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                                                                   Exhibit 10.27

                         Tollgrade Communications, Inc.
                    1998 Employee Incentive Compensation Plan



ARTICLE 1.        ESTABLISHMENT, OBJECTIVES AND DURATION.

1.1      ESTABLISHMENT OF THE PLAN. Tollgrade Communications, Inc., a
         Pennsylvania corporation (hereinafter referred to as the "Company"),
         hereby establishes an incentive compensation plan for all employees
         excluding officers and directors of the Company, to be known as the
         "Tollgrade Communications, Inc. 1998 Employee Incentive Compensation
         Plan" (hereinafter referred to as the "Plan"), as set forth in this
         document. The Plan permits the grant of Nonqualified Stock Options,
         Stock Appreciation Rights, Restricted Stock, Performance Shares and
         Performance Units. The Plan shall be effective as of January 29, 1998
         (the "Effective Date") and shall remain in effect as provided in
         SECTION 1.3 hereof.

1.2      OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
         profitability and growth of the Company through incentives which are
         consistent with the Company's goals and which link the personal
         interests of Employees to those of the Company's stockholders; to
         provide Employees with an incentive for excellence in individual
         performance; and to promote teamwork among Employees. The Plan is
         further intended to provide flexibility to the Company in its ability
         to motivate, attract, and retain the services of Employees who make
         significant contributions to the Company's success and allow Employees
         to share in the success of the Company.

1.3      DURATION OF THE PLAN. The Plan was adopted by the Board of Directors on
         January 29, 1998, and shall commence on the Effective Date, as
         described in SECTION 1.1 hereof, and shall remain in effect, subject to
         the right of the Board of Directors to amend or terminate the Plan at
         any time pursuant to ARTICLE 14 hereof, until all Shares subject to it
         shall have been purchased or acquired according to the Plan's
         provisions. However, in no event shall an Award be granted under the
         Plan on or after January 29, 2008.

ARTICLE 2.        DEFINITIONS

Whenever used in the Plan, the following terms shall have the meanings set forth
below, and when the meaning is intended, the initial letter of the word shall be
capitalized:


2.1      "AWARD" means, individually or collectively, a grant under this Plan of
         Nonqualified Stock Options, Stock Appreciation Rights, Restricted
         Stock, Performance Shares or Performance Units.

2.2      "AWARD AGREEMENT" means an agreement entered into by the Company and
         each Employee setting forth the terms and provisions applicable to
         Awards granted under this Plan.

2.3      "BENEFICIAL OWNER" OR "BENEFICIAL OWNERSHIP" shall have the meaning
         ascribed to such term in Rule 13d-3 of the General Rules and
         Regulations under the Exchange Act.

2.4      "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the
         Company.

2.5      "CHANGE IN CONTROL" of the Company shall be deemed to have occurred (as
         of a particular day, as specified by the Board) if the Board, by a
         majority vote, agrees that a Change in Control has occurred, or is
         about to occur. Such a change shall not include, however, a
         restructuring, reorganization, merger or other change in capitalization
         in which the Persons who own an interest in the Company on the
         Effective Date (the "Current Owners") (or any individual or entity
         which received from a Current Owner an interest in the Company through
         will or the laws of descent and distribution) maintain more than a
         fifty percent (50%) interest in the resultant entity.



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         Regardless of the Board's vote, a Change in Control will be deemed to
         have occurred as of the first day any one (1) or more of the following
         paragraphs shall have been satisfied:

         (a)      Any Person (other than the Person in control of the Company as
                  of the Effective Date of the Plan, or other than a trustee or
                  other fiduciary holding securities under an employee benefit
                  plan of the Company, or a corporation owned directly or
                  indirectly by the stockholders of the Company in substantially
                  the same proportions as their ownership of stock in the
                  Company), becomes the Beneficial Owner, directly or
                  indirectly, of securities of the Company representing more
                  than fifty percent (50%) of the combined voting power of the
                  Company"s then outstanding securities; or

         (b)      The stockholders of the Company approve:
                  (i)      A plan of complete liquidation of the Company; or

                  (ii)     An agreement for the sale or disposition of all or
                           substantially all of the Company"s assets (other than
                           one in which the stockholders of the Company, as
                           determined immediately prior to such transaction,
                           hold, directly or indirectly, as determined
                           immediately following such transaction, a majority of
                           the voting power of each surviving, resulting or
                           acquiring corporation which, immediately following
                           such transaction, holds more than 10% of the
                           consolidated assets of the Company immediately prior
                           to the transaction); or

                  (iii)    A merger, consolidation, or reorganization of the
                           Company with or involving any other corporation,
                           other than a merger, consolidation, or reorganization
                           that 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) at least fifty
                           percent (50%) of the combined voting power of the
                           voting securities of the Company (or such surviving
                           entity) outstanding immediately after such merger,
                           consolidation or reorganization.

