separation Date, LSI Logic shall deliver or otherwise make available to SSI at no cost and, where possible, through electronic means such as file transfer or FTP, any Technology (including Software) included within the definitions of SSI IP that is in LSI Logic’s possession and not in SSI’s possession.  Unless otherwise specified, all Software shall be provided in both source and object code form. 

                    (c)     To the extent not already in LSI Logic’s possession and upon LSI Logic’s reasonable notice given within twelve (12) months following the Separation Date, SSI shall deliver or otherwise make available to LSI Logic, at no cost and, where possible, through electronic means such as file transfer or FTP, any Technology (including Software) included within the definitions of LSI Logic IP that is in SSI’s possession and not in LSI Logic’s possession.  Unless otherwise specified, all Software shall be provided in both source and object code form. 

                    (d)     Upon SSI’s reasonable request, LSI Logic shall deliver copies of all SSI License Agreements, any SSI Shared License Agreements, and any other License Agreements under which SSI will be obtaining a benefit or will be required to perform under ARTICLE VI.

                    (e)     Notwithstanding Section 2.2, to the extent that more than one instantiation of any Technology assigned pursuant to Section 2.2 exists or to the extent such Technology is capable of being copied without material cost, both Parties shall retain such Technology subject to the terms of this Agreement. 

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          4.2     SSI IP Schedules. 

                    (a)     IP other than Patents, Marks and Internet Properties.  It is understood that the IP Schedules have been created in good faith, using reasonable efforts to be complete and accurate.  Notwithstanding the foregoing, if it is reasonably determined, within two (2) years after the date of this Agreement, that a material item of IP that should have been included on the relevant Schedule has been omitted, or that an item of IP included on such a Schedule should not have been included, or to the extent the Parties reasonably agree in good faith that an item has been improperly omitted or improperly included, then such schedule or schedules shall be amended accordingly to exclude or include such item, as the case may be, without further consideration, and as amended shall become part of this Agreement. 

                    (b)     Patents. 

                                (i)     If SSI files a patent application based on an invention disclosure listed on Schedule 1.2(v)(vi) (SSI Technology) during the first twelve (12) months following the Separation Date, then SSI shall provide LSI Logic notice thereof;

                               (ii)     Whether or not notice is provided under Section 4.2(b)(i), any Patents issuing from an invention disclosure listed on Schedule 1.2(v)(vi) (SSI Technology) shall be deemed included on Schedule 1.2(v)(i) regardless of whether such Schedule is amended to include such Patents and the associated patent applications.

                              (iii)     Notwithstanding any thing to the contrary set forth in Section 4.2(a), Patents may not be removed from a Schedule unless there is mutual agreement to do so; Patents may be added, however, to the extent they meet the requirement set forth in Section 2.1(a)(i)(2).

                    (c)     Marks and Internet Properties.  Notwithstanding any thing to the contrary set forth in Section 4.2(a), Marks and Internet Properties may be removed from Schedule 1.2(v)(iii) or Schedule 1.2(v)(iv), as applicable, if such items initially were included but are determined to have failed to meet the requirements of Section 2.1(b)(ii) or Section 2.1(a)(iii)(2), as applicable, and may be added to Schedule 1.2(v)(iii) or Schedule 1.2(v)(iv), as applicable, if such items initially were not included but are determined to meet the requirements of Section 2.1(b)(ii) or Section 2.1(a)(iii)(2), as applicable.

          4.3     Cooperation and Legal Transfers. 

                    (a)     Cooperation.  The Parties shall cooperate to effect a smooth transfer of legal title from SSI to LSI Logic, where necessary, and along with legal title, the responsibility for prosecution, maintenance and enforcement of the SSI Patents from LSI Logic to SSI. 

                    (b)     Continuing Prosecution and Maintenance Pending Transfer.  Until transfer of legal title from SSI to LSI Logic has been effected, LSI Logic agrees to continue the prosecution and maintenance of, and ongoing litigation (if any) with respect to, the SSI Patents (including payment of maintenance fees), and to maintain its files and records related to the SSI Patents using the same standard of care and diligence that it uses with respect to LSI Logic’s other Patents.  SSI will reimburse LSI Logic for all actual and reasonable expenses (excluding the value of the time of LSI

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Logic employees) to continue to prosecute and maintain the SSI Patents after the Separation Date until the transfer of responsibility for the SSI Patents has been completed.  The Parties shall agree on a case by cases basis on compensation, if any, of LSI Logic for the value of time of LSI Logic’s employees as reasonably required in connection with any such litigation.  LSI Logic shall provide SSI with the originals or copies of its files related to the SSI Patents upon such transfer or at such earlier time as the Parties may agree.

                    (c)     Support by LSI Logic.  LSI Logic shall provide continuing reasonable support to SSI with respect to the SSI Patents, including by way of example, by executing all documents prepared by SSI necessary for the prosecution, maintenance, and litigation of the SSI Patents, forwarding copies of correspondence sent and received concerning the SSI Patents within a reasonable period of time after receipt by LSI Logic, and making all relevant documents in the possession or control of LSI Logic and corresponding to the SSI Patents, or any licenses thereunder, available to SSI or its counsel.  Other details regarding cooperation will be as set forth in the Transition Services Agreement.

                    (d)     Assignment Documents for Legal Title.  To the extent required to perfect the foregoing assignments of SSI IP to SSI under Section 2.2, LSI Logic shall deliver the following to SSI on or promptly following the Separation Date:

                                (i)     United States and foreign Patent assignments in the forms set forth on Exhibit 4.2(c)(d)(i), executed by LSI Logic and evidencing the foregoing transfer of any Patents included in SSI IP;

                               (ii)     Trademark assignments in the form set forth on Exhibit 4.2(c)(d)(ii), executed by LSI Logic and evidencing the foregoing assignment and transfer of any Marks included in SSI IP;

                              (iii)     Identification of the registrar for each of the Internet Properties included in SSI IP, including information for accessing the account with such registrar, and, where available, documentation of the transfer of such Internet Property; and

                               (iv)     Copyright assignment in the form set forth on Exhibit 4.2(c)(d)(iv), executed by LSI Logic and evidencing the foregoing transfer of any Copyrights registered in the United States and included in SSI IP.

          4.4     Dispute Procedures. 

                    (a)     If a Party (the “Requesting Party”) reasonably believes that an IP Schedule mistakenly either omits or includes an item of IP, the Requesting Party shall provide the other Party (the “Requested Party”) notice thereof and the reasons therefor in accordance with Section 10.7.  The Requested Party shall respond to such notice within thirty (30) days, either accepting such request or stating the reasons for rejecting such request.  If the Parties do not resolve the Dispute within ninety (90) days of the initial notice, the Dispute shall be resolved by the dispute resolution mechanism set forth in Section 10.6.

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                    (b)     Upon the resolution of the Dispute by agreement or otherwise, the appropriate IP Schedule shall be modified and signed by both Parties and shall become a part of this Agreement. 

                    (c)     Following the notice by the Requesting Party and until such time as such matter is resolved in accordance with this Section 4.4 neither Party may initiate any action against the other or its customers or suppliers, including one for infringement or validity with respect to any item of IP that is the subject of such notice and if an action was initiated prior to the Requesting Party’s notice such action shall be suspended upon such notice and at least during the pendancy of such Dispute.

ARTICLE V

NON-COMPETE

          5.1     Restrictions. 

                    (a)     Subject to SSI compliance with the terms and conditions of this Agreement, beginning as of the date hereof and continuing until eighteen (18) months after the Distribution Date, LSI Logic agrees that it will not develop, manufacture or sell a product that is substantially similar to or a direct substitute for an SSI Product that exists as of the Separation Date; provided however, that nothing shall restrict LSI Logic from selling semiconductor components or any LSI Logic product sold by LSI Logic as of the Separation Date, replacements or new versions of such products, products that result from development activities of LSI in which, as of the Separation Date, substantial resources have been invested, or products on an LSI roadmap, all other than products sold exclusively by or through SSI as a Subsidiary of LSI Logic.

                    (b)     Notwithstanding the foregoing or any other provisions of this Agreement, LSI Logic shall not be restricted in any way from providing support, maintenance (including providing updates, upgrades, bug fixes and maintaining escrow accounts), consulting and other services, or otherwise fulfilling its obligations, under any and all licenses, maintenance contracts and other agreements between LSI Logic and any third party or parties entered into prior to the date hereof, unless such agreement has been determined pursuant to this Agreement to be an SSI License Agreement, or pursuant to an Ancillary Agreement to be an SSI Contract.

          5.2     Separate Covenants.  The covenants contained in Section 5.1 will be construed as a series of separate covenants, one for each county, city, state and country of the geographic scope. If, in any judicial proceeding, a court refuses to enforce any of those separate covenants (or any part thereof), then that unenforceable covenant (or part thereof) will be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or parts thereof) to be enforced. If the provisions of Section 5.1 are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then those provisions will be reformed to the maximum time, geographic or scope limitations, as the case may be, permitted by applicable laws.

          5.3     Necessary to Preserve Value.  SSI and LSI Logic acknowledge (i) that the goodwill associated with the existing SSI Business and the assets of the SSI Business prior to the Separation

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are an integral component of the value of the SSI Business, and that such value is reflected in the consideration and terms of the Separation Agreement and Ancillary Agreements; and (ii) that LSI Logic’s agreement as set forth in Sections 5.1 and 5.2 is necessary to preserve the value of the assets and SSI Business for SSI following the Separation.  LSI Logic also acknowledges that the limitations of time, geography and scope of activity agreed to in Section 5.1 are reasonable because, among other things (A) LSI Logic and SSI are engaged in highly competitive industries, and (B) LSI Logic has had unique access to the trade secrets and know-how of the SSI Business, including plans and strategy of the SSI Business.

          5.4     Injunctive Relief.  LSI Logic acknowledges that in the event of a breach or threatened breach of Sections 5.1 by LSI Logic, monetary damages would be inadequate to protect SSI fully from, and compensate SSI for, the harm caused by such breach or threatened breach.  Accordingly, LSI Logic agrees that if it breaches or threatens breach of any provision in Sections 5.1 or 5.2 SSI is entitled to seek, in addition to any other right or remedy otherwise available to it at law or in equity, the right to injunctive relief restraining such breach or threatened breach and to specific performance of any provision in Sections 5.1 or 5.2, and SSI shall not be required to post a bond in connection with, or as a condition to, obtaining such relief before a court of competent jurisdiction.

ARTICLE VI

LICENSE AGREEMENTS WITH THIRD PARTIES

          6.1     License Agreements.  Those License Agreements identified as SSI License Agreements will be allocated to SSI under and subject to the terms of Section 6.2.  The rights and obligations under License Agreements identified as Shared License Agreements will be shared between the Parties, under and subject to the terms of Section 6.3 and the associated exhibits.

          6.2     Assignments, Delegation and Novation of SSI License Agreements.  To the extent SSI (or one of its predecessor parties) and not LSI Logic is a party to an SSI License Agreement, SSI shall retain that SSI License Agreement, subject to Section 6.3.

                    (a)     To the extent it has the right to do so, LSI Logic hereby assigns all of its rights, delegates its duties and otherwise assigns its rights and obligations under the SSI License Agreements, and SSI assumes such rights and obligations. 

                    (b)     With respect to SSI License Agreements for which consent to assignment is required or for which assignment and delegation is subject to a Restriction, the Parties shall use reasonable commercial efforts to obtain such consent or remove such Restriction prior to the Separation Date or within a reasonable time thereafter.  Neither LSI Logic nor any of its Subsidiaries is required to pay any material consideration to any third party to obtain such consent or remove such Restriction.  However, if obtaining consent or removing a Restriction to enable transfer or assignment in connection with this Section 6.2 would require payment or grant of material additional consideration, then LSI Logic shall so inform SSI.  If the additional consideration required is payment of money only, or if it affects only SSI and not LSI Logic, then at SSI’s request and upon SSI’s agreement to make the payment or grant the additional consideration to the third party, LSI

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Logic will arrange for a transfer or assignment of the SSI License Agreement to SSI.  LSI Logic is not obligated or required to attempt to assign or transfer an SSI License Agreement if to do so would adversely affect LSI Logic’s future rights or require LSI Logic to take any action. 

                    (c)     If obtaining necessary consents or waivers to enable transfer or assignment of an SSI License Agreement is not feasible, then the Parties shall use commercially reasonable efforts to extend the benefits and burdens of that SSI License Agreement to SSI through other means, which may include subcontracting or outsourcing.  Such other means will be set forth in an Exhibit to Section 6.3 hereof, the Transition Services Agreement or another appropriate Transaction Document.

          6.3     Shared License Agreements. 

                    (a)     Shared License Agreements to which LSI Logic and not SSI is a Party.

                               (i)     With respect to Shared License Agreements to which LSI Logic and not SSI is a party, LSI Logic shall use reasonable efforts to facilitate extension to SSI of licenses and rights (along with accompanying responsibilities and liabilities) under such Shared License Agreements, including through a sub-license described in Section 6.3(a).  If such extension would require payment or grant of additional material consideration, then LSI Logic shall so inform SSI.  If the additional consideration required is a payment of money only, or if it affects only SSI and not LSI Logic, then at SSI’s request and upon its agreement to make the payment or grant the additional consideration to the third party, LSI Logic will facilitate such extension.  LSI Logic is not obligated or required to extend any rights if to do so would adversely affect LSI Logic’s future rights or require LSI Logic to take any action. 

                              (ii)     To the extent LSI Logic (or a Subsidiary of LSI Logic) has the right to do so without Restriction, LSI Logic hereby agrees to grant, and hereby does grant (or shall cause its Subsidiaries to grant) SSI a sub-license under a Shared License Agreement described in subsection (i) above, of the same scope and subject to the same terms and conditions as LSI Logic has under such Shared License Agreement. 

                    (b)     Shared License Agreements to which SSI and not LSI Logic is a Party.

                               (i)     With respect to Shared License Agreements to which SSI and not LSI Logic is a party, SSI shall use reasonable efforts to facilitate extension to LSI Logic of licenses and rights (along with accompanying responsibilities and liabilities) under such Shared License Agreements, including through a sub-license described in Section 6.3(a). If such extension would require payment or grant of additional material consideration, then SSI shall so inform LSI Logic.  If the additional consideration required is a payment of money only, or if it affects only LSI Logic and not SSI, then at LSI Logic’s request and upon its agreement to make the payment or grant the additional consideration to the third party, SSI will facilitate such extension.  SSI is not obligated or required to extend any rights if to do so would adversely affect SSI’s future rights or require SSI to take any action. 

                               (ii)     To the extent SSI (or a Subsidiary of SSI) has the right to do so without Restriction, SSI hereby agrees to grant, and hereby does grant (or shall cause its Subsidiaries

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to grant) LSI Logic a sub-license under a Shared License Agreement described in subsection (i) above, of the same scope and subject to the same terms and conditions as SSI has under such Shared License Agreement. 

                    (c)     Removing or Adding Shared License Agreements.  The Parties may determine that License Agreements are Shared License Agreements (whether they were SSI License Agreements, LSI License Agreements or undesignated License Agreements prior to such determination); upon such determination those License Agreements will be considered Shared License Agreements hereunder and designated as such on Schedule 1.2(m).  SSI may, at any time prior to the Distribution Date, request in writing that a License Agreement held by LSI Logic and designated as a Shared License Agreement no longer be designated as such.  Promptly after receipt of such notice by LSI Logic, Schedule 1.2(m) will be amended to reflect that new designation.

ARTICLE VII

CONFIDENTIAL INFORMATION and LSI LOGIC EMPLOYEE AGREEMENTS

          7.1     Confidential Information Exclusions.  Notwithstanding the definition of “Confidential Information,” Confidential Information excludes information that the Receiving Party can demonstrate: (i) was independently developed by the Receiving Party without any use of the Disclosing Party’s Confidential Information or by the Receiving Party’s employees or other agents (or independent contractors hired by the Receiving Party) who have not been exposed to the Disclosing Party’s Confidential Information; (ii) becomes known to the Receiving Party, without restriction, from a source (other than the Disclosing Party) that had a right to disclose it without breach of this Agreement; (iii) was in the public domain at the time it was disclosed or enters the public domain through no act or omission of the Receiving Party; or (iv) was rightfully known to the Receiving Party, without restriction, at the time of disclosure.

          7.2     Confidentiality Obligations.  The Receiving Party shall treat as confidential all of the Disclosing Party’s Confidential Information and shall not use that Confidential Information except as expressly permitted under this Agreement.  Without limiting the foregoing, the Receiving Party shall use at least the same degree of care that it uses to prevent the disclosure of its own confidential information of like importance, but in no event with less than reasonable care, to prevent the disclosure of the Disclosing Party’s Confidential Information.

          7.3     Residuals.  The restrictions set forth in Section 7.2 do not apply to a Receiving Party’s use of Residual Information (as defined in this Section) and Residual Information is not considered Confidential Information.  “Residual Information” means information that is retained in the unaided memories of the Receiving Party’s employees who have had access to Confidential Information of the Disclosing Party or which otherwise constitutes the general knowledge or skills of those employees.

