**Exhibit 10.1****TOLLGRADE COMMUNICATIONS, INC.****MANAGEMENT INCENTIVE COMPENSATION PLAN**EFFECTIVE JANUARY 1, 1997  PreparedBy:   Samuel C. Knoch  November 27, 1996Amended effective: 10/15/97; 1/29/98; 12/17/98; 1/28/99; 5/6/99; 7/15/99; 10/14/99; 1/25/01
 

 
**TOLLGRADE COMMUNICATIONS, INC.****MANAGEMENT INCENTIVE COMPENSATION PLAN****TABLE OF CONTENTS**         PageARTICLE I OBJECTIVES       Section 1.01 Objectives 1     ARTICLE II DEFINITIONS       Section 2.01 Definitions 2     ARTICLE III ADMINISTRATION OF THE PLAN       Section 3.01 Committee and Agents 4Section 3.02 Rules and Regulations 4Section 3.03 Quorum 4Section 3.04 Plan Interpretation 4Section 3.05 Notice of Participation 4Section 3.06 Costs 4Section 3.07 Unsecured Creditor 4Section 3.08 Authority of Board and Committee 5Section 3.09 Amendment, Modification or Termination 5Section 3.10 Claim and Appeal Procedure 5     ARTICLE IV PARTICIPATION ELIGIBILITY       Section 4.01 Designation of Groups 7Section 4.02 Termination of Employment 7Section 4.03 Death, Retirement, Disability, Leave of Absence or Transfer 7Section 4.04 Directors 7Section 4.05 New Participants 7Section 4.06 New Participating Entities 7
-i-

 
     ARTICLE V DETERMINATION OF INCENTIVE COMPENSATION AWARD AND DISCRETIONARY BONUS       Section 5.01 Required Financial Performance Levels 9Section 5.02 Performance Criteria 9Section 5.03 Determination of Salary Percentage and Allocation of Performance Criteria 10Section 5.04 Determination of Incentive Compensation Award 10Section 5.05 Determination of Discretionary Bonus 10     ARTICLE VI PAYMENT FOR PARTICIPANTS       Section 6.01 Timing of Payment 11Section 6.02 Payment in Common Stock 11Section 6.03 Beneficiary Designation 12     ARTICLE VII MISCELLANEOUS PROVISIONS       Section 7.01 No Recourse 13Section 7.02 Expense 13Section 7.03 Merger or Consolidation 13Section 7.04 Legal Costs 13Section 7.05 Gender and Number 13Section 7.06 Construction 13Section 7.07 Non-alienation 13Section 7.08 No Employment Rights 14Section 7.09 Minor or Incompetent 14Section 7.10 Illegal or Invalid Provision 14
-ii-

 
ARTICLE IOBJECTIVES     Section 1.01 — Objectives. The Plan was originally adopted and was and continues to be,designed to achieve the following objectives: (a) Increase the profitability and growth of the Company in a manner which isconsistent with the goals of the Company, its stockholders and its employees. (b) Provide executive compensation which is competitive with other high-techcompanies and provide the potential for payment of meaningful cash awards. (c) Attract and retain personnel of outstanding ability and encourage excellencein the performance of individual responsibilities. (d) Motivate and reward those members of management who contribute to the successof the Company. (e) Allow the flexibility which permits revision and strengthening from time totime to reflect changing organizational goals and objectives.     The intent of this Plan, which is effective as of January 1, 1997, is profit enhancementthrough quality performance.
-1-