         However, in no event shall a Change in Control be deemed to have
         occurred, with respect to a Employee, if that Employee is part of a
         purchasing group which consummates the Change in Control transaction.
         The Employee shall be deemed "part of a purchasing group" for purposes
         of the preceding sentence if the Employee is an equity participant or
         has agreed to become an equity participant in the purchasing company or
         group (except for (i) passive ownership of less than five percent (5%)
         of the voting equity securities of the purchasing company; or (ii)
         ownership of equity participation in the purchasing company or group
         which is otherwise deemed not to be significant, as determined prior to
         the Change in Control by a majority of the nonemployee continuing
         Directors).

2.6      "CODE" means the Internal Revenue Code of 1986, as amended from time to
         time.

2.7      "COMMITTEE" means the Compensation Committee of the Board, as specified
         in ARTICLE 3 herein, or such other Committee appointed by the Board to
         administer the Plan with respect to grants of Awards.

2.8      "COMPANY" means Tollgrade Communications, Inc., a Pennsylvania
         corporation, any successor thereto as provided in ARTICLE 17 herein.

2.9      "DIRECTOR" means any individual who is a member of the Board of
         Directors of the Company.

2.10     "EFFECTIVE DATE" shall have the meaning ascribed to such term in
         SECTION 1.1 hereof.

2.11     "EMPLOYEE" means any full-time active employee of the Company who is
         not an Officer, as defined in SECTION 2.17 hereof. Directors shall not
         be considered employees under the Plan.

2.12     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
         from time to time, or any successor act thereto.

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2.13     "FAIR MARKET VALUE" shall be the mean between the following prices, as
         applicable, for the date as of which fair market value is to be
         determined as quoted in The Wall Street Journal (or in such other
         reliable publication as the Committee, in its discretion, may determine
         to rely upon): (i) if the Common Stock is listed on the New York Stock
         Exchange, the highest and lowest sales prices per share of the Common
         Stock as quoted in the NYSE Composite Transactions listing for such
         date, (ii) if the Common Stock is not listed on such exchange, the
         highest and lowest sales prices per share of Common Stock for such date
         on (or on any composite index including) the principal united States
         securities exchange registered under the 1934 Act on which the Common
         Stock is listed or (iii) if the Common Stock is not listed on such
         exchange, the highest and lowest sales prices per share of the Common
         Stock for such date on the National Association of Securities Dealers
         Automated Quotations System or any successor system then in use
         ("NASDAQ"). If there are no such sale price quotations for the date as
         of which fair market value is to be determined but there are such sale
         price quotations within a reasonable period both before and after such
         date, then fair market value shall be determined by taking a weighted
         average of the means between the highest and lowest sales prices per
         share of the Common Stock as so quoted on the nearest date before and
         the nearest date after the date as of which fair market value is to be
         determined. The average should be weighted inversely by the respective
         number of trading days between the selling dates and the date as of
         which fair market value is to be determined. If there are no such sale
         prices quotations on or within a reasonable period both before and
         after the date as of which fair market value is to be determined, then
         fair market value of the Common Stock shall be the mean between the
         bona fide bid and asked prices per share of Common Stock as so quoted
         for such date on NASDAQ, or if none, the weighted average of the means
         between such bona fide bid and asked prices on the nearest trading date
         before and the nearest trading date after the date as of which fair
         market value is to be determined, if both such dates are within a
         reasonable period. The average is to be determined in the manner
         described above in this SECTION 2.13. If the fair market value of the
         Common Stock cannot be determined on any basis previously set forth in
         this SECTION 2.13 for the date as of which fair market value is to be
         determined, the Committee shall in good faith determine the fair market
         value of the Common Stock on such date. Fair market value shall be
         determined without regard to any restriction other than a restriction
         which, by its terms, will never lapse.

2.14     "FREESTANDING SAR" means an SAR that is granted independently of any
         Options, as described in ARTICLE 7 herein.

2.15     "INSIDER" shall mean an individual who, immediately prior to the grant
         of any Award, owns stock possessing more than ten percent (10%) of the
         total combined voting power of all classes of stock for the Company.
         For purposes of this SECTION 2.15, an individual (i) shall be
         considered as owning not only Shares of Stock owned individually but
         also all Shares of stock that are at the time owned, directly or
         indirectly, by or for the spouse, ancestors, lineal descendants and
         bothers and sisters (whether by whole or half blood) of such individual
         and (ii) shall be considered as owning proportionately any Shares
         owned, directly or indirectly, by or for any corporation, partnership,
         estate or trust in which such individual is a stockholder, partner or
         beneficiary.

2.16     "NONQUALIFIED STOCK OPTION" OR "NQSO" means an option to purchase
         Shares granted under ARTICLE 6 herein and which is not intended to meet
         the requirements of Code Section 422.