          7.4     Disclosure to LSI Logic or SSI.  Except as explicitly provided in this Agreement, SSI shall not disclose to LSI Logic, and LSI Logic shall not disclose to SSI, any information that the disclosing Party considers Confidential Information prior to obtaining the receiving Party’s consent

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to receive such information as Confidential Information. Any information disclosed by a disclosing Party without that consent is not considered Confidential Information of the receiving Party, and the receiving Party is free to use and disclose that information without restriction.

          7.5     Remedies.  Unauthorized use by a Party of the other Party’s Confidential Information will diminish the value of that information. Therefore, if a Party breaches any of its obligations with respect to confidentiality or use of Confidential Information, the other Party may seek both equitable relief (including injunctive relief) and money damages to protect its interest in that Confidential Information.

          7.6     Required Disclosure.  If the Receiving Party must disclose the Disclosing Party’s Confidential Information under the order or requirement of a court, administrative agency, or other governmental body, the Receiving Party shall provide prompt notice thereof to the Disclosing Party and shall use its reasonable efforts to obtain a protective order or otherwise prevent public disclosure of such information.

          7.7     Public Announcements.  Neither SSI nor LSI Logic shall make any initial public announcement relating to this Agreement until both SSI and LSI Logic approve the timing, form and content of a public announcement, which approval may not unreasonably be withheld or delayed.

          7.8     LSI Logic Employee Agreements. 

                    (a)     Survival of LSI Logic Employee Agreement Obligations and LSI Logic’s Common Law Rights. The LSI Logic Employee Agreements of all former LSI Logic employees transferred to SSI pursuant to the Separation Agreement or Ancillary Agreements, and of other LSI Logic employees that become SSI Employees shall remain in full force and effect according to their terms; provided, however, that none of the following acts committed by former LSI Logic employees or SSI Employees within the scope of their SSI employment shall constitute a breach of such LSI Logic Employee Agreements:  (i) the use or disclosure of Proprietary Information (as that term is defined in the former LSI Logic employee’s or SSI Employee’s LSI Logic Employee Agreement) for or on behalf of SSI, if such disclosure is consistent with the rights granted to SSI and restrictions imposed on SSI under this Agreement, any Ancillary Agreement or any other agreement between the parties; (ii) the disclosure and assignment to SSI of rights in proprietary developments authored or conceived by the former LSI Logic employee or SSI Employee after the Separation Date and resulting from the use of, or based upon IP (whether patented or not) that is retained by LSI Logic, provided, however, that in no event shall such disclosure and assignment be regarded as assigning the underlying retained IP to SSI; (iii) the rendering of any services, directly or indirectly, to SSI to the extent such services are consistent with the assignment or license of rights granted to SSI and the restrictions imposed on SSI under this Agreement, any Ancillary Agreement or any other agreement between the parties; and (iv) solicitation of the employees of one Party by the other Party prior to the Separation Date or following the Separation Date and prior to the Distribution Date (so long as such solicitation does not violate the terms of the Separation Agreement).  Further, LSI Logic retains any rights it has under statute or common law with respect to actions by its former employees to the extent such actions are inconsistent with the rights granted to SSI and restrictions imposed on SSI under this Agreement, any Ancillary Agreement or any other agreement between the parties.

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                    (b)     Assignment, Cooperation for Compliance and Enforcement.

                                (i)     LSI Logic retains all rights under the LSI Logic Employee Agreements of all former LSI Logic employees necessary to permit LSI Logic to protect the rights and interests of LSI Logic, but hereby transfers and assigns to SSI its rights under the LSI Logic Employee Agreements of all former LSI Logic employees and all SSI Employees that remain subject to such LSI Logic Employee Agreements to the extent required to permit SSI to enjoin, restrain, recover damages from or obtain specific performance of the LSI Logic Employee Agreements or obtain other remedies against any employee who breaches his/her LSI Logic Employee Agreement.

                               (ii)     SSI shall advise LSI Logic of any violation of the LSI Logic Employee Agreement by former LSI Logic employees or SSI Employees, and any violation of the SSI confidential information and assignment of inventions agreement (or any similar such agreement) that SSI reasonably believes would affect LSI Logic’s rights.  LSI Logic shall advise SSI of any violation of the LSI Logic Employee Agreement by current or former LSI Logic employees or by SSI Employees subject to the LSI Logic Employee Agreement that LSI Logic reasonably believes would affect SSI’s rights; provided, however, that the foregoing obligations shall only apply to violations that become known to an attorney within the legal department of the Party obligated to provide notice thereof.

                              (iii)     Following the Separation Date and extending only until the Distribution Date, if either LSI Logic or SSI determines that it may be necessary to take action to enforce the LSI Logic Employee Agreements of former LSI Logic employees or of SSI Employees still technically employed by LSI Logic, then at either Party’s request the Parties shall meet to confer and cooperate regarding such potential enforcement.

                               (iv)     LSI Logic and SSI acknowledge and agree that matters relating to the making, performance, enforcement, assignment and termination of employee agreements are typically governed by the laws and regulations of the national, federal, state or local governmental unit where an employee resides, or where an employee’s services are rendered, and that such laws and regulations may supersede or limit the applicability or enforceability of this Section 7.8.  In such circumstances, LSI Logic and SSI agree to take action with respect to the employee agreements that best accomplishes the parties’ objectives as set forth in this Section 7.8 and that is consistent with applicable law.

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

          8.1     Representations and Warranties.  Each Party represents and warrants to the other that: (i) it has the full right, power and authority to enter into this Agreement and fully perform its obligations under this Agreement; and (ii) has the right to grant the licenses granted under this Agreement, (ii) its performance of all its obligations under this Agreement is not prohibited by or in conflict with any agreement between that Party and any third party. 

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          8.2     Completeness of Schedules.  LSI Logic represents and warrants to SSI that, to the extent SSI is not the owner or exclusive licensee thereof, (i) LSI Logic has title to the Technology and Intellectual Property Rights included in SSI IP, and (ii) that the schedules setting forth the list of SSI Patents and of Patents within the LSI Logic Storage IP are complete and accurate.  SSI’s sole and exclusive remedy and LSI Logic’s entire liability for any breach of the representation or warranty in the foregoing subsection (ii), is that such schedules shall be supplemented to include those Patents required to make the representation true and correct as of the Separation Date.

          8.3     Warranty Disclaimers.  Nothing set forth in this Agreement is or will be construed to be:

                    (a)     a warranty or representation by LSI Logic as to the condition, state, performance or functionality or specifications of the SSI Products or any component thereof;

                    (b)     a warranty, representation or admission by LSI Logic as to the validity, enforceability or scope of any Intellectual Property Rights licensed or transferred under this Agreement;

                    (c)     an obligation on either Party to institute any suit or other action for infringement or misappropriation of any SSI IP, LSI Logic Storage IP, LSI Logic Retained Patents, or likelihood of confusion regarding the LSI Logic Licensed Marks;

                    (d)     an obligation on either Party to defend any suit or other action brought by a third party challenging or concerning the validity of any SSI IP, LSI Logic Storage IP, LSI Logic Retained Patents, or LSI Logic Licensed Marks;

                    (e)     a warranty or representation by either Party that any manufacture, use, licensing, sale, importation or other exploitation of SSI IP or the exercise of any license granted to SSI under this Agreement will be free from infringement of any Intellectual Property Right;

                    (f)     subject to LSI Logic’s obligations under Section 4.2(c) and 4.3(b), an obligation on either Party to file any Patent application or to secure any Patent or to maintain any Patent, through the payment of patent maintenance fees or otherwise; or

                    (g)     any warranty or representation by LSI Logic as to the outcome or benefits to SSI of entering into any business or other activities based upon or related to SSI IP or as to the performance or merchantability of the Technology within SSI IP.

          8.4     LSI Logic Disclaimer.  WITHOUT LIMITING SECTION 8.2, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT: (a) SSI IP, THE LSI LOGIC LICENSED MARKS, THE LSI LOGIC STORAGE IP, THE LSI LOGIC RETAINED PATENTS, AND ALL OTHER THINGS OR RIGHTS PROVIDED, SOLD, TRANSFERRED OR LICENSED BY LSI Logic TO SSI UNDER THIS AGREEMENT ARE PROVIDED BY LSI LOGIC “AS IS” AND WITHOUT WARRANTY OF ANY KIND; AND (b) LSI LOGIC MAKES NO, AND HEREBY DISCLAIMS ALL, OTHER WARRANTIES, WHETHER EXPRESS, STATUTORY, OR IMPLIED, INCLUDING WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

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ARTICLE IX

TERM AND TERMINATION

          9.1     Term.  The term of this Agreement begins on the date executed, and continues indefinitely; provided that the licenses in Section 3.4 are only for the lives of the Patents involved, and unless otherwise agreed by the Parties in writing, terminate on an assignment or transfer of this Agreement under Section 10.10, whether or not the remainder of the Agreement is successfully and properly assigned or transferred.

ARTICLE X

MISCELLANEOUS

          10.1    Further Instruments and Assistance. 

                     (a)     At the request of LSI Logic and without further consideration, SSI will execute and deliver, and will cause its applicable Subsidiaries to execute and deliver, to LSI Logic and its Subsidiaries all instruments, assumptions, novations, undertakings, substitutions or other documents and take such other action as LSI Logic may reasonably deem necessary or desirable in order to have SSI fully and unconditionally assume and discharge the liabilities contemplated to be assumed by SSI under this Agreement or any document in connection herewith and to relieve LSI Logic and its Subsidiaries of any liability or obligation with respect thereto and evidence the same to third parties. 

                     (b)     Neither LSI Logic nor SSI shall be obligated, in connection with the foregoing, to expend money other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees.  Furthermore, each Party, at the request of the other Party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the transactions contemplated hereby.

          10.2    Bankruptcy.  All rights and licenses granted under this Agreement are, and will be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code, licenses to rights of “intellectual property” under that section. Notwithstanding any provision to the contrary, if the licensor of rights of intellectual property is subject to a proceeding under the United States Bankruptcy Code and either that Party (as debtor in possession), or that Party’s trustee in bankruptcy, rightfully elects to reject this Agreement, then the that Party may, under Sections 365(n)(1) and 365(n)(2) of the United States Bankruptcy Code, retain any and all of the rights licensed to it under this Agreement, to the maximum extent permitted by law, subject to any royalty payments due to that licensor and specified in this Agreement.

          10.3    Limitation of Liability.  IN NO EVENT SHALL ANY MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP BE LIABLE TO ANY OTHER MEMBER OF THE LSI LOGIC

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GROUP OR SSI GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT.

          10.4    Entire Agreement.  This Agreement, the Separation Agreement, the other Ancillary Agreements and the exhibits and schedules referenced or attached hereto and thereto, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.

          10.5    Governing Law.  This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods.  The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 10.6 below.

          10.6    Dispute Resolution.  Any Disputes under this Agreement will be addressed using the same procedure set forth in the Separation Agreement.

          10.7    Notices.  Notices, offers, requests or other communications required or permitted to be given by either Party pursuant to the terms of this Agreement shall be given in writing to the respective parties at the following addresses:

                     if to LSI Logic:

                                             LSI Logic Corporation
                                             1621 Barber Lane
                                             Milpitas, CA 95035
                                             Attention:  General Counsel
                                             Fax:  (408) 433-6896

                     if to SSI:

                                             LSI Logic Storage Systems, Inc.
                                             1621 Barber Lane
                                             Milpitas, CA 95035
                                             Attention:  General Counsel
                                             Fax:  (408) 433-8323

          or to such other address as the Party to whom notice is given may have previously furnished to the other in writing as provided herein.   Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States,

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may also be sent via certified mail, return receipt requested.  All other notices may also be sent by fax, confirmed by first class mail.  All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark.

          10.8     Counterparts.  This Agreement, including the exhibits and schedules hereto, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.

          10.9     Binding Effect.  This Agreement, and the rights and licenses granted under this Agreement, shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  This Agreement may be enforced separately by each member of the LSI Logic Group and each member of the SSI Group. 

          10.10    Assignment and Transfer.  Neither Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party, and any such assignment shall be void; provided, however, either Party may assign this Agreement to a successor entity in conjunction with such Party’s reincorporation, merger, change of control or sale of all or substantially all of the assets to which this Agreement relates, except that the license granted to SSI under Section 3.4 is not assignable or transferable to a successor entity or any other entity by SSI, regardless of the form of the transaction or whether such assignable or transfer is pursuant to a change of control or by operation of law or otherwise, without specific consent from LSI Logic as to the transfer or assignment of such license.

          10.11    Severability.  If any term or other provision of this Agreement or the exhibits or schedules attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

          10.12    Failure or Indulgence Not Waiver; Remedies Cumulative.  No failure or delay on the part of either Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial or waiver exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the exhibits and schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.

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          10.13    Amendment.  No change or amendment shall be made to this Agreement or the exhibits or schedules attached hereto except by an instrument in writing signed on behalf of each of the parties to such agreement.

          10.14    Interpretation.  The headings contained in this Agreement, in any exhibit or schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Any capitalized term used in any exhibit or schedule but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an article, section, exhibit, or schedule, such reference shall be to an article or section of, or an exhibit or schedule to, this Agreement, unless otherwise indicated.

          10.15    Conflicting Agreements.  In the event of conflict between this Agreement and the Separation Agreement or any Ancillary Agreement to that Separation Agreement, the provisions of this Agreement prevail with respect to the subject matter of this Agreement.

[remainder of the page intentionally left blank]

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          WHEREFORE, the parties have signed this Intellectual Property Agreement effective as of the date first set forth above.

LSI LOGIC CORPORATION		LSI LOGIC STORAGE SYSTEMS, INC.
By:	/s/ WILFRED J. CORRIGAN	By:	/s/ THOMAS GEORGENS
Name:	Wilfred J. Corrigan	Name:	Thomas Georgens
Title:	Chairman/C.E.O.	Title:	President

[SIGNATURE PAGE TO INTELLECTUAL PROPERTY AGREEMENT]

[SIGNATURE PAGE TO INTELLECTUAL PROPERTY AGREEMENT]

EX-99

Exhibit 2.7

Indemnification and Insurance Matters Agreement

between

LSI Logic Corporation

and

LSI Logic Storage Systems, Inc.

December 31, 2003

TABLE OF CONTENTS

		Page
ARTICLE I MUTUAL RELEASES; INDEMNIFICATION		1
1.1.	Release of Pre-Closing Claims	1
1.2.	Indemnification by SSI	3
1.3.	Indemnification by LSI Logic	3
1.4.	Indemnification With Respect to Environmental Actions and Conditions	3
1.5.	Insurance Proceeds and Other Recoveries	4
1.6.	Procedures for Defense, Settlement and Indemnification of Third Party Claims	5
1.7.	Additional Matters	6
1.8.	Other Agreements Evidencing Indemnification Obligations	6
1.9.	Survival of Indemnities	7
ARTICLE II INSURANCE MATTERS		7
2.1.	SSI Insurance Coverage During the Insurance Period	7
2.2.	Cooperation and Agreement Not to Release Carriers	7
2.3.	SSI Insurance Coverage After the Insurance Period	8
2.4.	Responsibilities for Deductibles and/or Self-insured Obligations	8
2.5.	Procedures With Respect to Insured SSI Liabilities	8
2.6.	Cooperation	8
2.7.	No Assignment or Waiver	8
2.8.	No Liability	9
2.9.	Additional or Alternate Insurance	9
2.10.	Further Agreements	9
2.11.	Matters Governed by Employee Matters Agreement	9
ARTICLE III LITIGATION		9
3.1.	Allocation	9
3.2.	Cooperation	10
ARTICLE IV MISCELLANEOUS		10
4.1.	Limitation of Liability	10
4.2.	Entire Agreement	10
4.3.	Governing Law	10
4.4.	Dispute Resolution	10
4.5.	Notices	10
4.6.	Counterparts	11
4.7.	Binding Effect; Assignment	11
4.8.	Severability	11
4.9.	Failure or Indulgence Not Waiver; Remedies Cumulative	12
4.10.	Amendment	12
4.11.	Interpretation	12

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ARTICLE V DEFINITIONS		12
5.1.	Action	12
5.2.	Ancillary Agreement	12
5.3.	Assets	12
5.4.	Assignment Agreement	12
5.5.	Dispute	12
5.6.	Distribution	12
5.7.	Distribution Date	12
5.8.	Employee Matters Agreement	12
5.9.	Environmental Actions	13
5.10.	Environmental Conditions	13
5.11.	Environmental Laws	13
5.12.	Governmental Authority	13
5.13.	Group	13
5.14.	Hazardous Materials	13
5.15.	Hazardous Materials Release	13
5.16.	Indemnifying Party	13
5.17.	Indemnitee	13
5.18.	Information	13
5.19.	Insurance Claim	14
5.20.	Insurance Period	14
5.21.	Insurance Policies	14
5.22.	Insurance Proceeds	14
5.23.	Insurance Termination Date	14
5.24.	IPO	14
5.25.	IPO Liabilities	14
5.26.	IPO Registration Statement	14
5.27.	LSI Logic Business	14
5.28.	LSI Logic Facilities	14
5.29.	LSI Logic Group	14
5.30.	LSI Logic Indemnitees	15
5.31.	Liabilities	15
5.32.	Litigation Disclosure Letter	15
5.33.	Person	15
5.34.	Pre-Separation Third Party Site Liabilities	15
5.35.	Separation	15
5.36.	Separation Agreement	15
5.37.	Separation Date	15
5.38.	SSI Business	15

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5.39.	SSI Contract	15
5.40.	SSI Covered Parties	15
5.41.	SSI Facilities	15
5.42.	SSI Group	15
5.43.	SSI Indemnitees	15
5.44.	SSI Liabilities	15
5.45.	Subsidiary	15
5.46.	Tax Sharing Agreement	16
5.47.	Taxes	16
5.48.	Third Party Claim	16

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INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT

          This Indemnification and Insurance Matters Agreement (this “Agreement”) is entered into as of December 31, 2003 between LSI Logic Corporation, a Delaware corporation (“LSI Logic”), and LSI Logic Storage Systems, Inc., a Delaware corporation (“SSI”).  Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Article V below.

