Exhibit 10.31

SEPARATION AGREEMENT AND GENERAL RELEASE

This SEPARATION AGREEMENT AND GENERAL RELEASE (the “Agreement”) is entered into
as of November 16, 2005 (the “Effective Date”), by and between Agere Systems
Inc., a Delaware corporation (together with its predecessors and its successors
and assigns, the “Company” or “Agere”), and Kevin P. Pennington (the
“Employee”).

W I T N E S S E T H:

WHEREAS, the Employee is currently employed by the Company;

WHEREAS, the Employee and the Company have decided to (a) place the Employee on
a paid leave of absence (“LOA”) for 24 months beginning on December 1, 2005 as
set forth in Section 1 below and (b) terminate their employment relationship
effective after such LOA;

WHEREAS, the Employee and the Company (the “Parties”) have negotiated and agreed
to a final settlement of their respective rights, obligations and liabilities;
and

WHEREAS, the Parties have agreed that the Company’s Officer Severance Policy
attached hereto as Exhibit A (the “Officer Severance Policy”), except as
otherwise modified by this Agreement, shall be applicable to the Employee.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Employee and the Company hereby agree as
follows:

1.        FY 05 Bonus; Leave of Absence Payments; Severance.

(a)       Employee shall not be eligible to participate in the Company’s FY05
bonus program for executive committee members.

(b)       Subject to the terms and conditions of this Agreement and in exchange
for the Employee executing this Agreement, the Company agrees to place the
Employee on a LOA for 24 months effective from December 1, 2005 through November
30, 2007 at which time the Employee will terminate from the Company’s payroll.
During the LOA, the Company shall pay the Employee leave of absence payments
(the “LOA Payments”) in an amount equal to Five Hundred and Forty-Five Thousand
Dollars ($545,000). The LOA Payments shall be made as follows:

(i)       For the six month period from December 1, 2005 to May 31, 2006, no LOA
Payment shall be made. On the first payroll date on or after June 1, 2006, the
Company shall pay the Employee a lump sum Payment in an amount equal One Hundred
and Thirty-Six Thousand Two Hundred and Fifty Dollars ($136,250);

(ii)     On each subsequent monthly payment cycle after June 1, 2006, the
Company shall pay the Employee a Payment in an amount equal to

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Twenty-Two Thousand Seven Hundred and Eight Dollars and Thirty-Three Cents
($22,708.33) for a total of eighteen months.

(c)        In addition to the LOA Payments, on or before December 31, 2005 the
Company shall pay the Employee a severance payment in an amount equal to Five
Hundred and Forty-Five Thousand Dollars ($545,000) (the “Severance Payment,” and
together with the LOA Payments, the “Payments”).

(d)       The Payments shall be made in the ordinary course of the Company’s
payroll cycle; provided, however that no Payment will be made prior to the
Expiration Date (as defined in paragraph 8 of this Agreement). The Employee
acknowledges and agrees that the Payments (i) represent the gross amount before
all applicable federal, state and local withholding taxes that are required to,
and will, be deducted by the Company, and (ii) except as set forth in Sections
2, 3 and 4 below, are in consideration of all amounts owed by the Company to the
Employee, including without limitation any amounts that may be due to the
Employee under any Company benefit or welfare plan or policies. The Employee
will not accrue any vacation or personal days while on a LOA. Payment for
accrued and unused vacation and personal days will be paid concurrent with the
first Payment hereunder in accordance with the Company’s vacation policy.

(e)       In the event of the death of the Employee while on leave of absence,
then any portion of the cash Payments not yet paid will be paid, in a lump sum,
to the Employee’s estate. Any unvested stock options and restricted stock units
that would have otherwise vested during the remaining term of the leave of
absence will vest immediately upon the death of the Employee and become
exercisable by the Employee’s estate. Company provided medical coverage will end
upon the death of the Employee at which time any dependents covered at that time
can continue coverage under the Consolidated Omnibus Budget Reconciliation Act
(Cobra) of 1986.

2.        Equity. The Employee agrees to forfeit all of his stock options and
restricted stock grants except for (a) the 50,000 stock options granted on
November 1, 2002 (strike price $9.95), (b) the 60,000 stock options granted on
December 1, 2003 (strike price $35.45) and (c) the 60,000 stock options granted
on December 1, 2004 (strike price $13.80) (the “Non-Forfeited Grants”). Except
for the vesting provisions set forth in the Officer Severance Policy, nothing
herein shall be deemed to supercede or replace any provision of any applicable
plan or agreement pursuant to which any stock option or restricted stock unit
was granted to the Employee.

