Document:

EX-10.7

 

Exhibit 10.7

Schedule of Outside Directors’ Annual Compensation

	 	 	 
	Component

	 	 
	  
	 	 

	 	 	 	 	 
	Board Retainer	 	 
	 
	 	 	 	 
	 	 	Lead Director	 	$130,000 ($32,500 per calendar quarter)
	 
	 	 	 	 
	 	 	All Other Directors	 	$75,000 ($18,750 per calendar quarter)
	 
	 	 	 	 
	Committee Chair Retainer	 	 
	 
	 	 	 	 
	 	 	Audit Committee Chair	 	$20,000 ($5,000 per calendar quarter)
	 
	 	 	 	 
	 	 	Other Committee Chairs	 	$10,000 ($2,500 per calendar quarter)
	 
	 	 	 	 
	ODEPP Stock Unit Accruals*	 	$95,000
	 
	 	 	 	 
	Meeting Fees (Board of
Committee)†	 	 
	 
	 	 	 	 
	 	 	Attended Meeting	 	$1,700
	 
	 	 	 	 
	 	 	Telephonic Meeting	 	$1,000

 

			
	*	 	Under the Outside Directors Equity
Participation Plan (the “Plan”), on the first business day of each
calendar quarter each director will have $23,750 accrued to his or her plan
account. Amounts accrued are converted into units equivalent in value to
shares of common stock at the fair market value on the accrual date. Directors
may also choose to have 25%, 50%, 75% or 100% of his or her retainer and
meeting fees deferred and converted into share equivalents under the Plan.
	 
	†	 	Meeting fees only apply for total meetings
attended in excess of 24 per year.EX-10.1

 

Exhibit 10.1

TOLLGRADE COMMUNICATIONS, INC.

MANAGEMENT INCENTIVE COMPENSATION PLAN

EFFECTIVE JANUARY 1, 1997

			
	Prepared By:	 	Samuel C. Knoch

November 27, 1996

Last amended: 02/16/07

 

 

ARTICLE I

OBJECTIVES

     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 is
consistent with the goals of the Company, its stockholders and its employees.
	 
	 	(b)	 	Provide executive compensation which is competitive with other high-tech
companies and provide the potential for payment of meaningful cash awards.
	 
	 	(c)	 	Attract and retain personnel of outstanding ability and encourage excellence in
the performance of individual responsibilities.
	 
	 	(d)	 	Motivate and reward those members of management who contribute to the success
of the Company.
	 
	 	(e)	 	Allow the flexibility which permits revision and strengthening from time to
time to reflect changing organizational goals and objectives.

     The intent of this Plan, which is effective as of January 1, 1997, is profit enhancement
through quality performance.

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ARTICLE II

DEFINITIONS

     Section 2.01 — Definitions. As used herein, the following words and phrases
shall have the meanings 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, designated in
writing by the Participant to receive any benefits under the Plan which may become
payable in the event of the Participant’s death or, if none is designated or surviving
at the time of the Participant’s death, the Participant’s surviving spouse shall be the
Beneficiary or, if there is no surviving spouse, then the Participant’s surviving
children shall share equally or, if none, then the estate of the Participant shall be
the 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 a
subsequent 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 Participating
Entity which is applicable to the Participant, as in effect at the time of
determination.
	 
	 	(g)	 	“Employee” shall mean any full-time or part time (meaning, for purposes of this
Plan, an employee working twenty four (24) or more hours per week) common law employee
of Tollgrade Communications, Inc. or a Participating Entity.
	 
	 	(h)	 	“ERISA” shall mean the Employment Retirement Income Security Act of 1974, as
amended from time to time.
	 
	 	(i)	 	“Fair Market Value” shall mean the fair market value of one share of Tollgrade
Communications, Inc. Common Stock as determined pursuant to Section 6.02.
	 
	 	(j)	 	“Financial Performance” shall mean the financial performance of Tollgrade
Communications, Inc. and/or a Participating Entity as determined from time to time by
the Committee or its delegate.