RECITALS

          1.          LSI Logic and SSI are entering into a Master Separation Agreement dated as of December 31, 2003 (the “Separation Agreement”) and other Ancillary Agreements to further separate the businesses conducted by LSI Logic and SSI (the “Separation”).

          2.          In connection with the Separation, the parties desire to set forth certain agreements between them regarding indemnification and insurance.

          NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows:

ARTICLE I

MUTUAL RELEASES; INDEMNIFICATION

          1.1.    Release of Pre-Closing Claims. 

                    (a)        SSI Release.  Except as provided in Section 1.1(d) and Schedule 1.1 to this Agreement, effective as of the Separation Date, SSI does hereby, for itself and as agent for each member of the SSI Group, remise, release and forever discharge the LSI Logic Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation Date, including in connection with the transactions and all other activities to implement any of the Separation, the IPO and the Distribution.

                    (b)        LSI Logic Release.  Except as provided in Section 1.1(d) and Schedule 1.1 to this Agreement, effective as of the Separation Date, LSI Logic does hereby, for itself and as agent for each member of the LSI Logic Group, remise, release and forever discharge the SSI Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation Date, including in connection with the transactions and all other activities to implement any of the Separation, the IPO and the Distribution.

                    (c)        Release and Waiver of Unknown Claims.  SSI, for itself and as agent for each member of the SSI Group, and LSI Logic, for itself and as agent for each member of the LSI Logic Group, do hereby agree, represent, and warrant that the matters released herein are not limited to matters which are known or disclosed, and that they hereby waive any and all rights and benefits which such party now has, or in the future may have, conferred upon such party by virtue of the provisions of Section 1542 of the Civil Code of the State of California which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASED, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

          SSI, for itself and as agent for each member of the SSI Group, and LSI Logic, for itself and as agent for each member of the LSI Logic Group, waive any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to Civil Code Section 1542.  SSI, for itself and as agent for each member of the SSI Group, and LSI Logic, for itself and as agent for each member of the LSI Logic Group, may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the subject matter of this release, but each shall be deemed to have, finally, and forever settled and released any and all claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts.

                    (d)        No Impairment.  Nothing contained in Section 1.1(a), Section 1.1(b) or Section 1.1(c) shall impair any right of any Person to enforce the Separation Agreement or any other Ancillary Agreement (including this Agreement), in each case in accordance with its terms, including, without limitation, the provisions of Section 1.2, Section 1.3 and Section 1.4 hereof. 

                    (e)        No Actions as to Released Claims.  SSI agrees, for itself and as agent for each member of the SSI Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against LSI Logic or any member of the LSI Logic Group, or any other Person released pursuant to Section 1.1(a), with respect to any Liabilities released pursuant to Section 1.1(a).  LSI Logic agrees, for itself and as agent for each member of the LSI Logic Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against SSI or any member of the SSI Group, or any other Person released pursuant to Section 1.1(b), with respect to any Liabilities released pursuant to Section 1.1(b).

                    (f)        Further Instruments. At any time, at the request of the other party, each party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof and such other documents as are necessary to effect the purposes hereof.

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          1.2.     Indemnification by SSI.  Except as otherwise provided in this Agreement, SSI shall, for itself and as agent for each member of the SSI Group, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the LSI Logic Indemnitees from and against any and all Liabilities that any third party seeks to impose upon the LSI Logic Indemnitees, or that are imposed upon the LSI Logic Indemnitees, and that relate to, arise out of or result from any of the following items (without duplication):  (a) the SSI Business, any SSI Liability, any SSI Contract, or any action or inaction of SSI under any contract for which rights and obligations thereunder are shared by SSI and LSI Logic after the Separation Date, including any sublicenses granted by LSI Logic to SSI or any services that are provided by LSI Logic to SSI to enable SSI to benefit from such shared agreement; (b) any breach by SSI or any member of the SSI Group of the Separation Agreement or any of the Ancillary Agreements (including this Agreement); (c) any IPO Liabilities; and (d) any litigation matter listed on the Litigation Disclosure Letter.  This Section 1.2 shall not apply to any Liability indemnified under Section 1.4.

          1.3.     Indemnification by LSI Logic.  Except as otherwise provided in this Agreement, LSI Logic shall, for itself and as agent for each member of the LSI Logic Group, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the SSI Indemnitees from and against any and all Liabilities that any third party seeks to impose upon the SSI Indemnitees, or that are imposed upon the SSI Indemnitees, and that relate to, arise out of or result from any of the following items (without duplication):  (a) the LSI Logic Business or any Liability of the LSI Logic Group other than the SSI Liabilities; (b) any breach by LSI Logic or any member of the LSI Logic Group of the Separation Agreement or any of the Ancillary Agreements (including this Agreement); and (c) any litigation pending on the date hereof that is not listed on the Litigation Disclosure Letter.  This Section 1.3 shall not apply to any Liability indemnified under Section 1.4.

          1.4.     Indemnification With Respect to Environmental Actions and Conditions. 

                     (a)        Indemnification by SSI.   SSI shall, for itself and as agent for each member of the SSI Group, indemnify, defend and hold harmless the LSI Logic Indemnitees from and against any and all Environmental Actions relating to, arising out of or resulting from any of the following items:

                                    (i)     Except to the extent arising out of the actions of the LSI Logic Group, Environmental Conditions (x) existing on, under, about or in the vicinity of any of the SSI Facilities whether prior to or after the Separation Date, or (y) arising out of operations occurring at any time prior to or after the Separation Date at any of the SSI Facilities;

                                   (ii)     To the extent proximately caused by the actions of any member of the SSI Group, Environmental Conditions (x) existing on, under, about or in the vicinity of any of the LSI Logic Facilities whether prior to or after the Separation Date, or (y) arising out of operations occurring at any time prior to or after the Separation Date at any of the LSI Logic Facilities;

                                  (iii)     The Pre-Separation Third Party Site Liabilities, to the extent proximately caused by the operations of any member of the SSI Group.

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                     (b)        Indemnification by LSI Logic.  LSI Logic shall, for itself and as agent for each member of the LSI Logic Group, indemnify, defend and hold harmless the SSI Indemnitees from and against any and all Environmental Actions relating to, arising out of or resulting from any of the following items:

                                    (i)     Except to the extent arising out of the actions of the SSI Group, Environmental Conditions (x) existing on, under, about or in the vicinity of any of the LSI Logic Facilities whether prior to or after the Separation Date, or (y) arising out of operations occurring at any time prior to or after the Separation Date at any of the LSI Logic Facilities;

                                   (ii)     To the extent proximately caused by the actions of any member of the LSI Logic Group, Environmental Conditions (x) existing on, under, about or in the vicinity of any of the SSI Facilities whether prior to or after the Separation Date, or (y) arising out of operations occurring at any time prior to or after the Separation Date at any of the SSI Facilities;

                                  (iii)     The Pre-Separation Third Party Site Liabilities, to the extent proximately caused by the operations of any member of the LSI Logic Group.

          1.5.     Insurance Proceeds and Other Recoveries. 

                     (a)        Insurance Claims.  If a party has a claim for monies from an insurer or another third party in respect of any loss to which indemnification might otherwise be sought pursuant to this Agreement, then such party (the “Indemnitee”) shall first proceed against the insurer or other third party with respect to such indemnifiable loss (an “Insurance Claim”).  Only after final satisfaction of each such Insurance Claim shall a party (the “Indemnifying Party”) be liable for indemnification pursuant to this Agreement. 

                     (b)        Advances Against Insurance Proceeds.  Despite the existence of an Insurance Claim, an Indemnifying Party shall make prompt payment to an Indemnitee, prior to the receipt of any Insurance Proceeds, in the form of an advance against future Insurance Proceeds, of the full amount required to be made pursuant to the indemnification provisions contained in this Agreement and otherwise determined to be due and owing by an Indemnifying Party. 

                     (c)        Reductions for Insurance Proceeds.  If an Indemnitee receives Insurance Proceeds or other amounts from an insurer or third party with respect to an Insurance Claim for any indemnifiable loss under this Agreement: 

                                   (i)     the amount that the Indemnifying Party is or may be required to pay to or on behalf of any other Person indemnified pursuant to this Agreement shall be reduced by any Insurance Proceeds or other amounts actually received from third parties by such Indemnitee in respect of the related Liability; and

                                  (ii)     such Indemnitee shall hold such Insurance Proceeds or other amounts in trust for the benefit of the Indemnifying Party (or Indemnifying Parties) and shall pay to the Indemnifying Party, as promptly as practicable after receipt, a sum equal to the amount of such Insurance Proceeds or other amounts received, up to the aggregate amount of any payments received

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from the Indemnifying Party pursuant to this Agreement in respect of such indemnifiable loss (or, if there is more than one Indemnifying Party, the Indemnitee shall pay each Indemnifying Party its proportionate share (based on payments received from the Indemnifying Parties) of such Insurance Proceeds or other amounts received).

                     (d)        No Benefit to Insurer.  Notwithstanding Section 1.5(b) or any other provision of this Agreement, it is the intention of the parties that no insurer or any other third party shall be (i) entitled to a benefit it would not be entitled to receive in the absence of the foregoing indemnification provisions, or (ii) relieved of the responsibility to pay any claims for which it is obligated.  If the parties believe that the payment of any advance pursuant to Section 1.5(b) has or would have any of the effects described in the previous sentence, then no such advance shall be made and the Indemnifying Party shall not be required to make any payment for indemnification until after resolution of any Insurance Claim in the manner set forth in Section 1.5(a).

          1.6.     Procedures for Defense, Settlement and Indemnification of Third Party Claims. 

                     (a)        Notice of Claims.  If an LSI Logic Indemnitee or a SSI Indemnitee (as applicable) shall receive notice, or otherwise become aware, of any claim or of the commencement by any such Person of any Action (each such case, a “Third Party Claim”) with respect to which an Indemnifying Party may be obligated to provide indemnification to an Indemnitee pursuant to this Agreement or any other Ancillary Agreement, LSI Logic and SSI (as applicable) shall ensure that such Indemnitee shall give such Indemnifying Party written notice thereof as soon as practicable and, in any event, within fifteen (15) days after becoming aware of such Third Party Claim.  Any such notice shall describe the Third Party Claim in reasonable detail.  Notwithstanding the foregoing, the delay or failure of any Indemnitee or other Person to give notice as provided in this Section 1.6(a) shall not relieve the relevant Indemnifying Party of its obligations under this Article I, except to the extent that such Indemnifying Party is prejudiced by such delay or failure to give notice.

                     (b)        Defense By Indemnifying Party.  Within 30 days after the receipt of notice from an Indemnitee in accordance with Section 1.6(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee as to whether the Indemnifying Party will assume responsibility for managing the defense of such Third Party Claim, which notice shall specify any reservations or exceptions.

                     (c)        Defense By Indemnitee.  If an Indemnifying Party fails to assume responsibility for managing the defense of a Third Party Claim, or fails to notify an Indemnitee that it will assume responsibility as provided in Section 1.6(b), such Indemnitee may manage the defense of such Third Party Claim; provided, however, that the Indemnifying Party shall reimburse all costs and expenses incurred in connection with such defense in the event it is ultimately determined that the Indemnifying Party is obligated to indemnify the Indemnitee with respect to such Third Party Claim.

                     (d)        No Consent to Certain Judgments or Settlements Without Consent.  Notwithstanding any provision of this Section 1.6 to the contrary, no party shall consent to entry of any judgment or enter into any settlement of a Third Party Claim without the consent of the other

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party (such consent not to be unreasonably withheld) if the effect of such judgment or settlement is or would be to (i) permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against the other party, or (ii) affect the other party in a material fashion with respect to the allocation of Liabilities and related indemnities set forth in the Separation Agreement, this Agreement or any other Ancillary Agreement. 

          1.7.     Additional Matters.

                     (a)        Cooperation in Defense and Settlement.  With respect to any Third Party Claim that implicates both SSI and LSI Logic in a material fashion with respect to the allocation of Liabilities, responsibilities for management of defense and related indemnities set forth in the Separation Agreement, this Agreement or any of the Ancillary Agreements, the parties agree to cooperate fully and maintain a joint defense (in a manner that will preserve the attorney-client privilege with respect thereto) so as to minimize such Liabilities and defense costs associated therewith.  The party that is not responsible for managing the defense of such Third Party Claims shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if necessary or helpful in such party’s reasonable judgment, engage counsel to assist in the defense of such claims at such party’s own expense.

                     (b)        Substitution.  With respect to any Action in which the Indemnifying Party is not a named defendant, if either the Indemnitee or the Indemnifying Party shall so request, the parties shall use commercially reasonable efforts to substitute the Indemnifying Party for the named defendant. If such substitution cannot be achieved for any reason or is not requested, the rights and obligations of the parties regarding indemnification and the management of the defense of claims as set forth in this Article I shall not be altered.

                     (c)        Subrogation.  In the event of payment by or on behalf of any Indemnifying Party to or on behalf of any Indemnitee in connection with any Third Party Claim (including payment of costs of defense), such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee, in whole or in part based upon whether the Indemnifying Party has paid all or only part of the Indemnitee’s Liability, as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

                     (d)        Not Applicable to Taxes.  This Agreement shall not apply to any Action relating to Taxes (which are covered by the Tax Sharing Agreement).

          1.8.     Other Agreements Evidencing Indemnification Obligations.  LSI Logic hereby agrees to execute, for the benefit of any SSI Indemnitee, such documents as may be reasonably requested by such SSI Indemnitee, evidencing LSI Logic’s agreement that the indemnification obligations of LSI Logic set forth in this Agreement inure to the benefit of and are enforceable by such SSI Indemnitee.  SSI hereby agrees to execute, for the benefit of any LSI Logic Indemnitee, such documents as may be reasonably requested by such LSI Logic Indemnitee, evidencing SSI’s

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agreement that the indemnification obligations of SSI set forth in this Agreement inure to the benefit of and are enforceable by such LSI Logic Indemnitee.

          1.9.     Survival of Indemnities.  Subject to Section 4.7, the rights and obligations of the members of the LSI Logic Group and the SSI Group under this Article I shall survive the sale or other transfer by any party of any Assets or businesses or the assignment by it of any Liabilities or the sale by any member of the LSI Logic Group or the SSI Group of the capital stock or other equity interests of any Subsidiary to any Person.

ARTICLE II

INSURANCE MATTERS

          2.1.     SSI Insurance Coverage During the Insurance Period. 

                     (a)        Maintain Comparable Insurance.  Throughout the period beginning on the Separation Date and ending on the Insurance Termination Date (the “Insurance Period”), if SSI or any of its Subsidiaries, directors, officers, employees or other covered parties (collectively, the “SSI Covered Parties”) are not covered by LSI Logic’s existing policies of insurance, LSI Logic shall use its commercially reasonable efforts to obtain policies of insurance, including for the benefit of SSI Covered Parties that are comparable to those maintained generally by LSI Logic; provided, however, that if LSI Logic determines (i) to reduce the amount or scope of such coverage to a level materially inferior to the level of LSI Logic’s coverage in existence immediately prior to the Insurance Period or (ii) to increase the retention or deductible level applicable to such coverage, if any, to a level materially greater than the levels applicable to LSI Logic’s coverage immediately prior to the Separation Date, LSI Logic shall give SSI notice of such determination as promptly as practicable. Within the 60-day period following notice of such determination, SSI may cancel its interest in all or any portion of such coverage.  After such 60-day period, SSI may cancel its interest in all or any portion of such coverage only with LSI Logic’s consent.  If SSI shall cancel its interest in all or any portion of such coverage (or if any insurance coverage shall otherwise become unavailable to SSI), SSI shall promptly obtain coverage that is comparable to that in effect immediately prior to such cancellation (or the time at which such coverage shall otherwise become unavailable to SSI) and shall maintain such coverage through the remainder of the Insurance Period.

                     (b)        Reimbursement for Premiums.  SSI shall promptly pay or reimburse LSI Logic, as the case may be, for premium expenses and also for any costs and expenses that LSI Logic may incur in connection with the insurance coverages maintained pursuant to this Section 2.1, including but not limited to any subsequent premium adjustments, according to the allocation model as currently in effect immediately prior to the Separation Date or as may be adjusted from time to time thereafter.  All payments and reimbursements by SSI to LSI Logic shall be made within thirty (30) days after SSI’s receipt of an invoice from LSI Logic.