3.        Health and Welfare Benefits. Except for the continuation of coverage
set forth in the Officer Severance Policy, nothing herein shall be deemed to
supercede or replace any provision of any health or welfare plan applicable to
the Employee. In addition, the terms of that relocation/housing letter agreement
related to the sale of the Employee’s primary residence are incorporated and
made part of this Agreement.

4.        Retirement Benefits. Except as set forth in the Officer Severance
Policy, nothing herein shall be deemed to supercede or replace any provision of
any retirement plan applicable to the Employee.

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5.        Non-Solicitation; Non-Compete and Cooperation.

(a)       Until November 30, 2007, the Employee shall not, without the prior
written consent of the Company’s Chief Executive Officer, (i) directly or
indirectly solicit or employ (or encourage any company or business organization
in which he is an officer, employee, partner, director, consultant or member of
a technical advisory board to solicit or employ) or (ii) refer to any employee
search firms, any person who was employed by the Company on the Effective Date.

(b)       Until November 30, 2007, the Employee shall not, without the prior
written consent of the Company’s Chief Executive Officer, at any time or for any
reason, anywhere in the world, directly or indirectly (i) engage in any business
or activity, whether as an employee, consultant, partner, principal, agent,
representative, stockholder (except as a holder of less than 5% of the combined
voting power of the outstanding stock of a publicly held company) or in any
other individual, corporate or representative capacity, or render any services
or provide any advice to any business, activity, person or entity, if the
Employee knows or reasonably should know that such business, activity, service,
person or entity, directly or indirectly, competes in any material manner with
the Company’s business, or (ii) meaningfully assist, help or otherwise support
any person, business, corporation, partnership or other entity or activity,
whether as an employee, consultant, partner, principal, agent, representative,
stockholder (other than in the capacity as a stockholder of less than 5% of the
combined voting power of the outstanding shares of stock of a publicly held
company) or in any other individual, corporate or representative capacity, to
create, commence or otherwise initiate, or to develop, enhance or otherwise
further, any business or activity if the Employee knows or reasonably should
know that such business, activity, service, person or entity, directly or
indirectly, competes in any material manner with the Company’s business.

(c)       If at any time the Employee violates the provisions of Sections 5(a)
or 5(b) above, any amounts remaining unpaid under the terms of this Agreement as
well as any benefits provided for in the Agreement (other than those from
qualified retirement or welfare plans) and any continuing vesting of stock
options or restricted stock units, if any, shall immediately be forfeited and
terminated, and any amounts already paid by the Company to the Employee in
accordance herewith, except for the sum of One Thousand Dollars ($1,000) shall,
at the sole discretion of the Company, be required to be repaid by the Employee
to the Company within ten (10) business days of the Company’s request in writing
therefore. This provision shall not affect the Company’s right to otherwise
specifically enforce any provision relating to non-solicitation or
non-competition that is in this Agreement or in any other agreement, document or
plan applicable to the Employee.

(d)       The Employee hereby agrees that, from time to time upon the reasonable
request of the Company, the Employee shall assist the Company in connection with
any pending or future dispute, litigation, arbitration or similar proceeding or
investigation or any regulatory requests or filings involving the Company, any
of its employees or directors or the employees and directors of any subsidiary.

6.        Non-Disparagement.

The Employee agrees that he shall not (i) testify or otherwise provide testimony
in any form at or for any legal or administrative proceeding, including
testimony related to any matter involving the Company, unless legally compelled
to do so or (ii) make

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statements to third parties, the public, the press or the media or any
administrative agency, in either case that would portray the Company in an
adverse light or disparage the Company, or cause injury to the Company with
respect to events occurring prior to or after the Effective Date.

7.        Confidentiality. Employee hereby agrees and covenants, that:

(a)       he shall not divulge to any person or entity other than the Company,
without express written authorization of the Company’s Chief Executive Officer,
any proprietary or confidential information, whether written or oral, received
or gained by him in the course of his employment by the Company or of his duties
with the Company (“Confidential Information”), nor shall he make use of any such
Confidential Information on his own behalf or on behalf of any other person or
entity, for so long as such Confidential Information is not known to the general
public; and

(b)       he shall return or cause to be returned to the Company’s Chief
Executive Officer any and all property of the Company of any kind or description
whatsoever, including, but not limited to, any Confidential Information, which
has been furnished to him or is held by him, at his residence or elsewhere, and
shall not retain any copies, duplicates, reproductions or excerpts thereof.