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	 	(k)	 	“Group” shall mean the group to which a Participant is assigned in accordance
with Section 4.01.
	 
	 	(l)	 	“Incentive Compensation Award” shall mean the dollar amount of compensation
awarded 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 the Committee
to be a participant in the Plan in accordance with Section 3.05, and only for as long
as such designation remains in effect.
	 
	 	(n)	 	“Participating Entity” shall mean a subsidiary of an affiliate or other
affiliated entity of the Company which elects to participate in the Plan with respect
to its Employees and is approved by the Board to participate in the Plan, with such
status as a Participating Entity and participation in the Plan ceasing automatically on
the date the subsidiary or affiliate ceases to be a subsidiary or affiliate of the
Company.
	 
	 	(o)	 	“Plan”: shall mean the Management Incentive Compensation Plan, effective
January 1, 1997, as set forth herein, and as it may be amended from time to time
hereafter.
	 
	 	(p)	 	“Salary” shall mean the Participant’s base salary and overtime payments from
Tollgrade Communications, Inc. or a Participating Entity.

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ARTICLE III

ADMINISTRATION OF THE PLAN

     Section 3.01 — Committee and Agents. Full power and authority to administer
the Plan shall be vested in the Committee. The Committee may appoint a secretary who may, but need
not be, a member of the Committee. The Committee may also employ such other agents as it deems
appropriate 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 shall
constitute a quorum for purposes of transacting business relating to the Plan. The acts of a
majority of the members present (in person, or by conference telephone) at any meeting of the
Committee at which there is a quorum shall be valid acts of the Committee. Acts reduced to and
approved 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 power
and authority to construe and interpret the Plan, and make all determinations of Incentive
Compensation 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 facts
and other issues relating to claims and appeals under the Plan.

     Section 3.05 — Notice of Participation. The Committee shall send a written
notice, in the form prescribed by the Committee or its delegate, informing the Employee that he or
she has been selected to be a Participant in the Plan and specifying the period for which such
designation is to remain in effect. No Employee shall have the right to become a Participant and
shall not be a Participant until the date specified in the notice. Furthermore, being designated a
Participant does not guarantee an Employee that an Incentive Compensation Award will be earned or
paid.

     Section 3.06 — Costs. All costs and expenses involved in the administration
of the Plan shall be borne by the Company or the Participating Entity.

     Section 3.07  - Unsecured Creditor. The Plan constitutes a mere promise by
Tollgrade 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 and
unsecured promises to pay. The Company and the Participating Entities shall not be obligated under
any circumstance to fund their respective financial obligations under the Plan. Any of them may,
in its discretion, set aside funds in a trust or other vehicle, subject to the claims of its
creditors, in order to assist it in meeting its obligations under the Plan, if such arrangement
will not cause the Plan to be

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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 Entity
and any assets held by such trust to assist the Company or the Participating Entity in meeting its
obligations 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 acquires
a right to receive payments under the Plan, such right shall be no greater than the right, and each
Participant and Beneficiary shall at all times have the status of a general unsecured creditor of
the Participating Entity.

     Section 3.08 — Authority of Board and Committee. Any determination or
action of the Committee or the Board and the records of the Committee shall be final, conclusive
and binding on all Participants and Beneficiaries, and their beneficiaries, heirs, personal
representatives, executors and administrators, and upon the Company, the Participating Entities and
all other persons having or claiming to have any right or interest in or under the Plan. No
Participant shall participate in any decision of the Board or the Committee which directly or
indirectly affects the Plan.

     Section 3.09 — Amendment, Modification or Termination. The Board, in its
sole discretion, 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 for or
in respect of any benefit under the Plan or the method of payment thereof, such
Participant or Beneficiary shall present the reason for his claims in writing to the
Committee, in c/o the Secretary, if applicable, or such other person or entity
designated and communicated by the Committee. The Committee, shall, within ninety (90)
days after the receipt of such written claim, send written notification to the
Participant or Beneficiary as to its disposition, unless special circumstance require
an extension of time for processing 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 the termination of the initial ninety (90) day period. In no event,
shall such extension exceed a period of ninety (90) days from the end of such initial
period. The extension notice shall indicate the special circumstances requiring an
extension of time and the date by which the Committee expects to render the final
decision.
	 