          2.2.     Cooperation and Agreement Not to Release Carriers.  Each of LSI Logic and SSI shall share such Information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion. Each of LSI Logic and SSI, at the request of the other, shall cooperate with and use commercially reasonable efforts to assist the other in recoveries

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for claims made under any insurance policy for the benefit of any insured party, and neither LSI Logic nor SSI, nor any of their Subsidiaries, shall take any action that such party knows would jeopardize or otherwise interfere with either party’s ability to collect any proceeds payable pursuant to any insurance policy.  Except as otherwise contemplated by the Separation Agreement, this Agreement or any Ancillary Agreement, after the Separation Date, neither LSI Logic nor SSI shall (and each shall ensure that no member of their respective Groups shall), without the consent of the other, provide any insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of any member of the other Group thereunder. However, nothing in this Section 2.2 shall (a) preclude any member of either Group from presenting any claim or from exhausting any policy limit, (b) require any member of either Group to pay any premium or other amount or to incur any Liability, or (c) require any member of either Group to renew, extend or continue any policy in force.

          2.3.     SSI Insurance Coverage After the Insurance Period.  Following the Insurance Period, SSI shall be responsible for obtaining and maintaining insurance programs for its risk of loss and such insurance arrangements shall be separate and apart from LSI Logic’s insurance programs. Notwithstanding the foregoing, LSI Logic, upon the request of SSI, shall use all commercially reasonable efforts to assist SSI in the transition to its own separate insurance programs from and after the Insurance Period, and shall provide SSI with any Information that is in the possession of LSI Logic and is reasonably available and necessary either to obtain insurance coverages for SSI or to assist SSI in preventing unintended self-insurance, in whatever form.

          2.4.     Responsibilities for Deductibles and/or Self-insured Obligations.  SSI shall reimburse LSI Logic for all amounts necessary to exhaust or otherwise satisfy all applicable self-insured retentions, amounts for fronted policies, deductibles and retrospective premium adjustments and similar amounts not covered by Insurance Policies in connection with SSI Liabilities. 

          2.5.     Procedures With Respect to Insured SSI Liabilities.

                     (a)        Reimbursement.  SSI shall reimburse LSI Logic for all amounts incurred (including but not limited to reasonable attorneys fees, forensic accountants fees and general adjusters fees) to pursue insurance recoveries from Insurance Policies for SSI Liabilities.

                     (b)        Management of Claims.  The defense of claims, suits or actions giving rise to potential or actual SSI Liabilities shall be managed (in conjunction with LSI Logic’s insurers, as appropriate) by the party that would have had responsibility for managing such claims, suits or actions had such SSI Liabilities not been covered (or potentially covered) by LSI Logic’s Insurance Policies.

          2.6.     Cooperation.  LSI Logic and SSI shall cooperate with each other in all respects, and they shall execute any additional documents that are reasonably necessary to effectuate the provisions of this Article II.

          2.7.     No Assignment or Waiver.  This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to

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waive any right or remedy of any member of the LSI Logic Group in respect of any Insurance Policy or any other contract or policy of insurance.

          2.8.     No Liability.  SSI does hereby, for itself and as agent for each other member of the SSI Group, agree that no member of the LSI Logic Group or any LSI Logic Indemnitee shall have any Liability whatsoever as a result of the insurance policies and practices of LSI Logic and its Subsidiaries as in effect at any time prior to the Distribution Date, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.

          2.9.     Additional or Alternate Insurance.  Nothing in this Agreement shall be deemed to restrict any member of the SSI Group from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period.

          2.10.    Further Agreements.  The parties acknowledge that they intend to allocate financial obligations without violating any laws regarding insurance, self-insurance or other financial responsibility.  If it is determined that any term or action undertaken pursuant to the Separation Agreement, this Agreement or any Ancillary Agreement would violate any insurance, self-insurance or related financial responsibility law or regulation, all other conditions and provisions of such affected Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party.  Upon such determination that any term or action would violate any insurance, self-insurance or related financial responsibility law or regulation, the parties shall negotiate in good faith to modify such affected Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

          2.11.    Matters Governed by Employee Matters Agreement.  This Article II shall not apply to any insurance policies that are the subject of the Employee Matters Agreement.

ARTICLE III

LITIGATION

          3.1.     Allocation.  Notwithstanding any contrary provisions herein, on the Separation Date, the responsibilities for management of pending litigation identified in a litigation disclosure letter (the “Litigation Disclosure Letter”), which will be delivered by LSI Logic to SSI on the Separation Date, shall be transferred in their entirety from LSI Logic and its Subsidiaries to SSI and its Subsidiaries. As of the Separation Date and thereafter, SSI shall manage the defense of such litigation and shall cause its applicable Subsidiaries to do the same.  LSI Logic and its Subsidiaries must first obtain the prior consent of SSI or its applicable Subsidiary for any action taken subsequent to the Separation Date in connection with the litigation identified in the Litigation Disclosure Letter, which consent shall not be unreasonably withheld or delayed.

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          3.2.     Cooperation.  LSI Logic and SSI and their respective Subsidiaries shall cooperate with each other in the defense of any litigation covered under this Article III and afford to each other reasonable access upon reasonable advance notice to witnesses and Information (other than Information protected from disclosure by applicable privileges) that is reasonably required to defend such litigation. The foregoing agreement to cooperate includes, but is not limited to, an obligation to provide access to qualified assistance, to provide Information, witnesses and documents, and to respond to discovery requests in specific lawsuits.  In such cases, cooperation shall be timely so that the party responding to discovery may meet all court-imposed deadlines.

ARTICLE IV

MISCELLANEOUS

          4.1.     Limitation of Liability.  IN NO EVENT SHALL ANY MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP BE LIABLE TO ANY OTHER MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS AS SET FORTH IN ARTICLE I HEREOF.

          4.2.     Entire Agreement.  This Agreement, the Separation Agreement, the other Ancillary Agreements and the exhibits and schedules referenced or attached hereto and thereto, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.

          4.3.     Governing Law.  This Agreement shall be construed in accordance with, and all Disputes hereunder shall be governed by, the laws of the State of California, excluding its conflict of law rules, and the United Nations Convention on Contracts for the International Sale of Goods.  The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 4.4.

          4.4.     Dispute Resolution.  Any Disputes under this Agreement shall be addressed using the same procedure set forth in the Separation Agreement. 

          4.5.     Notices.  Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties at the following addresses:

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                      if to LSI Logic:

                                               LSI Logic Corporation
                                               1621 Barber Lane
                                               Milpitas, CA  95035
                                               Attention:  General Counsel
                                               Fax:  (408) 433-6896

                      if to SSI:

                                               LSI Logic Storage Systems, Inc.
                                               1621 Barber Lane
                                               Milpitas, CA  95035
                                               Attention:  General Counsel
                                               Fax:  (408) 433-8323

or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein.   Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested.  All other notices may also be sent by fax, confirmed by first class mail.  All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark.

          4.6.     Counterparts.  This Agreement, including the exhibits and schedules hereto, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.

          4.7.     Binding Effect; Assignment.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors in interest, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  This Agreement may be enforced separately by each member of the LSI Logic Group and each member of the SSI Group.  Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void.  Any permitted assignee shall agree to perform the obligations of the assignor of this Agreement, and this Agreement shall inure to the benefit of and be binding upon any permitted assignee.

          4.8.     Severability.  If any term or other provision of this Agreement or the exhibits or schedules attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

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          4.9.     Failure or Indulgence Not Waiver; Remedies Cumulative.  No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise or waiver of any such right preclude other or further exercise thereof or of any other right.  All rights and remedies existing under this Agreement or the exhibits or schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.

          4.10.     Amendment.  No change or amendment shall be made to this Agreement or the exhibits or schedules attached hereto except by an instrument in writing signed on behalf of each of the parties to such agreement.

          4.11.     Interpretation.  The headings contained in this Agreement, in any exhibit or schedule attached hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Any capitalized term used in any exhibit or schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement.  When a reference is made in this Agreement to an article, section, exhibit or schedule, such reference shall be to an article or section of, or an exhibit or schedule to, this Agreement, unless otherwise indicated.

ARTICLE V

DEFINITIONS

          5.1.     Action.  “Action” means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority.

          5.2.     Ancillary Agreement.  “Ancillary Agreement” has the meaning set forth in the Separation Agreement.

          5.3.     Assets.  “Assets” has the meaning set forth in the Assignment Agreement.

          5.4.     Assignment Agreement.  “Assignment Agreement” means the General Assignment and Assumption Agreement attached as Exhibit A to the Separation Agreement.

          5.5.     Dispute.  “Dispute” has the meaning set forth in the Separation Agreement.

          5.6.     Distribution.  “Distribution” means a distribution of SSI stock by LSI Logic to LSI Logic’s shareholders in a transaction intended to qualify as a tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as amended from time to time.

          5.7.     Distribution Date.  “Distribution Date” means the effective date of a Distribution.

          5.8.     Employee Matters Agreement.  “Employee Matters Agreement” means the Employee Matters Agreement attached as Exhibit C to the Separation Agreement.

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          5.9.     Environmental Actions.  “Environmental Actions” means any notice, claim, act, cause of action, order, decree or investigation by any third party (including, without limitation, any Governmental Authority) alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, damage to flora or fauna caused by Environmental Conditions, real property damages, personal injuries or penalties) arising out of, based on or resulting from a Hazardous Materials Release of or exposure of any individual to any Hazardous Materials.

          5.10.    Environmental Conditions.  “Environmental Conditions” means the presence in the environment, including the soil, groundwater, surface water or ambient air, of any Hazardous Material at a level which exceeds any applicable standard or threshold under any Environmental Law or otherwise requires investigation or remediation (including, without limitation, investigation, study, health or risk assessment, monitoring, removal, treatment or transport) under any applicable Environmental Laws.

          5.11.    Environmental Laws.  “Environmental Laws” means all laws and regulations of any Governmental Authority with jurisdiction that relate to the protection of the environment (including ambient air, surface water, ground water, land surface or subsurface strata) including laws and regulations relating to a Hazardous Materials Release, or otherwise relating to the treatment, storage, disposal, transport or handling of Hazardous Materials, or to the exposure of any individual to a Hazardous Materials Release.

          5.12.    Governmental Authority.  “Governmental Authority” has the meaning set forth in the Separation Agreement.

          5.13.    Group.  “Group” means the LSI Logic Group or SSI Group.

          5.14.    Hazardous Materials.  “Hazardous Materials” means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and biological materials, hazardous substances, petroleum and petroleum products or any fraction thereof.

          5.15.    Hazardous Materials Release.  “Hazardous Materials Release” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, groundwater, wetlands, land or subsurface strata.

          5.16.    Indemnifying Party.  “Indemnifying Party” has the meaning set forth in Section 1.5(a) of this Agreement.

          5.17.    Indemnitee.  “Indemnitee” has the meaning set forth in Section 1.5(a) of this Agreement.

          5.18.    Information.  “Information” has the meaning set forth in the Separation Agreement.

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          5.19.    Insurance Claim.  “Insurance Claim” has the meaning set forth in Section 1.5(a) of this Agreement.

          5.20.    Insurance Period.  “Insurance Period” has the meaning set forth in Section 2.1(a) of this Agreement.

          5.21.    Insurance Policies.  “Insurance Policies” means insurance policies pursuant to which a Person makes a true risk transfer to an insurer.

          5.22.    Insurance Proceeds.  “Insurance Proceeds” means those monies received by an insured from an insurance carrier or paid by an insurance carrier on behalf of the insured from Insurance Policies.

          5.23.    Insurance Termination Date.  “Insurance Termination Date” means, with respect to any particular Insurance Policy maintained by LSI Logic on behalf of SSI under Section 2.1, the earlier of (i) the date on which LSI Logic ceases to own securities of SSI representing in excess of 50% of the voting power of all outstanding securities of SSI and (ii) the date on which SSI ceases to qualify for coverage under the terms of such LSI Logic Insurance Policy.

          5.24.    IPO.  “IPO” means the possible initial public offering of Class A common stock of SSI.

          5.25.    IPO Liabilities.  “IPO Liabilities” means any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to information contained in the IPO Registration Statement or any preliminary, final or supplemental prospectus forming a part of a IPO Registration Statement.

          5.26.    IPO Registration Statement.  “IPO Registration Statement” means the registration statement on Form S-1 pursuant to the Securities Act of 1933, as amended, to be filed with the Securities and Exchange Commission registering the shares of Class A common stock of SSI to be issued in the IPO, together with all amendments thereto.

          5.27.    LSI Logic Business.  “LSI Logic Business” means any business of LSI Logic other than the SSI Business.

          5.28.    LSI Logic Facilities.  “LSI Logic Facilities” means all of the real property and improvements thereon owned or occupied at any time on or before the Separation Date by any member of the LSI Logic Group, excluding the real property listed on the attached Schedule 5.28 and improvements thereon. 

          5.29.    LSI Logic Group.  “LSI Logic Group” has the meaning set forth in the Separation Agreement.

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          5.30.    LSI Logic Indemnitees.  “LSI Logic Indemnitees” means LSI Logic, each member of the LSI Logic Group and each of their respective directors, officers, employees, representatives, agents and attorneys.

          5.31.    Liabilities.  “Liabilities” has the meaning set forth in the Assignment Agreement.

          5.32.    Litigation Disclosure Letter.  “Litigation Disclosure Letter” has the meaning set forth in Section 3.1 hereof.

          5.33.    Person.  “Person” has the meaning set forth in the Separation Agreement.

          5.34.    Pre-Separation Third Party Site Liabilities.  “Pre-Separation Third Party Site Liabilities” means any and all Environmental Actions arising out of Hazardous Materials found on, under or about any landfill any waste, storage, transfer or recycling site and resulting from or arising out of Hazardous Materials stored, treated, recycled disposed or otherwise handled at such site prior to the Separation Date.

          5.35.    Separation.  “Separation” has the meaning set forth in the Recitals hereof.

          5.36.    Separation Agreement.  “Separation Agreement” has the meaning set forth in the Recitals hereof.

          5.37.    Separation Date.  “Separation Date” has the meaning set forth in the Separation Agreement.

          5.38.    SSI Business.  “SSI Business” has the meaning set forth in the Separation Agreement. 

          5.39.    SSI Contract.  “SSI Contract” has the meaning set forth in the Assignment Agreement. 

          5.40.    SSI Covered Parties.  “SSI Covered Parties” shall have the meaning set forth in Section 2.1(a) of this Agreement.

          5.41.    SSI Facilities.  “SSI Facilities” means all of the real property and improvements thereon owned or occupied at any time on or before the Separation Date by any member of the SSI Group, excluding the real property listed on the attached Schedule 5.41 and improvements thereon. 

          5.42.    SSI Group.  “SSI Group” has the meaning set forth in the Separation Agreement.

          5.43.    SSI Indemnitees.  “SSI Indemnitees” means SSI, each member of the SSI Group and each of their respective directors, officers and employees. 

          5.44.    SSI Liabilities.  “SSI Liabilities” has the meaning set forth in the Assignment Agreement.

          5.45.    Subsidiary.  “Subsidiary” has the meaning set forth in the Separation Agreement.

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          5.46.    Tax Sharing Agreement.  “Tax Sharing Agreement” means the Tax Sharing Agreement, attached as Exhibit D to the Separation Agreement.

          5.47.     Taxes.  “Taxes” has the meaning set forth in the Tax Sharing Agreement.

          5.48.    Third Party Claim.  “Third Party Claim” has the meaning set forth in Section 1.6(a) of this Agreement.

[remainder of the page intentionally left blank]

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          IN WITNESS WHEREOF, the parties have signed this Indemnification and Insurance Matters Agreement effective as of the date first set forth above.

LSI LOGIC CORPORATION		LSI LOGIC STORAGE SYSTEMS, INC.
By:	/s/ WILFRED J. CORRIGAN	By:	/s/ THOMAS GEORGENS
Name:	Wilfred J. Corrigan	Name:	Thomas Georgens
Title:	Chairman/C.E.O.	Title:	President

[SIGNATURE PAGE TO INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT]

EX-99

Exhibit 2.8

Employee Matters Agreement

between

LSI Logic Corporation

and

LSI Logic Storage Systems, Inc.