2.17     "OFFICER" means any person serving as an officer on behalf of the
         Company, as defined in the Company"s bylaws and by requirements of
         Pennsylvania corporate law, and by the requirements of the rules of the
         National Association of Securities Dealers, Inc.

2.18     "OPTION" means a Nonqualified Stock Option, as described in ARTICLE 6
         herein.

2.19     "OPTION PRICE" means the price at which a Share may be purchased by a
         Employee pursuant to an Option.

2.20     "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
         from the tax deductibility limitations of Code Section 162(m).

2.21     "PERFORMANCE SHARE" means an Award granted to an Employee, as described
         in ARTICLE 9 herein.



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2.22     "PERFORMANCE UNIT" means an award granted to an Employee, as described
         in ARTICLE 9 herein.

2.23     "PERIOD OF RESTRICTION" means the period during which the transfer of
         Shares of Restricted Stock is limited in some way (based upon the
         passage of time, the achievement of performance goals, or upon the
         occurrence of other events as determined by the Committee, at its
         discretion), and the Shares are subject to a substantial risk of
         forfeiture, as provided in ARTICLE 8 herein.

2.24     "PERSON" shall have the meaning ascribed to such term in Section
         3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
         thereof, including a "group" as defined in Section 13(d) thereof.

2.25     "RESTRICTED STOCK" means an award granted to an Employee pursuant to
         ARTICLE 8 herein.

2.26     "RETIREMENT" shall mean any voluntary termination of employment by an
         Employee following the attainment of age 65.

2.27     "SHARES" means the shares of Common Stock of the Company.

2.28     "STOCK APPRECIATION RIGHT" OR "SAR" means an Award, granted alone or in
         connection with a related Option, designated as an SAR, pursuant to the
         terms of ARTICLE 7 herein.

2.29     "TANDEM SAR" means an SAR that is granted in connection with a related
         Option pursuant to ARTICLE 7 herein, the exercise of which shall
         require forfeiture of the right to purchase a Share under the related
         Option (and when a Share is purchased under the Option, the Tandem SAR
         shall similarly be canceled).

ARTICLE 3.        ADMINISTRATION

3.1      THE COMMITTEE. Except as set forth in SECTION 3.5 below, the Plan shall
         be administered by the Compensation Committee of the Board, or by any
         other Committee appointed by the Board consisting of not less than two
         (2) Directors who (i) are "non-employee" directors and otherwise meet
         the "disinterested administration" rules of Rule 16b-3 under the
         Exchange Act and (ii) are "outside directors" under Section
         162(m)(4)(C) of the Code, or any successor provision. The members of
         the Committee shall be appointed from time to time by, and shall serve
         at the discretion of, the Board of Directors.

3.2      AUTHORITY OF THE COMMITTEE. Except as set forth in SECTION 3.4 below,
         except as limited by law or by the Articles of Incorporation or Bylaws
         of the Company, and subject to the provisions herein, the Committee
         shall have full power to grant Options (with or without SARs) and to
         award Restricted Stock, Performance Shares and Performance Units as
         described herein and to determine the Employees to whom any such award
         shall be made and the number of Shares to be covered thereby; determine
         the sizes and types of Awards; determine terms and conditions of Awards
         in a manner consistent with the Plan; construe and interpret the Plan
         and any agreement or instrument entered into under the Plan as they
         apply to Employees; and (subject to the provisions of ARTICLE 14
         herein) amend the terms and conditions of any outstanding Award to the
         extent such terms and conditions are within the discretion of the
         Committee as provided in the Plan. Further, the Committee shall make
         all other determinations which may be necessary or advisable for the
         administration of the Plan, as the Plan applies to Employees. As
         permitted by law the Committee may delegate its authority as identified
         herein.

3.3      DECISIONS BINDING. All determinations and decisions made by the
         Committee pursuant to the provisions of the Plan and all related orders
         and resolutions of the Board shall be final, conclusive and binding on
         all persons, including the Company, its stockholders, Employees, and
         their estates and beneficiaries.

3.4      NON-COMPETITION. If a grantee of an Option, Restricted Stock,
         Performance Units or Performance Shares (i) engages in the operation or
         management of a business (whether as owner, partner, officer, director,
         employee or otherwise and whether during or after employment) which is
         in competition with the Company, (ii) induces or attempts to induce any
         customer, supplier, licensee or other individual, corporation or other
         business organization having a 


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         business relationship with the Company to cease doing business with the
         Company or any in any way interferes with the relationship between any
         such customer, supplier, licensee or other person and the Company or
         (iii) solicits any employee of the Company to leave the employment
         thereof or in any way interferes with the relationship of such employee
         with the Company, the Committee, in its discretion, may immediately
         terminate all outstanding Options held by the grantee, declare
         forfeited all Restricted Stock held by the grantee as to which the
         restrictions have not yet lapsed and/or immediately cancel any award of
         Performance Units or Performance Shares. Whether a grantee has engaged
         in any of the activities referred to in the preceding sentence which
         would cause the outstanding Options to be terminated, and/or the
         Restricted Stock to be forfeited and/or any award of Performance Units
         or Performance Shares to be canceled shall be determined, in its
         discretion, by the Committee, and any such determination by the
         Committee shall be final and binding.