8.        Release. In consideration of the Company’s entering into this
Agreement and the payments and benefits set forth herein, the Employee, on
behalf of himself and his heirs, executors, administrators, successors and
assigns, knowingly and voluntarily waives, releases and forever discharges the
Company, each of its subsidiaries or affiliated companies, their respective
current and former officers, employees, agents and directors, and any successor
or assign of any of the foregoing, from any claim, charge, action or cause of
action any of them may have against any such released person, whether known or
unknown, from the beginning of time through the date of this Agreement based
upon any matter, cause or thing whatsoever related to or arising out of his
employment by the Company or his termination other than claims arising out of a
breach of this Agreement or any claim that cannot be waived by law. All such
claims are forever barred by this Agreement.

This release and waiver includes, but is not limited to, any rights or claims
under United States federal, state or local law, for wrongful or abusive
discharge, for breach of any contract, or for discrimination based upon race,
color, ethnicity, sex, age, national origin, religion, disability, sexual
orientation, or any unlawful criterion or circumstance, including, but not
limited to, rights or claims under the Family and Medical Leave Act, claims of
discrimination under the Employee Retirement Income Security Act, the Equal Pay
Act, the Occupational Safety and Health Act, the Workforce Adjustment Retraining
Notification Act, Title VII of the Civil Rights Act of 1964, the Americans with
Disabilities Act, Section 1981 through 1988 of the Civil Rights Act of 1866, the
Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the
Older Workers Benefit Protection Act, the Rehabilitation Act of 1973, Executive
Order 11246 and any other executive order, the Fair Labor Standards Act and its
state and local counterparts, the Uniform Services Employment and Reemployment
Rights Act, and the Immigration Reform Control Act, all as amended. The Employee
confirms that he has no claim or basis for a claim whatsoever against the
Company with respect to any such matters related to or arising out of his
employment by the Company or his termination.

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The Employee affirms that he has been given at least 21 days within which to
consider this release and its consequences, that he has seven days following his
signing of this Agreement (the seventh day being the “Expiration Date”) to
revoke and cancel the terms and conditions contained herein and the terms and
conditions of this Agreement shall not become effective or enforceable until the
seven-day revocation and cancellation period has expired, and that, prior to the
execution of this Agreement, he has been advised by the Company to consult with
an attorney of his choice concerning the terms and conditions set forth herein.
Any revocation or cancellation of this Agreement by the Employee pursuant to
this paragraph shall be in writing delivered to the Company.

9.        Entire Agreement. This Agreement contains the entire agreement between
the Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations, and undertakings, whether
written or oral, between the Parties with respect thereto. This Agreement may
not be modified or amended except by a writing signed by both Parties.

10.      No Admission. The parties acknowledge and agree that this Agreement
does not constitute and should not be construed in any way as an admission by
any other party of (a) any wrongdoing or liability whatsoever, (b) any violation
of the Employee’s rights or those of any other person, or (c) any violation of
any order, law, statute, duty or contract. The Company specifically disclaims
any liability for any alleged wrongdoing or liability, for any alleged violation
of my rights or those of any other person, or for any alleged violation of any
order, law, statute, duty or contract.

11.      Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions or portions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.

12.      Survival; Termination. The respective rights and obligations of the
Parties hereunder shall survive any termination of this Agreement to the extent
necessary for the intended preservation of such rights and obligations. This
Agreement may be terminated by the Company if the Employee breaches any
provision hereof. In addition, the termination provisions set forth in the
Officer Severance Policy shall apply.

13.      Interpretation; Governing Law. This Agreement shall be interpreted in
accordance with the plain meaning of its terms and not strictly for or against
any person or entity. To the extent that federal law controls the interpretation
or enforceability of any provision of this Agreement, this Agreement shall be
construed and enforced in accordance with federal law. Otherwise, this Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania without reference to the principles of
conflicts of law.

14.      Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument. Signatures delivered by
facsimile shall be effective for all purposes.

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BY SIGNING AND DELIVERING THIS AGREEMENT, THE EMPLOYEE STATES:

(A)        HE HAS READ IT AND UNDERSTANDS IT AND HAS AT LEAST 21 DAYS TO
CONSIDER IT AND A PERIOD OF SEVEN DAYS AFTER EXECUTING IT TO REVOKE IT;

(B)        HE AGREES WITH IT AND IS AWARE THAT HE IS GIVING UP IMPORTANT RIGHTS,
INCLUDING RIGHTS PROVIDED BY THE OLDER WORKERS BENEFIT PROTECTION ACT, FOR
CONSIDERATION TO WHICH HE WAS NOT ALREADY OTHERWISE ENTITLED;

(C)        HE WAS ADVISED TO, AND IS AWARE OF HIS RIGHT TO CONSULT WITH AN
ATTORNEY BEFORE SIGNING IT; AND

(D)        HE HAS SIGNED IT KNOWINGLY AND VOLUNTARILY.

IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first
written above.

  AGERE SYSTEMS INC.                   By:  /s/ Richard L. Clemmer   Name:   
Richard L. Clemmer   Title:    President and Chief Executive
Officer                   By:  /s/ Kevin P. Pennington   Name:    Kevin P.
Pennington

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Exhibit A - Agere Officer Severance Policy

Eligibility    •   Agere Officer status.   • Triggered by (a) Company initiated
termination, other than for “Cause” as defined on page 2, or (b) as described
under the “Change in Control Provisions” on page 2.   • Contingent upon signing
the standard, Agere Release Agreement (including non-compete, non-solicitation
provisions).   • All payments and benefits listed below will be offset by any
individually negotiated or legally required arrangement.           Leave of
Absence Payment   • 24 months of base salary and target bonus.   • Base salary
will be paid monthly. Target bonus will be paid annually in December. Both
payments are benefits bearing.           Equity   Stock Options   • Options
continue vesting as scheduled during the 24 month period.   • At end of the 24
month period, your employment will end and options will follow normal
termination provisions:        -   Pension eligible — Keep vested remainder of
term; unvested options cancel;        -   Not Pension eligible — 90 days to
exercise vested; unvested options cancel.           Restricted Stock   •
Restricted stock continues vesting as scheduled during the 24 month period.    
      ESPP   • Your participation will continue through payroll deductions.    
      Retirement Benefits      Service Pension   Retirement eligible:     Your
severance pay will count towards your pension. Pension payments begin after
termination of this arrangement.           Not retirement eligible:   Deferred
vested employees can elect to begin payment at the termination of this
arrangement. The severance period can be used to accrue service/age toward
achieving pension eligibility.           Cash Balance Pension   • Severance pay
will count towards the cash balance plan. The cash balance is payable at the end
of the 24 month period or later at employee election.           401(k)   •
Payroll deductions continue           Health and
Welfare Benefits   • Medical, Dental, Disability, Life Insurance, Car Allowance,
Financial Counseling benefits continue the same as actively employed Officers.  
• Company credit cards, home office equipment, voice mail and e-mail will be
cancelled at the beginning of the 24 month period.

Exhibit A – Page 1 of 2

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Termination
Provisions      •    In the event you need to terminate this arrangement during
the 24 month leave period for any reason (including conflict with another
employer), there will be no acceleration of any remaining unpaid amounts of base
salary or target bonus and any such unpaid amounts will be forfeited. The normal
“voluntary” termination provisions for the stock and benefit plans will apply. 
            Change in Control   
Provisions   • If a Change in Control (as defined in the 2001 Long Term
Incentive Plan or its successor plan as in effect immediately before the Change
in Control) shall occur, this policy will remain in effect and                  
(a)   you will also be entitled to the benefits of this policy if you terminate
your employment within three months of an event constituting Good Reason. Good
Reason is defined as follows:                               (i)           the
assignment to you by the Board of Directors or another representative of the
Company of duties which represent a material decrease in responsibility and are
materially inconsistent with the duties associated with your position, any
reduction in your job title, or a material negative change in the level of
Officer to whom you report, or                               (ii) a material
negative change in the terms and conditions of your employment, including a
reduction by the Company of your annual base salary or a material decrease in
your target opportunity for a Short Term Incentive Award.                   ;
and                   (b) Notwithstanding anything to the contrary in this
policy, in the event that you become subject to the tax (the “Excise Tax”)
imposed by Section 4999 of the Internal Revenue Code of 1986 (or any similar tax
that may hereafter be imposed), the Company will pay you, at each time you
become subject to an Excise Tax or additional Excise Tax, an amount in addition
to any amount or benefit you receive or are deemed to have received that results
in Excise Tax, such that the net amount retained or deemed received by you,
after deduction of any Excise Tax on such amount or benefit and any federal,
state and local income tax and Excise Tax upon the payment of any additional
amount provided for by this paragraph, shall be equal to the amount of such
payment or benefit. This paragraph applies to any payment or benefit you may
receive or be deemed to have received from the Company that subjects you to
Excise Tax, even if that payment or benefit is not provided for by this policy.

“Cause” is defined as:

      (i) violation of Agere’s code of conduct;   (ii) conviction of (including
a plea of guilty or nolo contendere) of a felony or any crime of theft,
dishonesty or moral turpitude, or   (iii)   gross omission or gross dereliction
of any statutory or common law duty of loyalty to Agere.

Exhibit A – Page 2 of 2

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