 
ARTICLE IIDEFINITIONS     Section 2.01 —Definitions. As used herein, the following words and phrases shall have themeanings below, unless the context clearly indicates otherwise: (a) “**Award Year**” shall mean a calendar year beginning on or after January 1,1997.  (b) “**Beneficiary”**shall mean the person or persons, natural or legal, designatedin writing by the Participant to receive any benefits under the Plan which may becomepayable in the event of the Participant’s death or, if none is designated or survivingat the time of the Participant’s death, the Participant’s surviving spouse shall bethe Beneficiary or, if there is no surviving spouse, then the Participant’s survivingchildren shall share equally or, if none, then the estate of the Participant shall bethe Beneficiary.  (c) “**Board”**shall mean the Board of Directors of Tollgrade Communications, Inc.  (d) “**Committee**” shall mean the Compensation Committee of the Board.  (e) “**Company**” shall mean the corporate entity of Tollgrade Communications, Inc.without regard to any subsidiaries thereof, unless further amended by the Board at asubsequent date to include another Participating Entity, as defined.  (f) “**Disability**” shall mean the total and permanent disability of a Participant,as defined by any welfare benefit plan maintained by the Company or a ParticipatingEntity which is applicable to the Participant, as in effect at the time ofdetermination.  (g) “**Employee**” shall mean any full-time or part time (meaning, for purposes ofthis Plan, an employee working twenty four (24) or more hours per week) common lawemployee of Tollgrade Communications, Inc. or a Participating Entity.  (h) “**ERISA**” shall mean the Employment Retirement Income Security Act of 1974, asamended from time to time.  (i) “**Fair Market Value**” shall mean the fair market value of one share ofTollgrade Communications, Inc. Common Stock as determined pursuant to Section 6.02.  (j) “**Financial Performance**” shall mean the financial performance of TollgradeCommunications, Inc. and/or a Participating Entity as determined from time to time bythe Committee or its delegate.
-2-

 
 (k) “**Group”**shall mean the group to which a Participant is assigned in accordancewith Section 4.01.  (l) “**Incentive Compensation Award**” shall mean the dollar amount of compensationawarded to a Participant for an Award Year as determined under Article V of the Plan.  (m) “**Participant**” shall mean any Employee who has been designated by theCommittee to be a participant in the Plan in accordance with Section 3.05, and onlyfor as long as such designation remains in effect.  (n) “**Participating Entity**” shall mean a subsidiary of an affiliate or otheraffiliated entity of the Company which elects to participate in the Plan with respectto its Employees and is approved by the Board to participate in the Plan, with suchstatus as a Participating Entity and participation in the Plan ceasing automaticallyon the date the subsidiary or affiliate ceases to be a subsidiary or affiliate of theCompany.  (o) “**Plan**”: shall mean the Management Incentive Compensation Plan, effectiveJanuary 1, 1997, as set forth herein, and as it may be amended from time to timehereafter.  (p) “**Salary**” shall mean the Participant’s base salary and overtime payments fromTollgrade Communications, Inc. or a Participating Entity.
-3-

 
ARTICLE IIIADMINISTRATION OF THE PLAN      Section 3.01 — Committee and Agents. Full power and authority to administerthe Plan shall be vested in the Committee. The Committee may appoint a secretary who may, but neednot be, a member of the Committee. The Committee may also employ such other agents as it deemsappropriate to assist it with the administration of the Plan.     Section 3.02 — Rules and Regulations. The Committee shall, from time to time,establish rules, forms and procedures of general application for the administration of the Plan.     Section 3.03 — Quorum. A majority of the members of the Committee shallconstitute a quorum for purposes of transacting business relating to the Plan. The acts of amajority of the members present (in person, or by conference telephone) at any meeting of theCommittee at which there is a quorum shall be valid acts of the Committee. Acts reduced to andapproved unanimously in writing by all of the Committee members shall also be valid acts.     Section 3.04 — Plan Interpretation. The Committee shall have the full powerand authority to construe and interpret the Plan, and make all determinations of IncentiveCompensation Awards under the Plan, approve all Employees who are to participate in the Plan,determine the Group to which a Participant is assigned under Section 4.01, and determine all factsand other issues relating to claims and appeals under the Plan.     Section 3.05 — Notice of Participation. The Committee shall send a writtennotice, in the form prescribed by the Committee or its delegate, informing the Employee that he orshe has been selected to be a Participant in the Plan and specifying the period for which suchdesignation is to remain in effect. No Employee shall have the right to become a Participant andshall not be a Participant until the date specified in the notice. Furthermore, being designated aParticipant does not guarantee an Employee that an Incentive Compensation Award will be earned orpaid.     Section 3.06 — Costs. All costs and expenses involved in the administration ofthe Plan shall be borne by the Company or the Participating Entity.     Section 3.07  — Unsecured Creditor. The Plan constitutes a mere promise byTollgrade Communications, Inc. or the Participating Entity to make benefit payments in the future.The Company and the Participating Entities obligations under the Plan shall be unfunded andunsecured promises to pay. The Company and the Participating Entities shall not be obligated underany circumstance to fund their respective financial obligations under the Plan. Any of them may, inits discretion, set aside funds in a trust or other vehicle, subject to the claims of itscreditors, in order to assist it in meeting its obligations under the Plan, if such arrangementwill not cause the Plan to be
-4-