ARTICLE 4.        SHARES  SUBJECT TO THE PLAN

4.1      NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
         provided in SECTION 4.3 herein, the number of Shares hereby reserved
         for issuance to Employees under the Plan shall be 100,000; provided
         that, of that total, the maximum number of Shares of Restricted Stock
         granted pursuant to ARTICLE 8 herein, shall be 50,000.

4.2      LAPSED AWARDS. If any Award granted under this Plan is canceled,
         terminates, expires or lapses for any reason (with the exception of
         termination of a Tandem SAR upon exercise of the related Option, or the
         termination of a related Option upon exercise of the corresponding
         Tandem SAR), any Shares subject to such Award shall again be available
         for the grant of an Award under the Plan.

4.3      ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
         corporate capitalization, such as a stock split, or a corporate
         transaction, such as any merger, consolidation, separation, including a
         spin-off, or other distribution of stock or property of the Company,
         any reorganization (whether or nor such reorganization comes within the
         definition of such term in Code Section 368) or any partial or complete
         liquidation of the Company, such adjustment shall be made in the number
         and class of Shares which may be delivered under SECTION 4.1 and in the
         number and class of and/or price of Shares subject to outstanding
         Awards granted under the Plan, and in the number and class of and/or
         price of Shares subject to outstanding Awards granted under the Plan,
         as may be determined to be appropriate and equitable by the Committee,
         in its sole discretion, to prevent dilution or enlargement of rights;
         provided, however, that the number of Shares subject to any Award shall
         always be a whole number.

ARTICLE 5.        ELIGIBILITY AND PARTICIPATION

5.1      ELIGIBILITY. Persons eligible to participate in this Plan shall include
         all Employees of the Company, excluding Officers and Directors.

5.2      ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
         Committee may, from time to time, select from all eligible Employees
         those to whom Awards shall be granted and shall determine the nature
         and amount of each Award.

ARTICLE 6.        STOCK OPTIONS

6.1      GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, the
         Committee may grant Nonqualified Stock Options in such number, and upon
         such terms, and at any time and from time to time as shall be
         determined by the Committee.

6.2      AWARD AGREEMENT. Each Option shall be evidenced by an Award Agreement
         that shall specify the Option Price, the duration of the Option, the
         number of Shares to which the Option pertains, and such other
         provisions as the Committee shall determine.


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6.3      OPTION PRICE. The Option Price at which each Option may be exercised
         shall be no less than one hundred percent (100%) of the fair market
         value per share of the Common Stock covered by the Option on the date
         of grant. For purposes of this SECTION 6.3, the fair market value of
         the Common Stock shall be as determined in SECTION 2.14.

6.4      DURATION OF OPTIONS. Each Option granted to an Employee shall expire at
         such time as the Committee shall determine at the time of grant;
         provided, however, that no Option shall be exercisable after the
         expiration of ten years from the date of grant.

6.5      EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
         exercisable at such times and be subject to such restrictions and
         conditions as the Committee shall in each instance approve, which need
         not be the same for each grant or for each Employee.

6.6      PAYMENT. Options granted under this Article 6 shall be exercised by the
         delivery of a written notice of exercise to the Company, setting forth
         the number of Shares with respect to which the Option is to be
         exercised, accompanied by full payment for the Shares.

         The Option Price upon exercise of the Option shall be payable to the
         Company in full either: (a) in cash in United States Dollars (including
         check, bank draft or money order), or (b) by tendering previously
         acquired Shares having an aggregate Fair Market Value at the time of
         exercise equal to the total Option Price, or (c) by a combination of
         (a) and (b).

         The Company will also cooperate with any person exercising an Option
         who participates in a cashless exercise program of a broker or other
         agent under which all or part of the Shares received upon exercise of
         the Option are sold through the broker or other agent or under which
         the broker or other agent makes a loan to such person. Notwithstanding
         the foregoing, unless the Committee, in its discretion, shall otherwise
         determine at the time of grant the exercise of the Option shall not be
         deemed to occur and no Shares of Common Stock will be issued by the
         Company upon exercise of the Option until the Company has received
         payment of the Option Price in full.

6.7      RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
         restrictions on any Shares acquired pursuant to the exercise of an
         Option granted under this ARTICLE 6 as it may deem advisable,
         including, without limitation, restrictions under applicable Federal
         securities laws, under the requirements of any stock exchange or market
         upon which such Shares are then listed and/or traded, and under any
         blue sky or other state securities laws applicable to such Shares.