December 31, 2003

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS			1
	1.1	401(k) Plan	2
	1.2	Affiliate	2
	1.3	Affiliated Companies	2
	1.4	Agreement	2
	1.5	COBRA	2
	1.6	Code	2
	1.7	Control Cessation Date	2
	1.8	Disability Plans	2
	1.9	Dispute	2
	1.10	Distribution	2
	1.11	Distribution Date	3
	1.12	ERISA	3
	1.13	FMLA	3
	1.14	Health and Welfare Plans	3
	1.15	Health Plans	3
	1.16	IPO	3
	1.17	IPO Date	3
	1.18	Leave of Absence Plans	3
	1.19	Liabilities	3
	1.20	LSI Logic	3
	1.21	LSI Logic Employee	4
	1.22	LSI Logic Group	4
	1.23	LSI Logic Ratio	4
	1.24	LSI Logic Stock Value	4
	1.25	Option	4
	1.26	Participating Company	4
	1.27	Person	4
	1.28	Plan	4
	1.29	Separation	4
	1.30	Separation Date	4
	1.31	SSI	5
	1.32	SSI Change in Control	5
	1.33	SSI Employee	5
	1.34	SSI Group	5
	1.35	Stock Plan	5
	1.36	Stock Purchase Plan	5
	1.37	Subsidiary Cessation Date	5

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TABLE OF CONTENTS
(Continued)

			Page
ARTICLE II GENERAL PRINCIPLES			6
	2.1	Liabilities	6
	2.2	Establishment of SSI Plans	6
	2.3	SSI Under No Obligation to Maintain Plans	6
	2.4	SSI’s Participation in LSI Logic Plans	7
	2.5	Terms of Participation by SSI Employees in SSI Plans.	7
	2.6	Foreign Plans	8
ARTICLE III DEFINED CONTRIBUTION PLAN			8
	3.1	401(k) Plan	8
ARTICLE IV HEALTH AND WELFARE PLANS			9
	4.1	Health Plans	9
	4.2	Group Life Plan	10
	4.3	Accidental Death & Dismemberment Plan	10
	4.4	Disability Plans	10
	4.5	Business Travel Accident Insurance	10
	4.6	Section 125 Plan	10
	4.7	COBRA	10
	4.8	Workers’ Compensation Plan	10
	4.9	Leave of Absence Plans	11
	4.10	Severance Plans	11
	4.11	Sabbatical Plan	11
ARTICLE V EQUITY AND OTHER COMPENSATION			11
	5.1	LSI Logic Options	11
	5.2	Stock Purchase Plan	12
	5.3	Stock Plans	12
ARTICLE VI ADMINISTRATIVE PROVISIONS			12
	6.1	Sharing of Participant Information	12
	6.2	Costs and Expenses	13
ARTICLE VII EMPLOYMENT-RELATED MATTERS			13
	7.1	Non-Solicitation of Employees	13
	7.2	Non-Termination of Employment; No Third-Party Beneficiaries	13
ARTICLE VIII MISCELLANEOUS			13
	8.1	Effect if Separation, IPO, Distribution, Control Cessation Date and/or Subsidiary Cessation Date Does Not Occur	13

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TABLE OF CONTENTS
(Continued)

		Page
8.2	Governing Law	16
8.3	Amendment	16
8.4	Binding Effect; Assignment	16
8.5	Severability	17
8.6	Interpretations	17
8.7	Counterparts	17
8.8	Notices	17
8.9	Conflicting Agreements	18
8.10	Limitation of Liability	18
8.11	Entire Agreement	18
8.12	Dispute Resolution	18
8.13	Failure or Indulgence Not Waiver; Remedies Cumulative	19

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EMPLOYEE MATTERS AGREEMENT

          This Employee Matters Agreement (this “Agreement”) is entered into as of December 31, 2003, between LSI Logic Corporation, a Delaware corporation (“LSI Logic”), and LSI Logic Storage Systems, Inc., a Delaware corporation (“SSI”). 

RECITALS

          1.          LSI Logic currently owns all of the issued and outstanding capital stock of SSI.

          2.          Heretofore, LSI Logic and SSI have conducted their businesses separately.

          3.          LSI Logic and SSI desire to enter into certain agreements to delineate and clarify their relationship and to further separate the businesses conducted by LSI Logic and SSI (the “Separation”).  

          4.          In furtherance of the foregoing, LSI Logic and SSI have agreed to enter into this Agreement to allocate between them assets, liabilities and responsibilities with respect to certain employee compensation, benefit plans, programs and arrangements, and certain employment matters.

          NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

          Capitalized terms used herein (other than the formal names of LSI Logic Plans (as defined below) and related trusts of LSI Logic) and not otherwise defined in this Article I or elsewhere in this Agreement shall have the respective meanings assigned to them in the Master Separation Agreement (the “Separation Agreement”) entered into between LSI Logic and SSI.

          Wherever used in this Agreement, the following terms shall have the meanings indicated below or as such term may be defined elsewhere in this Agreement, unless a different meaning is plainly required by the context.  The singular shall include the plural, unless the context indicates otherwise.  Headings of sections are used for convenience of reference only, and in case of conflict, the text of this Agreement, rather than such headings, shall control:

          1.1          401(k) Plan.  “401(k) Plan,” when immediately preceded by LSI Logic means the qualified retirement plan sponsored by LSI Logic that is intended to be tax-qualified under Code Section 401(a) and to include a cash or deferred arrangement under Code Section 401(k), and the associated trust that is intended to be exempt from taxation under Code Section 501(a).  When immediately preceded by SSI, “401(k) Plan” shall mean the qualified retirement plan that SSI shall

establish, sponsor, and maintain effective as of the earlier of the Distribution Date or the Control Cessation Date (or such earlier date as LSI Logic and SSI may mutually agree) that is intended to be tax-qualified under Code Section 401(a) and to include a cash or deferred arrangement under Code Section 401(k), and the associated trust that is intended to be exempt from taxation under Code Section 501(a).

          1.2          Affiliate.  “Affiliate” means, with respect to any specified Person, means any entity that Controls, is Controlled by, or is under common Control with such Person.  For this purpose, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by control, or otherwise.

          1.3          Affiliated Companies.  “Affiliated Companies” has the meaning set forth in the Separation Agreement.  “Affiliated Companies,” when immediately preceded by “LSI Logic” means the Affiliated Companies of LSI Logic.

          1.4          Agreement.  “Agreement” means this Employee Matters Agreement, effective December 31, 2003, including all the Schedules hereto, if any, and all amendments made hereto from time to time.

          1.5          COBRA. “COBRA” means the continuation coverage requirements for “group health plans” under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time, and as codified in Code Section 4980B and ERISA Sections 601 through 608, and to the extent applicable, also includes the California Continuation Benefits Replacement Act, as amended, the Colorado Continuation Coverage Law, as amended, and any similar applicable state laws providing continuation of coverage benefits.

          1.6          Code.  “Code” means the Internal Revenue Code of 1986, as amended.

          1.7          Control Cessation Date.  “Control Cessation Date” means the first date on which SSI is no longer (1) part of the LSI Logic “controlled group of corporations” as such term is defined under Section 414(b) of the Code, (2) under “common control” with LSI Logic, as such term is defined under Section 414(c) of the Code, (3) a member of an “affiliated service group” which includes LSI Logic, as such term is defined under Section 414(m) of the Code, or (4) required to be aggregated with LSI Logic pursuant to Section 414(o) of the Code.

          1.8          Disability Plans.  “Disability Plans” means the disability plans offered by LSI Logic that covers or is offered to eligible LSI Logic employees.

          1.9          Dispute.  “Dispute” has the meaning set forth in the Separation Agreement.

          1.10        Distribution.  “Distribution” means a distribution of SSI stock by LSI Logic to LSI Logic’s shareholders in a transaction intended to qualify as a tax-free distribution under Section 355 of the Code.

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          1.11        Distribution Date.  “Distribution Date” means the date on which the Distribution is effective.

          1.12        ERISA.  “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

          1.13        FMLA.  “FMLA” means the Family and Medical Leave Act of 1993, as amended from time to time.

          1.14        Health and Welfare Plans.  “Health and Welfare Plans,” when immediately preceded by LSI Logic, means the LSI Logic Health Plans, the LSI Logic Code Section 125 Plan (the “LSI Logic 125 Plan”), established and maintained by LSI Logic for the benefit of eligible employees of LSI Logic, and such other welfare Plans as may apply to such employees.  When immediately preceded by SSI, “Health and Welfare Plans” means the SSI Health Plans, the SSI Code Section 125 Plan (if applicable) (the “SSI 125 Plan”), that shall or may be established and maintained by SSI for the benefit of eligible employees of SSI, and such other welfare Plans that SSI may establish.

          1.15        Health Plans.  “Health Plans,” when immediately preceded by LSI Logic, means the medical, HMO, vision, dental Plans and any similar Plans.  When immediately preceded by SSI, “Health Plans” means the medical, HMO, vision, dental Plans and any similar Plans that shall be established by SSI.

          1.16        IPO.  “IPO” means the effectiveness of the first registration statement, if any, that is filed by SSI and declared effective pursuant to Section 12(g) of the Exchange Act, with respect to any class of SSI’s securities.

          1.17        IPO Date.  “IPO Date” means the effective date of the IPO.

          1.18        Leave of Absence Plans.  “Leave of Absence Plans,” when immediately preceded by LSI Logic, means the personal, medical/disability, military, FMLA and other leave of absence programs that are offered, or may in the future be offered, from time to time under the personnel policies and practices of LSI Logic.  When immediately preceded by SSI, “Leave of Absence Plans” means the leave of absence programs that may be established by SSI.

          1.19        Liabilities.  “Liabilities” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, whether arising out of any contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto.

          1.20        LSI Logic.  “LSI Logic” means LSI Logic Corporation, a Delaware corporation.  In all such instances in which LSI Logic is referred to in this Agreement, it shall also be deemed to

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include a reference to each member of the LSI Logic Group, unless it specifically provides otherwise.

          1.21        LSI Logic Employee.  “LSI Logic Employee” means an individual who, on the Distribution Date, is: (a) actively employed by, or on leave of absence from, LSI Logic; (b) an employee or group of employees designated as LSI Logic Employees by LSI Logic and SSI, by mutual agreement; or (c) an employee who, prior to the Distribution Date, is on, or begins, a disability leave of absence until the earlier of (i) the employee’s termination of employment, (ii) the passage of six months as measured from the employee’s last day of active work, or (iii) the employee is medically released to return to work.

          1.22        LSI Logic Group.  “LSI Logic Group” has the meaning set forth in the Separation Agreement.

          1.23        LSI Logic Ratio.  “LSI Logic Ratio” means the ratio determined by dividing the opening per-share price of LSI Logic common stock as listed on the New York Stock Exchange on the first trading day after the Distribution by the LSI Logic Stock Value.

          1.24        LSI Logic Stock Value.  “LSI Logic Stock Value” means the closing per-share price of LSI Logic common stock as listed on the New York Stock Exchange on the last trading day before the Distribution.

          1.25        Option.  “Option,” when immediately preceded by LSI Logic, means an option to purchase LSI Logic common stock pursuant to a LSI Logic Stock Plan.  When immediately preceded by SSI, “Option” means an option to purchase SSI common stock pursuant to a SSI Stock Plan.

          1.26        Participating Company.  “Participating Company” means: (a) LSI Logic; (b) any Person (other than an individual) that LSI Logic has approved for participation in, has accepted participation in, and which is participating in, a Plan sponsored by LSI Logic; and (c) any Person (other than an individual) which, by the terms of such Plan, participates in such Plan or any employees of which, by the terms of such Plan, participate in or are covered by such Plan.

          1.27        Person.  “Person” has the meaning set forth in the Separation Agreement.

          1.28        Plan.  “Plan” means any plan, policy, program, payroll practice, arrangement, contract, trust, insurance policy, or any agreement or funding vehicle providing compensation or benefits to employees, former employees, directors or consultants of LSI Logic or SSI.

          1.29        Separation .  “Separation” has the meaning set forth in the Recitals to this Agreement.

          1.30        Separation Date.  “Separation Date” has the meaning set forth in the Separation Agreement.

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          1.31        SSI.  “SSI” means LSI Logic Storage Systems, Inc., a Delaware corporation.  In all such instances in which SSI is referred to in this Agreement, it shall also be deemed to include a reference to each member of the SSI Group, unless it specifically provides otherwise.

          1.32        SSI Change in Control.  “SSI Change in Control” means the occurrence of any of the following events:  (i) the consummation by SSI of a merger or consolidation of SSI with any other corporation, other than a merger or consolidation which would result in the voting securities of SSI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of SSI or such surviving entity outstanding immediately after such merger or consolidation; (ii) the approval by the shareholders of SSI, or if shareholder approval is not required, by the Board of Directors of SSI, of a plan of complete liquidation of SSI or an agreement for the sale or disposition by SSI of all or substantially all of SSI’s assets; or (iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than LSI Logic becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of SSI representing 50% or more of the total voting power represented by SSI’s then outstanding voting securities.  Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred as a result of the IPO, nor shall it be deemed to have occurred as a result of any event or series of events through which LSI Logic ceases to own a majority of the total voting power represented by the voting securities of SSI through a sale of SSI securities to the public.

          1.33        SSI Employee.  “SSI Employee” means any individual who: (a) is actively employed by SSI in the United States on the Separation Date; (b) moves to the employ of SSI in the United States from the employ of LSI Logic at any time prior to the Distribution Date; (c) is an employee or group of employees designated as SSI Employees by LSI Logic and SSI, by mutual agreement; or (d) is an individual in the United States hired by SSI on or after the Separation Date.

          1.34        SSI Group.  “SSI Group” has the meaning set forth in the Separation Agreement.

          1.35        Stock Plan.  “Stock Plan,” when immediately preceded by LSI Logic, means any plan, program, or arrangement, other than the LSI Logic Stock Purchase Plan, pursuant to which employees, directors and consultants hold LSI Logic Options, LSI Logic restricted stock, or other LSI Logic equity incentives.  “Stock Plan,” when immediately preceded by SSI, means any plan, program, or arrangement, other than the SSI Stock Purchase Plan, pursuant to which employees, directors and consultants hold SSI Options, SSI restricted stock, or other SSI equity incentives. 

          1.36        Stock Purchase Plan.  “Stock Purchase Plan,” when immediately preceded by LSI Logic, means the LSI Logic Employee Stock Purchase Plans.  When immediately preceded by SSI, “Stock Purchase Plan” means the SSI Employee Stock Purchase Plans that shall be established by SSI.

          1.37        Subsidiary Cessation Date.  “Subsidiary Cessation Date” means the first date on which LSI Logic ceases to own stock possessing fifty percent (50%) or more of the total combined

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voting power of all classes of stock of SSI, either directly or through an unbroken chain of corporations beginning with LSI Logic each of which owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

ARTICLE II

GENERAL PRINCIPLES

          2.1         Liabilities.  Except as specified otherwise in this Agreement or as mutually agreed upon by SSI and LSI Logic, SSI shall pay to LSI Logic one-hundred percent (100%), of the Liabilities incurred with respect to LSI Logic Plans by SSI as a Participating Company.  Any Liabilities incurred with respect to SSI Plans will be borne solely by SSI. 

          2.2         Establishment of SSI Plans. 

                         (a)          Health Plans.  Except as specified otherwise in this Agreement, effective as of the earlier of the Distribution Date or the Control Cessation Date (or such earlier date(s) as LSI Logic and SSI may mutually agree), SSI shall adopt the SSI Health Plans.

                         (b)          401(k) Plan.  As of the earlier of the Distribution Date or the Control Cessation Date (or such earlier date as LSI Logic and SSI may mutually agree), SSI shall establish or cause to be established, the SSI 401(k) Plan.

                         (c)          Equity and Other Compensation.  Except as specified otherwise in this Agreement, on or before the IPO Date (or such earlier date as LSI Logic and SSI may mutually agree), SSI shall adopt the SSI Stock Plan.  On or before the IPO Date (or such earlier date as LSI Logic and SSI may mutually agree), SSI shall adopt the SSI Stock Purchase Plan.

                         (d)          Other Plans.  Except as otherwise specified in this Agreement, effective as of the Distribution Date, SSI shall adopt certain SSI Plans that are specifically tied to its payroll practices, including, without limitation, such Plans that SSI deems appropriate.

          2.3         SSI Under No Obligation to Maintain Plans.  Except as specified otherwise in this Agreement or as otherwise mutually agreed to by LSI Logic and SSI, nothing in this Agreement shall preclude SSI, at any time after the Distribution Date or, with respect to the SSI 401(k) Plan and the SSI Health Plans, the earlier of the Distribution Date or the Control Cessation Date and with respect to the SSI Stock Plan and SSI Stock Purchase Plan, the earlier of the Distribution Date or the Subsidiary Cessation Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any SSI Plan, any benefit under any SSI Plan or any trust, insurance policy or funding vehicle related to any SSI Plans, or any employment or other service arrangement with SSI Employees, consultants or vendors (to the extent permitted by law).

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          2.4         SSI’s Participation in LSI Logic Plans. 

                         (a)          Participation in LSI Logic Plans.  Except as specified otherwise in this Agreement or as LSI Logic and SSI may mutually agree, SSI shall, until the Distribution Date, continue to be a Participating Company in the LSI Logic Plans.

                         (b)          LSI Logic’s General Obligations as Plan Sponsor.  To the extent that SSI is a Participating Company in any LSI Logic Plan, LSI Logic shall continue to administer, or cause to be administered, in accordance with its terms and applicable law, such LSI Logic Plan, and shall have the sole and absolute discretion and authority to interpret such LSI Logic Plan, as set forth therein. 

                         (c)          SSI’s General Obligations as Participating Company.  SSI shall perform, with respect to its participation in the LSI Logic Plans, the duties of a Participating Company as set forth in each such Plan or any procedures adopted pursuant thereto, including (without limitation): (i) assistance in the administration of claims, to the extent requested by the claims administrator of the applicable LSI Logic Plan; (ii) full cooperation with LSI Logic Plan auditors, benefit personnel and benefit vendors; (iii) preservation of the confidentiality of all financial arrangements LSI Logic has or may have with any vendors, claims administrators, trustees, service providers or any other entity or individual with whom LSI Logic has entered into an agreement relating to the LSI Logic Plans; and (iv) preservation of the confidentiality of participant information (including, without limitation, health information in relation to leaves) to the extent not specified otherwise in this Agreement.