 
considered a funded deferred compensation plan under ERISA, or the Internal Revenue Code of 1986,as amended, and provided, further, that any trust created by the Company or a Participating Entityand any assets held by such trust to assist the Company or the Participating Entity in meeting itsobligations under the Plan will conform to the terms of the model trust, as described in Rev. Proc.92-64, 1992-2 C.B. 422. To the extent that any Participant or Beneficiary or other person acquiresa right to receive payments under the Plan, such right shall be no greater than the right, and eachParticipant and Beneficiary shall at all times have the status of a general unsecured creditor ofthe Participating Entity.     Section 3.08 — Authority of Board and Committee. Any determination or actionof the Committee or the Board and the records of the Committee shall be final, conclusive andbinding on all Participants and Beneficiaries, and their beneficiaries, heirs, personalrepresentatives, executors and administrators, and upon the Company, the Participating Entities andall other persons having or claiming to have any right or interest in or under the Plan. NoParticipant shall participate in any decision of the Board or the Committee which directly orindirectly affects the Plan.     Section 3.09 — Amendment, Modification or Termination. The Board, in its solediscretion, may amend, modify or terminate the Plan at any time.     Section 3.10 — Claims and Appeal Procedure. (a) In the event of a claim by a Participant or a Participant’s Beneficiary foror in respect of any benefit under the Plan or the method of payment thereof, suchParticipant or Beneficiary shall present the reason for his claims in writing to theCommittee, in c/o the Secretary, if applicable, or such other person or entitydesignated and communicated by the Committee.The Committee, shall, within ninety (90) days after the receipt of suchwritten claim, send written notification to the Participant or Beneficiary as toits disposition, unless special circumstance require an extension of time forprocessing the claim. If such an extension of time for processing is required,written notice of the extension shall be furnished to the claimant prior to thetermination of the initial ninety (90) day period. In no event, shall suchextension exceed a period of ninety (90) days from the end of such initial period.The extension notice shall indicate the special circumstances requiring anextension of time and the date by which the Committee expects to render the finaldecision.    In the event the claim is wholly or partially denied, the written notificationshall state the specific reason or reasons for the denial, include specificreferences to pertinent Plan provisions on which the denial is based, provide anexplanation of any additional material or information necessary for the Participantor Beneficiary to perfect the claim and a statement of why such material orinformation is necessary, and set forth the procedure by which the Participant orBeneficiary may appeal the denial of theclaim. If the claim has not been granted and notice is not furnished within thetime period specified in the preceding paragraph, the claim shall be deemed deniedfor the purpose of proceeding to appeal in accordance with paragraph (b) below.
-5-

 
 (b) In the event a Participant or Beneficiary wishes to appeal the denial of hisclaim, he may request a review of such denial by making written application to theCommittee, in c/o the Secretary, if applicable, or such other person or entitydesignated and communicated by the Committee, within sixty (60) days after receipt ofthe written notice of denial (or the date on which such claim is deemed denied ifwritten notice is not received within the applicable time period specified inparagraph (a) above). Such Participant or Beneficiary (or his duly authorizedrepresentative) may, upon written request to the Committee, review documents which arepertinent to such claim, and submit in writing issues and comments in support of hisposition.    Within sixty (60) days after receipt of the written appeal (unless an extension oftime is necessary due to special circumstances or is agreed to by the parties, butin no event more than one hundred and twenty (120) days after such receipt), theCommittee shall notify the Participant or Beneficiary of its final decision. Suchfinal decision shall be in writing and shall include specific reasons for thedecision, written in a manner calculated to be understood by the claimant, andspecific references to the pertinent Plan provisions on which the decision isbased. If an extension of time for review is required because of specialcircumstances, written notice of the extension shall be furnished to the claimantprior to the commencement of the extension. If the claim has not been granted andwritten notice is not provided within the time period specified above, the appealshall be deemed denied.  (c) If a Participant or Beneficiary does not follow the procedures set forth inparagraphs (a) and (b) above, he shall be deemed to have waived his right to appealbenefit determinations under the Plan. In addition, the decisions, actions and recordsof the Committee shall be conclusive and binding upon the Company, the ParticipatingEntities and all persons having or claiming to have any right or interest in or underthe Plan.
-6-