6.8      TERMINATION OF EMPLOYMENT. Unless the Committee, in its discretion,
         shall otherwise determine:

         (i) If the employment of an Employee who is not disabled within the
         meaning of Section 422(c)(6) of the Code (a "Disabled Grantee") is
         voluntarily terminated with the consent of the Company or an Employee
         retires under any retirement plan of the Company, any Option held by
         such Employee shall be exercisable by the Employee (but only to the
         extent exercisable by the Employee immediately prior to the termination
         of employment) at any time prior to the expiration date of such Option
         or within one year after the date of termination, whichever is the
         shorter period;

         (ii) If the employment of an Employee who is a Disabled Grantee is
         voluntarily terminated with the consent of the Company, any outstanding
         Option held by such Employee shall be exercisable by the Employee in
         full (whether or not so exercisable by the Employee immediately prior
         to the termination of employment) at any time prior to the expiration
         date of such Option or within one year after the date of termination of
         employment, whichever is the shorter period;



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         (iii) Following the death of an Employee during employment, any
         outstanding Option held by the Employee at the time of death shall be
         exercisable in full (whether or not so exercisable by the Employee
         immediately prior to the death of the Employee) by the person entitled
         to do so under the Will of the Employee, or, if the Employee shall fail
         to make testamentary disposition of the stock option or shall die
         intestate, by the legal representative of the Employee at any time
         prior to the expiration date of such stock option or within one year
         after the date of death of the Employee, whichever is the shorter
         period;

         (iv) Following the death of an Employee after termination of employment
         during the period when an Option is exercisable, the Option shall be
         exercisable by such person entitled to do so under the Will of the
         Employee by such legal representative (but only to the extent
         exercisable by the Employee immediately prior to the termination of
         employment) at any time prior to the expiration date of such Option or
         within one year after the date of death, whichever is the shorter
         period;

         (v) Unless the exercise period of a stock option following termination
         of employment has been extended as provided in SECTION 13.1, if the
         employment of an Employee terminates for any reason other than
         voluntary termination with the consent of the Company, retirement under
         any retirement plan of the Company or death, all outstanding Options
         held by the Employee at the time of such termination of employment
         shall automatically terminate.

         Whether termination of employment is a voluntary termination with the
         consent of the Company shall be determined, in its discretion, by the
         Committee and any such determination by the Committee shall be final
         and binding.

6.9      NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan may be
         sold, transferred, pledged, assigned, or otherwise alienated or
         hypothecated, other than by Will or if the Employee dies intestate by
         the laws of descent and distribution of the state of domicile of the
         Employee at the time of death. Further, all Options granted to an
         Employee under the Plan shall be exercisable during his or her lifetime
         only by the Employee.

ARTICLE 7.        STOCK APPRECIATION RIGHTS

7.1      GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
         may be granted to Employees at any time and from time to time as shall
         be determined by the Committee. The Committee may grant Freestanding
         SARs, Tandem SARs, or any combination of these forms of SARs. The
         Committee shall have complete discretion in determining the number of
         SARs granted to each Employee (subject to ARTICLE 4 herein) and,
         consistent with the provisions of the Plan, in determining the terms
         and conditions pertaining to such SARs. The grant price of a
         Freestanding SAR shall equal the Fair Market Value of a Share on the
         date of grant of the SAR. The grant price of Tandem SARs shall equal
         the Option Price of the related Option, as provided in SECTION 6.3.

7.2      EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part
         of the Shares subject to the related Option upon the surrender of the
         right to exercise the equivalent portion of the related Option. A
         Tandem SAR may be exercised only with respect to the Shares for which
         its related Option is then exercisable.

7.3      EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised upon
         whatever terms the Committee, in its sole discretion, imposes upon
         them.

7.4      SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
         that shall specify the grant price, the term of the SAR, and such other
         provisions as the Committee shall determine.



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7.5      TERM OF SARs. The term of an SAR granted under the Plan shall be
         determined by the Committee, in its sole discretion; provided however,
         that such term shall not exceed ten (10) years.

7.6      PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, an Employee shall be
         entitled to receive payment from the Company in an amount determined by
         multiplying:

         (a) the difference between the Fair Market Value of a Share on the date
         of exercise over the grant price; by

         (b) the number of Shares with respect to which the SAR is granted.

         At the discretion of the Committee, the payment upon SAR exercise may
         be in cash, in Shares of equivalent value, or in some combination
         thereof.

7.7      RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of the
         Plan, the Committee may impose such conditions on the exercise of an
         SAR as may be required to satisfy the requirements of Section 16 of the
         Exchange Act (or any successor rule).

7.8      TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth the
         extent to which the Employee shall have the right to exercise the SAR
         following termination of the Employee's employment with the Company
         and/or its Subsidiaries. Such provisions shall be determined in the
         sole discretion of the Committee, shall be included in the Award
         Agreement entered into with Employees, need not be uniform among all
         SARs issued pursuant to the Plan, and may reflect distinctions based on
         the reasons for termination of such employment.