                         (d)          Termination of Participating Company Status.  Except as specified otherwise in this Agreement or as mutually agreed upon by SSI and LSI Logic, effective immediately as of the Distribution Date, SSI shall automatically cease to be a Participating Company in LSI Logic Plans.

                         (e)          Termination of LSI Logic Employment for Certain Purposes.  For purposes of participation in the LSI Logic 401(k) Plan, SSI Employees shall be deemed terminated from LSI Logic employment upon the earlier of the Distribution Date or the Control Cessation Date.  For all purposes of the LSI Logic Stock Plan and the LSI Logic Stock Purchase Plan, SSI Employees shall be deemed terminated from LSI Logic employment upon the earlier of the Distribution Date or the Subsidiary Cessation Date.  For all other purposes of this Agreement, SSI Employees shall be deemed terminated from LSI Logic employment upon the Distribution Date.  Except as specified otherwise in this Agreement or as mutually agreed upon by SSI and LSI Logic, following the Distribution Date such terminated employees will continue to receive coverage and/or benefits under LSI Logic Plans only for the time period specified in the applicable plan or program. 

          2.5          Terms of Participation by SSI Employees in SSI Plans.

                         (a)          Non-Duplication of Benefits.  Except as specified otherwise in this Agreement or as mutually agreed upon by SSI and LSI Logic, LSI Logic and SSI shall agree on

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methods and procedures, including amending the respective Plan documents, to prevent SSI Employees from receiving duplicate benefits from the LSI Logic Plans and the SSI Plans.

                         (b)          Service Credit.  Except as specified otherwise in this Agreement, with respect to SSI Employees, SSI shall make reasonable efforts to provide that all service, all compensation and all other determinations that affect benefits eligibility or vesting under each SSI Plan other than the SSI Stock Plan and the SSI Equity Incentive Plan (including, without limitation, the SSI vacation policy, the SSI 401(k) Plan and the SSI Health and Welfare Plans) that, as of the Distribution Date, were recognized under the corresponding LSI Logic Plan shall, as of the Distribution Date, receive full recognition and credit and be taken into account under such SSI Plan to the same extent as if such items occurred under such SSI Plan, except to the extent that duplication of benefits would result.

          2.6          Foreign Plans.  SSI and LSI Logic each intend that the matters, issues or Liabilities relating to, arising out of, or resulting from foreign plans and non-U.S.-related employment matters be handled in a manner that is in compliance with the requirements of applicable local law.

ARTICLE III

DEFINED CONTRIBUTION PLAN

          3.1          401(k) Plan.

                         (a)          401(k) Plan.  As of the earlier of the Distribution Date or the Control Cessation Date (or such earlier date as LSI Logic and SSI may mutually agree), SSI shall establish or cause to be established, the SSI 401(k) Plan.

                         (b)          401(k) Plan: Assumption of Liabilities and Transfer of Assets.  Effective no later than ninety (90) days after the earlier of the Distribution Date or the Control Cessation Date: (i) the SSI 401(k) Plan shall assume and be solely responsible for all Liabilities relating to, arising out of, or resulting from SSI Employees under the LSI Logic 401(k) Plan; (ii) LSI Logic shall cause the accounts of the SSI Employees under the LSI Logic 401(k) Plan that are held by its related trust to be transferred to the SSI 401(k) Plan and its related trust; and (iii) SSI shall cause such transferred accounts to be accepted by such Plan and its related trust.  SSI and LSI Logic each agree to use their reasonable best efforts to accomplish this 401(k) Plan and related trust spin-off.

                         (c)          Establishment of Participating Company Status.  LSI Logic and SSI shall each take any and all necessary actions for SSI to become a Participating Company in the LSI Logic 401(k) Plan effective as of the Separation Date.

                         (d)          Termination of Participating Company Status.  Except as otherwise mutually agreed to by LSI Logic and SSI, SSI shall cease to be a Participating Company in the LSI Logic 401(k) Plan upon the earlier of the Distribution Date or the Control Cessation Date.

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                         (e)          No Distribution to SSI Employees.  The LSI Logic 401(k) Plan and the SSI 401(k) Plan shall provide that no distribution of account balances shall be made to any SSI Employee on account of SSI ceasing to be an Affiliate of LSI Logic.

ARTICLE IV

HEALTH AND WELFARE PLANS

          4.1          Health Plans. 

                         (a)          SSI Health Plans.  As of the earlier of the Distribution Date or the Control Cessation Date (or such earlier date(s) as LSI Logic and SSI may mutually agree), SSI shall have established SSI Health Plans that will provide coverage for SSI Employees (and their eligible dependents).  Effective as of the earlier of the Distribution Date or the Control Cessation Date, SSI shall cease to be a Participating Company in the LSI Logic Health Plans, and SSI shall be solely responsible for (i) all Liabilities incurred with respect to such SSI Health Plans; and (ii) the administration of the SSI Health Plans, including, without limitation, the payment of all employer-related costs in establishing and maintaining the SSI Health Plans, and for the collection and remittance of employee premiums.

                         (b)          LSI Logic Health Plans.  LSI Logic shall administer and be responsible for claims incurred under the LSI Logic Health Plans by SSI Employees before the earlier of the Distribution Date or the Control Cessation Date, subject to the limitations as set forth in Section 4.1(c).  Any determination made or settlements entered into by LSI Logic with respect to such claims shall be final and binding.  LSI Logic shall retain financial and administrative (“run-out”) Liability and all related obligations and responsibilities for all claims incurred by SSI Employees before the earlier of the Distribution Date or the Control Cessation Date, subject to the limitations as set forth in Section 4.1(c).

                         (c)          Pending Treatments.  Notwithstanding Section 4.1(a) above, all courses of treatment under the applicable LSI Logic Health Plan that have begun on or prior to the earlier of the Distribution Date or the Control Cessation Date with respect to SSI Employees (or their eligible dependents) who are hospitalized on the Distribution Date, or the Control Cessation Date, as applicable, shall be provided without interruption under the applicable LSI Logic Health Plan until the end of such hospitalization (“Uninterrupted Hospitalization Treatment”).  For purposes of this Section 4.1(c) only, hospitalization is as defined under the applicable Health Plan and courses of treatment means that a SSI Employee (or his or her eligible dependent), on or prior to the Distribution Date, or the Control Cessation Date, as applicable, is receiving medical treatment for the specific illness or injury for which he or she is hospitalized on the Distribution Date, or the Control Cessation Date, and such Uninterrupted Hospitalization Treatment is applicable only to that specific illness or injury.

                         (d)          Vendor Arrangements.  If requested by SSI, LSI Logic shall use reasonable efforts in assisting SSI to procure, effective as of the earlier of the Distribution Date or the Control

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Cessation Date (or such earlier date(s) as LSI Logic and SSI may mutually agree), the SSI Health Plans.

                         (e)          No Status Change.  The transfer or other movement of employment between LSI Logic to SSI at any time before the earlier of the Distribution Date or the Control Cessation Date shall neither constitute nor be treated as a “status change” or termination of employment under the LSI Logic Health Plans or the SSI Health Plans.

          4.2          Group Life Plan.  SSI shall, until the Distribution Date (or such earlier date as LSI Logic and SSI may mutually agree), continue to be a Participating Company in any LSI Logic group life insurance Plan.

          4.3          Accidental Death & Dismemberment Plan.  SSI shall, until the Distribution Date (or such earlier date as LSI Logic and SSI may mutually agree), continue to be a Participating Company in any LSI Logic accidental death & dismemberment Plan. 

          4.4          Disability Plans. 

                         (a)          Short-Term Disability Plan.  SSI shall, until the Distribution Date (or such earlier date as LSI Logic and SSI may mutually agree), continue to be a Participating Company in the LSI Logic short-term Disability Plan. 

                         (b)          Long-Term Disability Plan.  SSI shall, until the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), continue to be a Participating Company in the LSI Logic long-term Disability Plan. 

          4.5          Business Travel Accident Insurance.   SSI shall, until the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), continue to be a Participating Company in any LSI Logic business travel accident insurance Plan. 

          4.6          Section 125 Plan.  SSI shall, until the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), continue to be a Participating Company in the LSI Logic 125 Plan.  Effective as of the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), SSI may, in its sole discretion, establish a SSI 125 Plan for the benefit of SSI Employees. 

          4.7          COBRA.  LSI Logic shall be responsible for providing COBRA continuation coverage (for the applicable period of time as required by law, generally 18-36 months) to SSI Employees and their eligible dependents who become eligible for such coverage prior to the Distribution Date.  Effective as of the Distribution Date, SSI shall be responsible for providing COBRA continuation coverage (or reimbursing premiums therefore) to SSI Employees and their eligible dependents who become eligible for such coverage on and following the Distribution Date. 

          4.8          Workers’ Compensation Plan.  Effective as of the Distribution Date, SSI shall establish or renegotiate the terms of the workers’ compensation plan for the benefit of SSI

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Employees (the “Workers’ Compensation Plan”).  Any Liabilities that accrue under the Workers’ Compensation Plan shall be Liabilities of SSI. 

          4.9          Leave of Absence Plans.  SSI Employees shall, until the Distribution Date (or such earlier date as LSI Logic and SSI may mutually agree), continue to participate in the LSI Logic Leave of Absence Plans.  Effective as of the Distribution Date, SSI Employees shall not be eligible to participate in the LSI Logic Leave of Absence Plans.

          4.10         Severance Plans.  SSI shall, until the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), continue to be a Participating Company in the LSI Logic severance plans.  Effective as of the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), SSI may, in its sole discretion, establish a severance plan for the benefit of SSI Employees.

          4.11         Sabbatical Plan.  SSI shall, until the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), continue to be a Participating Company in the LSI Logic sabbatical Plan.  Effective as of the Distribution Date (or such earlier date as SSI and LSI Logic may mutually agree), SSI may, in its sole discretion, establish a sabbatical Plan for the benefit of SSI Employees.

ARTICLE V

EQUITY AND OTHER COMPENSATION

          5.1          LSI Logic Options. 

                         (a)          LSI Logic Options held by SSI Employees. 

                                        (i)          General.  At the Distribution Date, each outstanding LSI Logic Option held by a SSI Employee, whether vested or unvested, shall in connection with the Distribution, remain an option to purchase LSI Logic common stock and shall be subject to an adjustment as described in this Section 5.1(a).  Each such LSI Logic Option shall continue to be subject to all of the terms and conditions of the applicable LSI Logic plan and option agreement including, but not limited to, the expiration date of the option. 

                                        (ii)         Termination of LSI Logic Employment for Option Purposes.  For purposes of LSI Logic Options, each SSI Employee shall be deemed terminated from LSI Logic employment upon the earlier of the Distribution Date or the Subsidiary Cessation Date.  In accordance with each SSI Employee’s applicable LSI Logic Option agreement, each outstanding, unvested LSI Logic Option held by such employee shall be forfeited upon the deemed date of termination and each outstanding, vested LSI Logic Option held by such SSI Employees shall remain outstanding and exercisable for that period of time following the termination of LSI Logic employment as is indicated in the applicable LSI Logic Option agreement. 

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                                        (iii)        Adjustment.  Unless provided otherwise by LSI Logic, on the first trading day following the Distribution Date, each outstanding, vested LSI Logic Option then held by a SSI Employee shall be adjusted as follows:  (x) each vested LSI Logic Option shall be exercisable for that number of whole shares of LSI Logic common stock equal to the quotient of the number of Shares of LSI Logic common stock that were issuable upon exercise of such vested LSI Logic Option as of the Distribution Date divided by the LSI Logic Ratio, rounded down to the nearest whole number of shares of LSI Logic common stock, and (y) the per share exercise price for the shares of LSI Logic common stock issuable upon exercise of such vested LSI Logic Option shall be equal to the product determined by multiplying the exercise price per share of LSI Logic common stock at which such LSI Logic Option was exercisable as of the Distribution Date by the LSI Logic Ratio, rounded up to the nearest whole cent.  As of and after the Distribution Date, SSI may, in its sole discretion, grant to SSI Employees options to purchase SSI common stock, shares of restricted SSI stock, and/or offer to convert some or all outstanding LSI Logic Options held by such employees into options to purchase SSI common stock.

                         (b)          Certain Non-U.S. Optionees.  Except as may otherwise be agreed upon by LSI Logic and SSI, Section 5.1(a) shall govern the treatment of LSI Logic Options held by non-U.S. SSI Employees.

          5.2          Stock Purchase Plan.  Through and including the earlier of the Distribution Date or the Subsidiary Cessation Date, SSI Employees shall continue to be eligible for participation in the LSI Logic Stock Purchase Plan in accordance with the terms of the LSI Logic Stock Purchase Plan.  LSI Logic, in its discretion, may amend the LSI Logic Stock Purchase Plan to provide that SSI Employees will be eligible to participate in a special purchase period ending on the earlier of the Distribution Date or the Subsidiary Cessation Date.  On or before the IPO Date (or such earlier date as LSI Logic and SSI may mutually agree), SSI shall establish and sponsor a Stock Purchase Plan for the benefit of SSI Employees.  The SSI Stock Purchase Plan shall become effective only on or after the earlier of the Distribution Date or the Subsidiary Cessation Date, unless SSI and LSI Logic mutually agree to an earlier effective date.  Effective immediately following the earlier of the Distribution Date or the Subsidiary Cessation Date (or such earlier date as LSI Logic and SSI may mutually agree), SSI Employees shall cease to be eligible to participate in and to have any further payroll deductions withheld pursuant to the LSI Logic Stock Purchase Plan.

          5.3          Stock Plans.  Until the earlier of the Distribution Date or the Subsidiary Cessation Date, SSI Employees shall continue to be eligible for participation in the LSI Logic Stock Plans.  On or before the IPO Date (or such earlier date as LSI Logic and SSI may mutually agree), SSI shall establish and sponsor a Stock Plan for the benefit of SSI Employees, directors and consultants.

ARTICLE VI

ADMINISTRATIVE PROVISIONS

          6.1          Sharing of Participant Information.  LSI Logic and SSI shall share, or cause to be shared, all participant information that is necessary or appropriate for the efficient and accurate

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administration of each of the LSI Logic Plans and the SSI Plans during the respective periods applicable to such Plans as SSI and LSI Logic may mutually agree.  LSI Logic and SSI and their respective authorized agents shall, subject to applicable laws of confidentiality and data protection, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other party or its agents, to the extent necessary or appropriate for such administration.

          6.2          Costs and Expenses.  SSI shall reimburse LSI Logic for all costs and expenses related to the participation of SSI Employees in any LSI Logic Plan incurred from and after the Separation Date through the Distribution Date.

ARTICLE VII

EMPLOYMENT-RELATED MATTERS

          7.1          Non-Solicitation of Employees.  LSI Logic and SSI each agree that, for a period commencing as of the IPO Date and ending two (2) years following the earlier of the Subsidiary Cessation Date or the Distribution Date, LSI Logic and SSI shall not solicit or recruit, without the other party’s express written consent, the other party’s employees.  To the extent this prohibition is waived, any recruitment efforts by either LSI Logic or SSI during the period until one (1) year after the earlier of the Subsidiary Cessation Date or the Distribution Date shall be coordinated with appropriate management personnel, as LSI Logic and SSI shall mutually agree, of LSI Logic or SSI.  Notwithstanding the foregoing, this prohibition on solicitation does not apply to actions taken by a party solely as a result of an employee’s affirmative response to a general recruitment effort carried out through a public solicitation or general solicitation.

          7.2          Non-Termination of Employment; No Third-Party Beneficiaries.  No provision of this Agreement shall be construed to create any right or accelerate entitlement to any compensation or benefit whatsoever on the part of any SSI Employee or other former, present or future employee of LSI Logic or SSI under any LSI Logic Plan or SSI Plan or otherwise. Without limiting the generality of the foregoing:  (a) no employee shall be deemed to have incurred a termination of employment solely by reason of the Separation or IPO; and (b) except as otherwise specified herein, no transfer of employment between LSI Logic and SSI before the Distribution Date shall be deemed a termination of employment for any purpose hereunder.

ARTICLE VIII

MISCELLANEOUS

          8.1          Effect if Separation, IPO, Distribution, Control Cessation Date and/or Subsidiary Cessation Date Does Not Occur.  If any of the Separation, IPO, Control Cessation Date, Subsidiary Cessation Date and/or Distribution do not occur, then all actions and events that are, under this Agreement, to be taken or occur effective as of such event or otherwise in connection with such event, shall not be taken or occur except to the extent specifically agreed by SSI and LSI Logic.  No

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event or series of events that occurs after a SSI Change in Control that otherwise would have constituted a Separation, IPO, Control Cessation Date, Subsidiary Cessation Date and/or Distribution shall be considered as such for purposes of this Agreement.  As a result, all actions and events that would have, under this Agreement, to be taken or occur effective as of such event or otherwise in connection with such event, shall not be taken or occur except to the extent specifically agreed by SSI and LSI Logic. 

          8.2          Governing Law.  This Agreement shall be construed in accordance with, and all Disputes hereunder shall be governed by, the laws of the State of California, excluding its conflict of law rules, and the United Nations Convention on Contracts for the International Sale of Goods, to the extent not preempted by ERISA.  The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to the provisions of the Separation Agreement.