 
ARTICLE IVPARTICIPANT ELIGIBILITY      Section 4.01 — Designation of Groups. An Employee who is designated by theCommittee as a Participant for an Award Year shall be a member of a Group, as determined from timeto time by the Committee or its delegate. With respect to a Participant who moves from one Group toanother during an Award Year, such Participant shall be treated as a member of each Group for theperiod of time in that Group during the Award Year and the Participant’s actual Salary for theperiod in each Group shall be used to calculate the Incentive Compensation Award applicable for theperiod of time in each Group.     Section 4.02 — Termination of Employment. A Participant who voluntarily orinvoluntarily terminates employment with the Company and all Participating Entities prior to theend of an Award Year or subsequent to the end of an Award Year but prior to the time that IncentiveCompensation Awards for such award year are paid by the Company will forfeit any right to anIncentive Compensation Award for the Award Year during which termination occurs, except asotherwise provided in Section 4.03 below or as otherwise determined by the Committee or itsdelegate.     Section 4.03 — Death, Retirement, Disability, Leave of Absence or Transfer.If, during an Award Year, a Participant dies, retires, becomes disabled, is granted a leave ofabsence, or is transferred to a non-Participating Entity or out of all Groups, the Committee may,at its discretion or under such uniform rules as it may prescribe, make a partial or full IncentiveCompensation Award to the Participant for the Award Year.     Section 4.04 — Directors. A member of the Board who is not an Employee in oneof the Groups may not participate in the Plan.     Section 4.05 — New Participants. Except as otherwise provided in this Section4.05, an Employee who is not a Participant as of the first day of an Award Year shall not become aParticipant for that Award Year. New Employees of the Company or a Participating Entity hiredduring an Award Year, and Employees promoted to a Group during the Award Year who were not eligibleto participate in the Plan at the beginning of the Award Year, may become a Participant during anAward Year and participate in the Plan for such Award Year on a pro-rata basis if the Employeebecomes a Participant effective not later than (6) months after the beginning of the Award Year.Notwithstanding the above, the Committee, in its discretion, may provide in writing that a newEmployee or an Employee promoted to a Group during an Award Year, shall join the Plan more than sixmonths after the beginning of an Award Year and shall specify in such writing the basis in whichthe New Employee or an Employee promoted to a Group during an Award Year, shall be eligible for anIncentive Compensation Award for the first Award Year.     Section 4.06 — New Participating Entities. Except as otherwise provided inthis Section 4.06, a Participating Entity may only join the Plan as of the first day of an AwardYear. New Participating Entities acquired during an Award Year, or otherwise not participatingin the Plan at the beginning of
-7-

 
the Award Year, may become a Participating Entity during an Award Year and participate in the Planfor such Award Year on a pro-rata basis, or other basis specified by the Committee, if theParticipating Entity joins the Plan effective not later than six (6) months after the beginning ofthe Award Year. Notwithstanding the above, the Committee, in its sole discretion, may provide inwriting that a Participating Entity shall join the Plan more than six (6) months after thebeginning of an Award Year and shall specify in such writing the basis on which the ParticipatingEntity’s Participants shall be eligible for an Incentive Compensation Award for the first AwardYear.
-8-

 
ARTICLE VDETERMINATION OF INCENTIVE COMPENSATION AWARD