7.9      NONTRANSFERABILITY OF SARs. No SAR granted under the Plan may be sold,
         transferred, pledged, assigned, or otherwise alienated or hypothecated,
         other than by will or, if the grantee dies intestate, by the laws of
         descent and distribution of the state of domicile of the grantee at the
         time of death. Further, all SARs granted to an Employee under the Plan
         shall be exercisable during his or her lifetime only by such Employee.

ARTICLE 8.        RESTRICTED STOCK

8.1      GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
         Plan, the Committee, at any time and from time to time, may grant
         Shares of Restricted Stock to Employees in such amounts as the
         Committee shall determine.

8.2      RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
         evidenced by a Restricted Stock Award Agreement that shall specify the
         Period(s) of Restriction, the number of Shares of Restricted Stock
         granted, and such other provisions as the Committee shall determine.

8.3      TRANSFERABILITY. Except as provided in this ARTICLE 8, the Shares of
         Restricted Stock granted herein may not be sold, transferred, pledged,
         assigned or otherwise alienated or hypothecated until the end of the
         applicable Period of Restriction established by the Committee and
         specified in the Restricted Stock Award Agreement, or upon earlier
         satisfaction of any other conditions, as specified by the Committee in
         its sole discretion and set forth in the Restricted Stock Award
         Agreement. All rights with respect to the Restricted Stock granted to
         an Employee under the Plan shall be available during his or her
         lifetime only to such Employee.

8.4      OTHER RESTRICTIONS. Subject to ARTICLE 10 herein, the Committee shall
         impose such other conditions and/or restrictions on any Shares of
         Restricted Stock granted pursuant to the Plan as it may deem 


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         advisable including, without limitation, a requirement that Employees
         pay a stipulated purchase price for each Share of Restricted Stock,
         restrictions based upon the achievement of specific performance goals
         (Company-wide, divisional, and/or individual), time-based restrictions
         on vesting following the attainment of the performance goals, and/or
         restrictions under applicable Federal or state securities laws. The
         Company shall retain the certificates representing Shares of Restricted
         Stock in the Company's possession until such time as all conditions
         and/or restrictions applicable to such Shares have been satisfied.
         Except as otherwise provided in this ARTICLE 8, Shares of Restricted
         Stock covered by each Restricted Stock grant made under the Plan shall
         become freely transferable by the Employee after the last day of the
         applicable Period of Restriction.

8.5      VOTING RIGHTS. During the Period of Restriction, Employees holding
         Shares of Restricted Stock granted hereunder may exercise full voting
         rights with respect to those Shares.

8.6      DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
         Employees holding Shares of Restricted Stock granted hereunder may be
         credited with regular cash dividends paid with respect to the
         underlying Shares while they are so held. The Committee may apply any
         restrictions to the dividends that the Committee deems appropriate. In
         the event that any dividend constitutes a "derivative security" or an
         "equity security" pursuant to Rule 16(a) under the Exchange Act, such
         dividend shall be subject to a vesting period equal to the remaining
         vesting period of the Shares of Restricted Stock with respect to which
         the dividend is paid.

8.7      TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement shall
         set forth the extent to which the Employee shall have the right to
         receive unvested Restricted Shares following termination of the
         Employee's employment with the Company. Such provisions shall be
         determined in the sole discretion of the Committee, shall be included
         in the Award Agreement entered into with each Employee, need not be
         uniform among all Shares of Restricted Stock issued pursuant to the
         Plan, and may reflect distinctions based upon the reasons for
         termination of such employment.


ARTICLE 9.        PERFORMANCE UNITS AND PERFORMANCE SHARES

9.1      GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
         Performance Units and/or Performance Shares may be granted to Employees
         in such amounts and upon such terms, and at any time and from time to
         time, as shall be determined by the Committee.

9.2      VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have an
         initial value that is established by the Committee at the time of
         grant. Each Performance Share shall have an initial value equal to the
         Fair Market Value of a Share on the date of grant. The Committee shall
         set performance goals in its discretion which, depending upon the
         extent to which they are met, will determine the number and/or value of
         Performance Units/Shares that will be paid out to the Employee. For
         purposes of this ARTICLE 9, the time period during which the
         performance goals must be met shall be called a "Performance Period."

9.3      EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this Plan,
         after the applicable Performance Period has ended, the holder of
         Performance Units/Shares shall be entitled to receive payout on the
         number and value of Performance Units/Shares earned by the Employee
         over the Performance Period, to be determined as a function of the
         extent to which the corresponding performance goals have been achieved.