          8.3          Amendment.  The Board of Directors of SSI and LSI Logic may mutually agree to amend the provisions of this Agreement at any time or times, for any reason, either prospectively or retroactively, to such extent and in such manner as the Boards of Directors mutually deem advisable.  Each Board of Directors may delegate its amendment power, in whole or in part, to one or more Persons or committees as it deems advisable.  No change or amendment will be made to this Agreement, except by an instrument in writing signed by authorized individuals on behalf of each of the parties to this Agreement.

          8.4          Binding Effect; Assignment.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors in interest, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  This Agreement may be enforced separately by each member of the LSI Logic Group and each member of the SSI Group.  Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void.  Any permitted assignee shall agree to perform the obligations of the assignor of this Agreement, and this Agreement shall inure to the benefit of and be binding upon any permitted assignee.

          8.5          Severability.  If any term or other provision of this Agreement or the exhibits or schedules attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

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          8.6          Interpretations.  The headings contained in this Agreement, in any exhibit or schedule attached hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Any capitalized term used in any exhibit or schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement.  When a reference is made in this Agreement to an article, section, exhibit or schedule, such reference shall be to an article or section of, or an exhibit or schedule to, this Agreement, unless otherwise indicated.

          8.7          Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.

          8.8          Notices.  Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses:

                         if to LSI Logic:
                                                  LSI Logic Corporation
                                                  1621 Barber Lane
                                                  Milpitas, CA 95035
                                                  Attention:  General Counsel
                                                  Fax:  (408) 433-6896

                         if to SSI:
                                                  LSI Logic Storage Systems, Inc. 
                                                  1621 Barber Lane
                                                  Milpitas, CA 95035
                                                  Attention:  General Counsel
                                                  Fax:  (408) 433-8323

or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein.   Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested.  All other notices may also be sent by fax, confirmed by first class mail.  All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark.

          8.9          Conflicting Agreements.  In the event of conflict between this Agreement and the Separation Agreement, the provisions of this Agreement shall prevail.  In the event of conflict between Sections 2.1 and 6.2 this Agreement and the Transition Services Agreement entered into between LSI Logic and SSI, the provisions of the Transition Services Agreement shall prevail.  In the event of conflict between this Agreement and the Indemnification and Insurance Matters Agreement entered into between LSI Logic and SSI, the provisions of the Indemnification and Insurance Matters Agreement shall prevail. 

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          8.10         Limitation of Liability.  IN NO EVENT SHALL ANY MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP BE LIABLE TO ANY OTHER MEMBER OF THE LSI LOGIC GROUP OR SSI GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT.

          8.11         Entire Agreement.  This Agreement, the Separation Agreement, the other Ancillary Agreements and the exhibits and schedules referenced or attached hereto and thereto, constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.

          8.12         Dispute Resolution.  Any Disputes under this Agreement shall be addressed using the same procedure set forth in the Separation Agreement.

          8.13         Failure or Indulgence Not Waiver; Remedies Cumulative.  No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise or waiver of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the exhibits or schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available.

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          IN WITNESS WHEREOF, the parties have signed this Employee Matters Agreement effective as of the date first set forth above.

LSI LOGIC CORPORATION		LSI LOGIC STORAGE SYSTEMS, INC.
By:	/s/  WILFRED J. CORRIGAN	By:	/s/  THOMAS GEORGENS
Name:	Wilfred J. Corrigan	Name:	Thomas Georgens
Title:	Chairman/C.E.O.	Title:	President

[SIGNATURE PAGE TO EMPLOYEE MATTERS AGREEMENT]

EX-99

Exhibit 10.46

LSI LOGIC CORPORATION
CHANGE IN CONTROL SEVERANCE AGREEMENT

            This Change in Control Severance Agreement (the “Agreement”) is made and entered into effective as of November 20, 2003 (the “Effective Date”), by and between Thomas Georgens (“Employee”) and LSI Logic Corporation a Delaware corporation (the “Company”).  Certain capitalized terms used in this Agreement are defined in Section 1 below.

R E C I T A L S

            A.            It is expected that the Company from time to time will consider the possibility of a Change in Control.  The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities.

            B.            The Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his Employment and to maximize the value of the Company upon a Change in Control for the benefit of its shareholders.

            C.            In order to provide the Employee with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change in Control, the Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee’s termination of Employment following a Change in Control.

AGREEMENT

            In consideration of the mutual covenants herein contained and the continued Employment of Employee by the Company, the parties agree as follows:

            1.            Definition of Terms.  The following terms referred to in this Agreement shall have the following meanings:

                           (a)          Cause.  “Cause” shall mean (i) any act of personal dishonesty taken by the Employee in connection with his responsibilities as an employee with the intention or reasonable expectation that such may result in substantial personal enrichment of the Employee, (ii) Employee’s conviction of a felony which the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, (iii) a willful act by the Employee which constitutes misconduct and is injurious to the Company, or (iv) continued willful violations by the Employee of the Employee’s obligations to the Company after there has been delivered to the Employee a written demand

for performance from the Company which describes the basis for the Company’s belief that the Employee has not substantially performed his duties.

                           (b)          Change in Control.  “Change in Control” shall mean the occurrence of any of the following events:

                                          (i)          the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

                                          (ii)          the approval by the shareholders of the Company, or if shareholder approval is not required, by the Board, of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

                                          (iii)          any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities.

                                          (iv)          a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

                                          (v)          Storage Systems ceases to be a Subsidiary of the Company due to a sale of Storage Systems to a third party.  Notwithstanding any provision to the contrary herein, a Change in Control shall not include the Storage Systems IPO, nor shall it include any event or series of events through which the Company ceases to own a majority of the total voting power represented by the voting securities of Storage Systems through a sale of Storage Systems securities to the public.

                           (c)          Employment.  “Employment” shall mean employment with the Company, including the Employee’s position as the Executive Vice President of Storage Systems.

                           (d)          Involuntary Termination.  “Involuntary Termination” shall mean any of the following: (i) without the Employee’s express written consent, a significant reduction of the Employee’s duties, position or responsibilities relative to the Employee’s duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee’s express written consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) without the Employee’s express written consent, a reduction by

the Company of the Employee’s base salary as in effect immediately prior to such reduction; (iv) without the Employee’s express written consent, a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee’s overall benefits package is significantly reduced; (v) without the Employee’s express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 5 below.

                           (e)          Storage Systems IPO.  “Storage Systems IPO” shall mean the effectiveness of the first registration statement that is filed by Storage Systems pursuant to Section 12(g) of the Exchange Act, with respect to any class of Storage Systems’ securities.

                           (f)          Storage Systems.  “Storage Systems” shall mean LSI Logic Storage Systems, Inc.

                           (g)          Subsidiary.  “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

                          (h)          Termination Date.  “Termination Date” shall mean the effective date of any notice of termination delivered by one party to the other hereunder.

             2.             Term of Agreement.  This Agreement shall terminate on the earlier to occur of (i) November 20, 2008, or (ii) the Storage Systems IPO, unless within such term a Change in Control has occurred, in which case this Agreement shall terminate upon the date that all obligations of the parties hereto under this Agreement have been satisfied.

            3.            At-Will Employment.  The Company and the Employee acknowledge that the Employee’s Employment is and shall continue to be at-will, as defined under applicable law.  If the Employee’s Employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as otherwise also may be established under the Company’s then existing employee benefit plans or policies at the time of termination.

            4.            Severance Benefits.

                           (a)          Termination Following A Change in Control.

                                          (i)          Involuntary Termination.

                                                        (A)          Equity Acceleration.  If the Employee’s Employment with the Company terminates as a result of an Involuntary Termination at any time within twelve (12) months after a Change in Control, then each unexpired option to purchase shares of the Company’s equity securities, each share of Company restricted stock and each other unexpired equity-based compensation

award that was granted to the Employee by the Company at least six (6) months prior to the Change in Control (collectively, the “Awards”), shall be automatically accelerated and shall be fully vested and exercisable as at the date of Involuntary Termination.

                                                        (B)          Severance Benefits.  If the Employee’s Employment with the Company terminates as a result of an Involuntary Termination at any time within twelve (12) months after a Change in Control, the Employee, within seven (7) days of such Involuntary Termination, shall be paid a lump sum that shall be equal to the sum of:  (i) twenty-four (24) months of the Employee’s base salary (as in effect immediately prior to the Change in Control), plus (ii) 200% of the Employee’s target bonus for the year in which the Change in Control occurs.  In addition, the Company shall provide the Employee with health, dental and vision coverage benefits during the period of twenty-four (24) months following the date of Involuntary Termination, provided, however, that the Employee elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), within the time period prescribed pursuant to COBRA and life insurance benefits during the period of eighteen (18) months following the date of Involuntary Termination, at the same level as each of such benefits were in effect for the Employee on the day immediately preceding the day of the Employee’s termination of Employment.  

                                          (ii)          Other Termination.  If the Employee’s Employment with the Company terminates other than as a result of an Involuntary Termination at any time within twelve (12) months after a Change in Control, then the Employee shall not be entitled to receive severance or other benefits hereunder, but may be eligible for those benefits (if any) as may then be established under the Company’s then existing severance and benefits plans and policies at the Termination Date.

                           (b)          Accrued Wages and Vacation; Expenses.  Without regard to the reason for, or the timing of, Employee’s termination of Employment:  (i) the Company shall pay the Employee any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Employee all of the Employee’s accrued and unused vacation through the Termination Date; and (iii) following submission of proper expense reports by the Employee, the Company shall reimburse the Employee for all expenses reasonably and necessarily incurred by the Employee in connection with the business of the Company prior to the Termination Date.  These payments shall be made promptly upon termination and within the period of time mandated by law.

            5.            Successors.

                           (a)          Company’s Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

                           (b)          Employee’s Successors.    Without the written consent of the Company, Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other

person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of Employee hereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

            6.            Limitation on Payments. 

                           (a)          In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section 6 would be subject to the excise tax imposed by Section 4999 of the Code, then at the Employee’s election, the Employee’s severance benefits under Section 4 shall be payable either (i) in full, or (ii) as to such lesser amount selected by Employee that, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits under this Agreement, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code.

                           (b)          If the Employee elects (pursuant to Section 6(a)) a reduction in the payments and benefits that would otherwise be paid or provided to the Employee under the terms of this Agreement, the Employee shall be entitled to select the particular payments or benefits that will be reduced and the manner and method of any such reduction of such payments or benefits (including but not limited to which equity-based awards that would vest under Sections 4(a)(i)(A)), subject to reasonable limitations (including, for example, express provisions under the Company’s benefit plans). Within thirty (30) days after the amount of any elected reduction in payments and benefits is finally determined in accordance with the provisions of this Section 6(b), the Employee shall notify the Company in writing regarding the payments or benefits that are to be reduced.  If no notification is given by the Employee, no amounts shall be reduced and the Employee’s election under Section 6(a) shall be of no effect.  If, as a result of any reduction elected under Section 6(a), amounts previously paid to the Employee exceed the amount to which the Employee is entitled, the Employee will promptly return the excess amount to the Company. 

                           (c)          Limited Tax Gross-Up.  In the event that the Employee’s “parachute payments” (as described in Section 6(a) and after applying any reduction elected under such Section) are subject to the excise tax imposed by Section 4999 of the Code, then the Company shall make a supplemental payment to the Employee in an amount that equals the excise tax on the parachute payments, plus any additional excise tax and federal, state and local and employment income taxes, on such supplemental payment.  However, under no circumstances shall the total supplemental payment described in this Section 6(c) exceed the “Maximum Payment” described in the following sentence.  For purposes of this Agreement, the Maximum Payment shall equal the sum of the Employee’s (i) annual base salary immediately prior to the Change in Control, and (ii) target bonus for the year in which the Change in Control occurs.

                           (d)          Unless the Company and the Employee otherwise agree in writing, the Company’s independent public accountants (the “Accountants”), shall make any calculations necessary or appropriate to implement this Section 6.  For purposes of making such calculations, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Accountants shall assume that the Employee pays federal, state, and local

income taxes at the highest marginal rates in effect on the date of termination (unless the Employee clearly does not do so) and the calculation of federal income tax shall take into account the deduction of any state and local income taxes.  The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 6.  The Company shall bear all costs the Accountants may reasonably incur in connection with any such calculations.

            7.            Notices.

                           (a)          General.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid.  In the case of the Employee, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

                           (b)          Notice of Termination.  Any termination by the Company for Cause or by the Employee as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with this Section.  Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the Termination Date (which shall be not more than 30 days after the giving of such notice).  The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder.

            8.            Execution of Release Agreement upon Termination.  As a condition of entering into this Agreement and receiving the benefits under Section 4, the Employee agrees to execute and not revoke a release of claims agreement substantially in the form attached hereto as Exhibit A upon the termination of his Employment with the Company.

            9.            Arbitration.

                           (a)          Any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration to be held in Santa Clara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the “Rules”).  The arbitrator may grant injunctions or other relief in such dispute or controversy.  The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration.  Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.

                           (b)          The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules.  The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law.  Employee hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding

arising from or relating to this Agreement or relating to any arbitration in which the parties are participants.

                           (c)          The Company and Employee shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay its counsel fees and expenses.

                           (d)          Employee understands that nothing in this Section modifies Employee’s at-will Employment status.  Either Employee or the Company can terminate the Employment relationship at any time, with or without Cause.

                           (e)          EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION.  EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

                                          (i)          ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.

                                          (ii)          ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq.;

                                          (iii)          ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

            10.            Miscellaneous Provisions.

                           (a)          No Duty to Mitigate.  The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source.

                           (b)          Waiver.  No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall

be considered a waiver of any other condition or provision or of the same condition or provision at another time.

                           (c)          Integration.  This Agreement and the stock option agreements representing the Options represent the entire agreement and understanding between the parties as to the subject matter herein and supersede all prior or contemporaneous agreements, whether written or oral.

                           (d)          Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws, but not the conflicts of law rules, of the State of California.

                           (e)          Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

                           (f)          Employment Taxes.  All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. 

                           (g)          Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

            IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

EMPLOYEE	LSI LOGIC CORPORATION
	By:
Thomas Georgens
	Title:

EXHIBIT A

FORM RELEASE OF CLAIMS AGREEMENT

This Release of Claims Agreement (this “Agreement”) is made and entered into by and between LSI Logic Corporation (the “Company”) and Thomas Georgens (the “Employee”).

WHEREAS, the Employee was employed by the Company; and

WHEREAS, the Company (or the Company’s predecessor) and the Employee have entered into a Change of Control Severance Agreement effective as of __________, 2003 (the “Severance Agreement”).

NOW THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee (collectively referred to as the “Parties”) desiring to be legally bound do hereby agree as follows:

            1.            Termination.  The Employee’s employment with the Company terminated on ____________, 20__.

            2.            Consideration.  Subject to and in consideration of the Employee’s release of claims as provided herein, the Company has agreed to pay the Employee certain benefits and the Employee has agreed to provide certain benefits to the Company, both as set forth in the Severance Agreement.

            3.            Payment of Salary.  The Employee acknowledges and represents that the Company has paid all salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to the Employee.

            4.            Release of Claims.  The Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to the Employee by the Company.  The Employee, on his own behalf and his respective heirs, family members, executors and assigns, hereby fully and forever releases the Company and its past, present and future officers, agents, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, parents, predecessor and successor corporations, and assigns, from, and agrees not to sue or otherwise institute or cause to be instituted any legal or administrative proceedings concerning any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that he may possess arising from any omissions, acts or facts that have occurred up until and including the Effective Date (as defined below) of this Agreement including, without limitation:

                           (a)          any and all claims relating to or arising from the Employee’s employment relationship with the Company and the termination of that relationship;

                           (b)          any and all claims relating to, or arising from, the Employee’s right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state

corporate law and securities fraud under any state or federal law;

                           (c)          any and all claims for wrongful discharge of employment, termination in violation of public policy, discrimination, breach of contract (both express and implied), breach of a covenant of good faith and fair dealing (both express and implied), promissory estoppel, negligent or intentional infliction of emotional distress, negligent or intentional misrepresentation, negligent or intentional interference with contract or prospective economic advantage, unfair business practices, defamation, libel, slander, negligence, personal injury, assault, battery, invasion of privacy, false imprisonment and conversion;

                           (d)          any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, and Labor Code Section 201, et seq. and Section 970, et seq. and all amendments to each such Act as well as the regulations issued thereunder;

                           (e)          any and all claims for violation of the federal or any state constitution;

                           (f)          any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and

                           (g)          any and all claims for attorneys’ fees and costs.

                           The Employee agrees that the release set forth in this Section 4 shall be and remain in effect in all respects as a complete general release as to the matters released.  This release does not extend to any obligations incurred under this Agreement.

            5.            Acknowledgment of Waiver of Claims under ADEA.  The Employee acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing and voluntary.  The Employee and the Company agree that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement.  The Employee acknowledges that the consideration given for this waiver and release agreement is in addition to anything of value to which the Employee was already entitled.  The Employee further acknowledges that he has been advised by this writing that (a) he should consult with an attorney prior to executing this Agreement; (b) he has at least twenty-one (21) days within which to consider this Agreement; (c) he has seven (7) days following the execution of this Agreement by the Parties to revoke the Agreement; and (d) this Agreement shall not be effective until the revocation period has expired.  Any revocation should be in writing and delivered to the Company by the close of business on the seventh (7^th) day from the date that the Employee signs this Agreement.