9.4      FORM AND TIMING OF PERFORMANCE UNITS/SHARES. Payment of earned
         Performance Units/Shares shall be made in a single lump sum within
         seventy-five (75) calendar days following the close of the applicable
         Performance Period. Subject to the terms of this Plan, the Committee,
         in its sole discretion, may pay 


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<PAGE>   10


         earned Performance Units/Shares in the form of cash or Shares (or a
         combination thereof) which have an aggregate Fair Market Value equal to
         the value of the earned Performance Units/Shares at the close of the
         applicable Performance Period. Such Shares may be granted subject to
         any restrictions deemed appropriate by the Committee.

         At the discretion of the Committee, Employees may be entitled to
         receive any dividends declared with respect to Shares which have been
         earned in connection with grants of Performance Units and/or
         Performance Shares which have been earned, but not yet distributed to
         Employees (such dividends shall be subject to the same accrual,
         forfeiture, and payout restrictions as apply to dividends earned with
         respect to Shares of Restricted Stock, as set forth in SECTION 8.6
         herein). In addition, Employees may, at the discretion of the
         Committee, be entitled to exercise their voting rights with respect to
         such Shares.

9.5      TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT.
         Unless otherwise determined by the Committee and set forth in the
         Employee's Award Agreement, in the event the employment of an Employee
         is terminated by reason of death, disability or Retirement during a
         Performance Period, the Employee shall receive a payout of the
         Performance Units/Shares which is prorated, as specified by the
         Committee in its discretion. Payment of earned Performance Units/Shares
         shall be made at a time specified by the Committee in its sole
         discretion and set forth in the Employee's Award Agreement.

9.6      TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that an
         Employee's employment terminates for any reason other than those
         reasons set forth in SECTION 9.5 herein, all Performance Units/Shares
         shall be forfeited by the Employee to the Company unless determined
         otherwise by the Committee, as set forth in the Employee's Award
         Agreement.

9.7      NONTRANSFERABILITY. Performance Units/Shares may not be sold,
         transferred, pledged, assigned or otherwise alienated or hypothecated,
         other than by will or if the grantee dies intestate by the laws of
         descent and distribution of the state of domicile of the grantee at the
         time of death. Further, an Employee's rights under the Plan shall be
         exercisable during the Employee's lifetime only by the Employee or the
         Employee's legal representative.


ARTICLE 10.       BENEFICIARY DESIGNATION

Each Employee under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Employee, shall be in a form prescribed by the
Company, and will be effective only when filed by the Employee in writing with
the Company during the Employee's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Employee's death shall be paid to
the Employee's estate.

ARTICLE 11.       DEFERRALS

The Committee may permit or require an Employee to defer such Employee's receipt
of the payment of cash or the delivery of Shares that would otherwise be due to
such Employee by virtue of the exercise of an Option or SAR, the lapse or waiver
of restrictions with respect to Restricted Stock, or the satisfaction of any
requirements or goals with respect to Performance Units/Shares. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.



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<PAGE>   11

ARTICLE 12.       RIGHTS OF EMPLOYEES

12.1     EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
         way the right of the Company to terminate any Employee's employment at
         any time, nor confer upon any Employee any right to continue in the
         employ of the Company.

12.2     PARTICIPATION. No Employee shall be entitled to have the right to be
         selected to receive an Award under this Plan, or having been so
         selected, to be selected to receive a future Award.

ARTICLE 13.       CHANGE IN CONTROL

13.1     TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
         Control, unless otherwise specifically prohibited under applicable
         laws, or by the rules and regulations of any governing governmental
         agencies or national securities exchanges:

         (a) Any and all Options and SARs granted hereunder shall become
         immediately exercisable, and shall remain exercisable throughout their
         entire term;

         (b) Any restriction periods and restrictions imposed on Restricted
         Shares shall lapse;

         (c) The target payout opportunities attainable under all outstanding
         Awards of Restricted Stock, Performance Units and Performance Shares
         shall be deemed to have been fully earned for the entire Performance
         Period(s) as of the effective date of the Change in Control. The
         vesting of all Awards denominated in Shares shall be accelerated as of
         the effective date of the Change in Control, and there shall be paid
         out in cash to Employees within thirty (30) days following the
         effective date of the Change in Control an amount equal to one hundred
         percent (100%) of all targeted cash payout opportunities associated
         with outstanding cash-based Awards; and

         (d) Subject to ARTICLE 14 herein, the Committee shall have the
         authority to make any modifications to the Awards as determined by the
         Committee to be appropriate before the effective date of the Change in
         Control.

13.2     ACCELERATION OF AWARD VESTING. Notwithstanding any provision of this
         Plan or any Award Agreement provision to the contrary, the Committee,
         in its sole and exclusive discretion, shall have the power at any time
         to accelerate the vesting of any Award granted under the Plan to any
         Employee, including without limitation acceleration to such a date that
         would result in said Awards becoming immediately vested.

13.3     TERMINATION, AMENDMENT AND MODIFICATIONS OF CHANGE IN CONTROL
         PROVISIONS. Notwithstanding any other provision of this Plan or any
         Award Agreement provision, the provisions of this ARTICLE 13 may not be
         terminated, amended or modified on or after the date of a Change in
         Control to affect adversely any Award theretofore granted under the
         plan without the prior written consent of the Employee with respect to
         said Employee's outstanding Awards; provided, however, the Board of
         Directors, upon recommendation of the committee, may terminate, amend,
         or modify this ARTICLE 13 at any time and from time to time prior to
         the date of a Change in Control.

ARTICLE 14.       AMENDMENT, MODIFICATION AND TERMINATION

14.1     ADMENDMENT, MODIFICATION AND TERMINATION. The Board may at any time and
         from time to time, alter, amend, suspend, or terminate the Plan in
         whole or in part.

14.2     ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
         NONRECURRING EVENTS. The Committee may make adjustments in the terms
         and conditions of, and the criteria included in, Awards in recognition
         of unusual or nonrecurring events (including, without limitation, the
         events described in SECTION 4.3 hereof) affecting the Company or the
         financial statements of the Company or of changes in 


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<PAGE>   12


         applicable laws, regulations, or accounting principles, whenever the
         Committee determined that such adjustments are appropriate in order to
         prevent dilution or enlargement of the benefits or potential benefits
         intended to be made available under the Plan; provided that no such
         adjustment shall be authorized to the extent that such authority would
         be inconsistent with the Plan's meeting the requirements of Section
         162(m) of the Code, as from time to time amended.

14.3     AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
         of the Plan shall adversely affect in any material way any Award
         previously granted under the Plan, without the written consent of the
         Employee holding such Award.

14.4     COMPLIANCE WITH CODE 162(m). At all times when Code Section 162(m) is
         applicable, all Awards granted under this Plan shall comply with the
         requirements of Code Section 162(m); provided, however, that in the
         event the Committee determines that such compliance is not desired with
         respect to any Award or Awards available for grant under the Plan, then
         compliance with Code Section 162(m) will not be required. In addition,
         in the event that any changes are made to Code Section 162(m) to permit
         greater flexibility with respect to any Award or Awards available under
         the Plan, the Committee may, subject to this ARTICLE 14, make any
         adjustments it deems appropriate.

ARTICLE 15.       WITHHOLDING

15.1     TAX WITHHOLDING. The Company shall have the power and the right to
         deduct or withhold, or require any Employee to remit to the Company, an
         amount sufficient to satisfy Federal, state and local taxes, domestic
         or foreign, required by law or regulation to be withheld with respect
         to any taxable event arising as a result of this Plan.

15.2     SHARE WITHHOLDING. With respect to withholding required upon the
         exercise of Options or SARs, upon the lapse of restrictions on
         Restricted Stock, or upon any other taxable event arising as a result
         of Awards granted hereunder, Employees may elect, subject to the
         approval of the Committee, to satisfy the withholding requirement, in
         whole or in part, by having the Company withhold Shares having a Fair
         Market Value on the date the tax is to be determined equal to the
         minimum statutory total tax which could be imposed on the action. All
         such elections shall be irrevocable, made in writing, signed by the
         Employee, and shall be subject to any restrictions or limitations that
         the Committee, in its sole discretion, may determine.

ARTICLE 16.       INDEMNIFICATION

Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upn or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit or proceeding against him or her, provided he
or she shall give the Company an opportunity at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other right of indemnification to which such persons may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.



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<PAGE>   13

ARTICLE 17.       SUCCESSOR

All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding upon any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.

ARTICLE 18.       LEGAL CONSTRUCTION

18.1     GENDER AND NUMBER. Except where otherwise indicated by the context, any
         masculine term used herein shall also include the feminine; the plural
         shall include the singular and the singular shall include the plural.

18.2     SEVERABILITY. In the event any provision of the Plan shall be held
         illegal or invalid for any reason, the illegality or invalidity shall
         not affect the remaining parts of the Plan, and the Plan shall be
         construed and enforced as if the illegal or invalid provision had not
         been included.

18.3     REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
         under the Plan shall be subject to all applicable laws, rules, and
         regulations, and to such approvals by governmental agencies or national
         securities exchanges as may be required.

18.4     SECURITIES LAW COMPLIANCE. With respect to (i) any person who is
         required to file reports pursuant to the rules promulgated under
         Section 16 of the Exchange Act and (ii) insiders, transactions under
         this Plan are intended to comply with all applicable conditions of Rule
         16b-3 or its successors under the Exchange Act. To the extent any
         provision of the Plan or action by the Committee fails to so comply, it
         will be deemed null and void to the extent permitted by law and deemed
         advisable by the Committee.

18.5     GOVERNING LAW. To the extent not preempted by Federal law, the Plan and
         all agreements hereunder, shall be construed in accordance with and
         governed by the laws of the Commonwealth of Pennsylvania.




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