            6.            Civil Code Section 1542.  The Employee represents that he is not aware of any claims against the Company other than the claims that are released by this Agreement.  The Employee acknowledges that he has been advised by legal counsel and is familiar with the provisions of California Civil Code Section 1542, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

                           The Employee, being aware of said code section, agrees to expressly waive any rights he may have thereunder, as well as under any other statute or common law principles of similar effect.

            7.            No Pending or Future Lawsuits.  The Employee represents that he has no lawsuits, claims or actions pending in his name, or on behalf of any other person or entity, against the Company or any other person or entity referred to herein.  The Employee also represents that he does not intend to bring any claims on his own behalf or on behalf of any other person or entity against the Company or any other person or entity referred to herein.

            8.            Confidentiality.  The Employee agrees to use his best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as “Release Information”).  The Employee agrees to take every reasonable precaution to prevent disclosure of any Release Information to third parties and agrees that there will be no publicity, directly or indirectly, concerning any Release Information.  The Employee agrees to take every precaution to disclose Release Information only to those attorneys, accountants, governmental entities and family members who have a reasonable need to know of such Release Information.

            9.            No Cooperation.  The Employee agrees he will not act in any manner that might damage the business of the Company.  The Employee agrees that he will not counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges or complaints by any third party against the Company and/or any officer, director, employee, agent, representative, shareholder or attorney of the Company, unless under a subpoena or other court order to do so.

            10.            Costs.  The Parties shall each bear their own costs, expert fees, attorneys’ fees and other fees incurred in connection with this Agreement.

            11.            Authority.  The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement.  The Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement.

            12.            No Representations.  The Employee represents that he has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement.  Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement.

            13.            Severability.  In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.

            14.            Entire Agreement.  This Agreement and the Severance Agreement and the agreements and plans referenced therein represent the entire agreement and understanding between the Company and the Employee concerning the Employee’s separation from the Company, and supersede and replace any and all prior agreements and understandings concerning the Employee’s relationship with the Company and his compensation by the Company.  This Agreement may only be amended in writing signed by the Employee and an executive officer of the Company.

            15.            Governing Law.  This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California.

            16.            Effective Date.  This Agreement is effective eight (8) days after it has been signed by the Parties (the “Effective Date”).

            17.            Counterparts.  This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.

            18.            Voluntary Execution of Agreement.  This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims.  The Parties acknowledge that:

                             (a)  They have read this Agreement;

                             (b)  They have been represented in the preparation, negotiation and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel;

                             (c)  They understand the terms and consequences of this Agreement and of the releases it contains; and

                             (d)  They are fully aware of the legal and binding effect of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.

LSI LOGIC CORPORATION

By:

Title:

Date:

EMPLOYEE

Thomas Georgens

Date:

EX-99

Exhibit 10.9

LSI LOGIC CORPORATION
CHANGE IN CONTROL SEVERANCE AGREEMENT

          This Change in Control Severance Agreement (the “Agreement”) is made and entered into effective as of  ______________________ (the “Effective Date”), by and between [Name of Executive Officer] (“Employee”) and LSI Logic Corporation a Delaware corporation (the “Company”).  Certain capitalized terms used in this Agreement are defined in Section 1 below.

R E C I T A L S

          A.          It is expected that the Company from time to time will consider the possibility of a Change in Control.  The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities.

          B.          The Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his or her employment and to maximize the value of the Company upon a Change in Control for the benefit of its shareholders.

          C.          In order to provide the Employee with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change in Control, the Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee’s termination of employment following a Change in Control.

AGREEMENT

          In consideration of the mutual covenants herein contained and the continued employment of Employee by the Company, the parties agree as follows:

          1.          Definition of Terms.  The following terms referred to in this Agreement shall have the following meanings:

                        (a)             Cause.  “Cause” shall mean (i) any act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee with the intention or reasonable expectation that such may result in substantial personal enrichment of the Employee, (ii) Employee’s conviction of a felony which the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, (iii) a willful act by the Employee which constitutes misconduct and is injurious to the Company, or (iv) continued willful violations by the Employee of the Employee’s obligations to the Company after there has been delivered to the Employee a written demand

for performance from the Company which describes the basis for the Company’s belief that the Employee has not substantially performed his or her duties.

                        (b)          Change in Control.  “Change in Control” shall mean the occurrence of any of the following events:

                                       (i)          the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

                                       (ii)         the approval by the shareholders of the Company, or if shareholder approval is not required, by the Board, of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

                                       (iii)         any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities.

                                       (iv)         a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors.  “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

                        (c)          Involuntary Termination.  “Involuntary Termination” shall mean any of the following: (i) without the Employee’s express written consent, a significant reduction of the Employee’s duties, position or responsibilities relative to the Employee’s duties, position or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such position, duties and responsibilities, unless the Employee is provided with comparable duties, position and responsibilities; (ii) without the Employee’s express written consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) without the Employee’s express written consent, a reduction by the Company of the Employee’s base salary as in effect immediately prior to such reduction; (iv) without the Employee’s express written consent, a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee’s overall benefits package is significantly reduced; (v) without the Employee’s express written consent, the relocation of the Employee to a facility or a location more than thirty-five (35) miles from his or her current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the

Company to obtain the assumption of this Agreement by any successors contemplated in Section 5 below.

                        (d)          Termination Date.  “Termination Date” shall mean the effective date of any notice of termination delivered by one party to the other hereunder.

          2.          Term of Agreement.  This Agreement shall terminate on November 20, 2008, unless within such term a Change in Control has occurred, in which case this Agreement shall terminate upon the date that all obligations of the parties hereto under this Agreement have been satisfied.

          3.          At-Will Employment.  The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined under applicable law.  If the Employee’s employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as otherwise also may be established under the Company’s then existing employee benefit plans or policies at the time of termination.

          4.          Severance Benefits.

                       (a)          Termination Following A Change in Control.

                                      (i)          Involuntary Termination.

                                                     (A)          Equity Acceleration.  If the Employee’s employment with the Company terminates as a result of an Involuntary Termination at any time within twelve (12) months after a Change in Control, then each unexpired option to purchase shares of the Company’s equity securities, each share of Company restricted stock and each other unexpired equity-based compensation award that was granted to the Employee by the Company at least six (6) months prior to the Change in Control (collectively, the “Awards”), shall be automatically accelerated and shall be fully vested and exercisable as at the date of Involuntary Termination.

                                                     (B)          Severance Benefits.  If the Employee’s employment with the Company terminates as a result of an Involuntary Termination at any time within twelve (12) months after a Change in Control, the Employee, within seven (7) days of such Involuntary Termination, shall be paid a lump sum that shall be equal to the sum of:  (i) twenty-four (24) months of the Employee’s base salary (as in effect immediately prior to the Change in Control), plus (ii) 200% of the Employee’s target bonus for the year in which the Change in Control occurs.  In addition, the Company shall provide the Employee with health, dental and vision coverage benefits during the period of twenty-four (24) months following the date of Involuntary Termination, provided, however, that the Employee elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), within the time period prescribed pursuant to COBRA and  life insurance benefits during the period of eighteen (18) months following the date of Involuntary Termination, at the same level as each of such benefits were in effect for the Employee on the day immediately preceding the day of the Employee’s termination of employment.  

                                      (ii)          Other Termination.  If the Employee’s employment with the Company terminates other than as a result of an Involuntary Termination at any time within twelve (12) months after a Change in Control, then the Employee shall not be entitled to receive severance or other benefits hereunder, but may be eligible for those benefits (if any) as may then be established under the Company’s then existing severance and benefits plans and policies at the Termination Date.

                       (b)          Accrued Wages and Vacation; Expenses.  Without regard to the reason for, or the timing of, Employee’s termination of employment:  (i) the Company shall pay the Employee any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Employee all of the Employee’s accrued and unused vacation through the Termination Date; and (iii) following submission of proper expense reports by the Employee, the Company shall reimburse the Employee for all expenses reasonably and necessarily incurred by the Employee in connection with the business of the Company prior to the Termination Date.  These payments shall be made promptly upon termination and within the period of time mandated by law.

          5.          Successors.

                       (a)          Company’s Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

                       (b)          Employee’s Successors.    Without the written consent of the Company, Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of Employee hereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

          6.          Limitation on Payments. 

                       (a)          In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for this Section 6 would be subject to the excise tax imposed by Section 4999 of the Code, then at the Employee’s election, the Employee’s severance benefits under Section 4 shall be payable either (i) in full, or (ii) as to such lesser amount that,, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits under this Agreement, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code.

                       (b)          If the Employee elects (pursuant to Section 6(a)) a reduction in the payments and benefits that would otherwise be paid or provided to the Employee under the terms of this Agreement,

the Employee shall be entitled to select the particular payments or benefits that will be reduced and the manner and method of any such reduction of such payments or benefits (including but not limited to the number of equity-based awards that would vest under Sections 4(a)(i)(A)), subject to reasonable limitations (including, for example, express provisions under the Company’s benefit plans). Within thirty (30) days after the amount of any elected reduction in payments and benefits is finally determined in accordance with the provisions of this Section 6(c), the Employee shall notify the Company in writing regarding the payments or benefits that are to be reduced.  If no notification is given by the Employee, no amounts shall be reduced and the Employee’s election under Section 6(a) shall be of no effect.  If, as a result of any reduction elected under Section 6(a), amounts previously paid to the Employee exceed the amount to which the Employee is entitled, the Employee will promptly return the excess amount to the Company. 

                       (c)          Limited Tax Gross-Up.  In the event that the Executive’s “parachute payments” (as described in Section 6(a) and after applying any reduction elected under such Section) are subject to the excise tax imposed by Section 4999 of the Code, then the Company shall make a supplemental payment in an amount that equals the excise tax on the parachute payments, plus any additional excise tax and federal, state and local and employment income taxes, on such supplemental payment.  However, under no circumstances shall the total supplemental payment described in this Section 6(c) exceed the “Maximum Payment” described in the following sentence.  For purposes of this Agreement, the Maximum Payment shall equal the sum of the Employee’s (i) annual base salary immediately prior to the Change in Control, and (ii) target bonus for the year in which the Change in Control occurs.

                       (d)          Unless the Company and the Employee otherwise agree in writing, the Company’s independent public accountants (the “Accountants”), shall make any calculations necessary or appropriate to implement this Section 6.  For purposes of making such calculations, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Accountants shall assume that the Employee pays federal, state, and local income taxes at the highest marginal rates in effect on the date of termination (unless the Employee clearly does not do so) and the calculation of federal income tax shall take into account the deduction of any state and local income taxes.  The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 6.  The Company shall bear all costs the Accountants may reasonably incur in connection with any such calculations.

          7.          Notices.

                       (a)          General.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid.  In the case of the Employee, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

                       (b)          Notice of Termination.  Any termination by the Company for Cause or by the Employee as a result of a voluntary resignation or an Involuntary Termination shall be communicated by

a notice of termination to the other party hereto given in accordance with this Section.  Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the Termination Date (which shall be not more than 30 days after the giving of such notice).  The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder.

          8.          Execution of Release Agreement upon Termination.  As a condition of entering into this Agreement and receiving the benefits under Section 4, the Employee agrees to execute and not revoke a release of claims agreement substantially in the form attached hereto as Exhibit A upon the termination of his or her employment with the Company.

          9.          Arbitration.

                       (a)          Any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration to be held in Santa Clara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the “Rules”).  The arbitrator may grant injunctions or other relief in such dispute or controversy.  The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration.  Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.

                       (b)          The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules.  The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law.  Employee hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants.

                       (c)          The Company and Employee shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay its counsel fees and expenses.

                       (d)          Employee understands that nothing in this Section modifies Employee’s at-will employment status.  Either Employee or the Company can terminate the employment relationship at any time, with or without Cause.

                       (e)          EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION.  EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

                                      (i)          ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.

                                      (ii)         ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq.;

                                      (iii)        ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

          10.         Miscellaneous Provisions.

                        (a)          No Duty to Mitigate.  The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source.

                        (b)          Waiver.  No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

                        (c)          Integration.  This Agreement and the stock option agreements representing the Options represent the entire agreement and understanding between the parties as to the subject matter herein and supersede all prior or contemporaneous agreements, whether written or oral.

                        (d)          Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws, but not the conflicts of law rules, of the State of California.

                        (e)          Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

                        (f)          Employment Taxes.  All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes. 

                        (g)          Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

          IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

EMPLOYEE	LSI LOGIC CORPORATION
	By:
	Title:

EX-99

Exhibit 21.1

SUBSIDIARIES OF REGISTRANT

NAME	PLACE OF INCORPORATION OR ORGANIZATION
C-Cube International Limited (Hong Kong)	Hong Kong
C-Cube Microsystems (Asia Pacific) Limited (Hong Kong)	Hong Kong
C-Cube Microsystems (Canada) Limited	Canada
C-Cube Microsystems International Ltd	Bermuda
C-Cube Technology Ltd.	Bermuda
C-Cube U.S.	Delaware
LSI Logic LLC	Delaware
LSI Logic Manufacturing Services, Inc.	Delaware
LSI Logic A.B.	Sweden
LSI Logic Asia, Inc.	Delaware
LSI Logic Canada Corporation	Canada
LSI Logic Corporation of Canada, Inc.	Canada
LSI Logic Corporation of Korea, Inc.	Korea
LSI Logic Export Sales Corporation	U.S. Virgin Islands
LSI Logic Europe Limited	UK
LSI Logic GmbH	Germany
LSI Logic HK Holdings	Cayman
LSI Logic Malta Ltd.	Maltese
LSI Logic Hungary LLC	Hungary
Francionial Resources Ltd.	B.V.I.
LSI Logic Hong Kong Ltd.	Hong Kong
LSI Logic International Services, Inc.	California
LSI Logic Japan Semiconductor, Inc.	Japan
LSI Logic KK	Japan
LSI Logic Netherlands B.V.	Netherlands
LSI Logic Resale Corporation	Delaware
LSI Logic S.A.	France
LSI Logic Singapore Ltd.	Singapore
LSI Logic S.P.A.	Italy
LSI Logic Storage Systems, Inc.	Delaware
LSI Logic Storage Europe Holdings Ltd.	Ireland
LSI Logic Storage Systems Europe Ltd.	Ireland
LSI Logic Storage Systems International Services, Inc.	Delaware
Media Computer Technologies, Inc.	California

EX-99

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-81434, No. 333-86028, No. 333-107976 and all amendments thereto) and Form S-8 (No.2-867474, No.2-91907, No.2-98732, No.33-6188, No.33-6203, No.33-13265, No.33-17720, No.33-30385, No.33-30386, No.33-36249, No.33-41999, No.33-42000, No.33-53054, No.33-66548, No.33-66546, No.33-55631, No.33-55633, No.33-66697, No.33-59981, No.33-59985, No.33-59987, No.333-12887, No.333-34285, No.333-57563, No.333-62159, No.333-74627, No.333-81433, No.333-81435, No.333-81437, No.333-90951, No.333-95421, No.333-38746, No.333-42888, No.333-43306, No.333-46436, No.333-52050, No.333-53584, No.333-57152, No.333-62960, No.333-66238, No.333-66240, No.333-69380, No.333-71900, No. 333-95643, No. 333-96549, No. 333-96555, No. 333-98807, No. 106205 and No. 106206) of LSI Logic Corporation of our report dated January 28 2004 [except for Note 14 as to which the date is February 19, 2004], relating to the financial statements and financial statement schedule, which appears on page 93 of this Annual Report of Form 10-K for the year ended December 31, 2003.

PricewaterhouseCoopers LLP
San Jose, California
March 15, 2004

EX-99

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Wilfred J. Corrigan, certify that:

1. I have reviewed this annual report on Form 10-K of LSI Logic Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
	a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	c. Evaluated the effectiveness of the registrant’s disclosure controls and presented in this report our conclusions about the effectiveness of the disclosure of controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
	a. All significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:     March 15, 2004

By:	/s/  WILFRED J. CORRIGAN
Name:	Wilfred J. Corrigan
Title:	Chairman & Chief Executive Officer

EX-99

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Bryon Look, certify that:

1. I have reviewed this annual report on Form 10-K of LSI Logic Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
	a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	c. Evaluated the effectiveness of the registrant’s disclosure controls and presented in this report our conclusions about the effectiveness of the disclosure of controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
	a. All significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which could adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:     March 15, 2004

By:	/s/  BRYON LOOK
Name:	Bryon Look
Title:	Executive Vice President & Chief Financial Officer

EX-99

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Wilfred J. Corrigan, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the ended annual Report of LSI Logic Corporation on Form 10-K for the year ended December 31, 2003, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10- K fairly presents, in all material respects, the financial condition and results of operations of LSI Logic Corporation. 

By:	/s/  WILFRED J. CORRIGAN
Name:	Wilfred J. Corrigan
Title:	Chairman & Chief Executive Officer

EX-99

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Bryon Look, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the ended annual Report of LSI Logic Corporation on Form 10-K for the year ended December 31, 2003, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10- K fairly presents, in all material respects, the financial condition and results of operations of LSI Logic Corporation. 

By:	/s/  BRYON LOOK
Name:	Bryon Look
Title:	Executive Vice President & Chief Financial Officer