	 	 	 	In the event the claim is wholly or partially denied, the written notification shall
state the specific reason or reasons for the denial, include specific references to
pertinent Plan provisions on which the denial is based, provide an explanation of
any additional material or information necessary for the Participant or Beneficiary
to perfect the claim and a statement of why such material or information is
necessary, and set forth the procedure by which the Participant or Beneficiary may
appeal the denial of the claim. If the claim has not been granted and notice is not
furnished within the time period specified in the preceding paragraph, the claim
shall be deemed denied for the purpose of proceeding to appeal in accordance with
paragraph

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	 	 	 	(b) below.
	 
	 	(b)	 	In the event a Participant or Beneficiary wishes to appeal the denial of his
claim, he may request a review of such denial by making written application to the
Committee, in c/o the Secretary, if applicable, or such other person or entity
designated and communicated by the Committee, within sixty (60) days after receipt of
the written notice of denial (or the date on which such claim is deemed denied if
written notice is not received within the applicable time period specified in paragraph
(a) above). Such Participant or Beneficiary (or his duly authorized representative)
may, upon written request to the Committee, review documents which are pertinent to
such claim, and submit in writing issues and comments in support of his position.
	 
	 	 	 	Within sixty (60) days after receipt of the written appeal (unless an extension of
time is necessary due to special circumstances or is agreed to by the parties, but
in no event more than one hundred and twenty (120) days after such receipt), the
Committee shall notify the Participant or Beneficiary of its final decision. Such
final decision shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, and
specific references to the pertinent Plan provisions on which the decision is based.
If an extension of time for review is required because of special circumstances,
written notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. If the claim has not been granted and written notice
is not provided within the time period specified above, the appeal shall be deemed
denied.
	 
	 	(c)	 	If a Participant or Beneficiary does not follow the procedures set forth in
paragraphs (a) and (b) above, he shall be deemed to have waived his right to appeal
benefit determinations under the Plan. In addition, the decisions, actions and records
of the Committee shall be conclusive and binding upon the Company, the Participating
Entities and all persons having or claiming to have any right or interest in or under
the Plan.

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ARTICLE
IV

PARTICIPANT ELIGIBILITY

     Section 4.01 — Designation of Groups. An Employee who is designated by the
Committee as a Participant for an Award Year shall be a member of a Group, as determined from time
to time by the Committee or its delegate. With respect to a Participant who moves from one Group
to another during an Award Year, such Participant shall be treated as a member of each Group for
the period of time in that Group during the Award Year and the Participant’s actual Salary for the
period in each Group shall be used to calculate the Incentive Compensation Award applicable for the
period of time in each Group.

     Section 4.02 — Termination of Employment. A Participant who voluntarily or
involuntarily terminates employment with the Company and all Participating Entities prior to the
end of an Award Year or subsequent to the end of an Award Year but prior to the time that Incentive
Compensation Awards for such award year are paid by the Company will forfeit any right to an
Incentive Compensation Award for the Award Year during which termination occurs, except as
otherwise provided in Section 4.03 below or as otherwise determined by the Committee or its
delegate.

     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 of
absence, 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 Incentive
Compensation Award to the Participant for the Award Year.

     Section 4.04 — Directors. A member of the Board who is not an Employee in
one of the Groups may not participate in the Plan.

     Section 4.05 - New Participants. Except as otherwise provided in this
Section 4.05, an Employee who is not a Participant as of the first day of an Award Year shall not
become a Participant for that Award Year. New Employees of the Company or a Participating Entity
hired during an Award Year, and Employees promoted to a Group during the Award Year who were not
eligible to participate in the Plan at the beginning of the Award Year, may become a Participant
during an Award Year and participate in the Plan for such Award Year on a pro-rata basis if the
Employee becomes 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
new Employee or an Employee promoted to a Group during an Award Year, shall join the Plan more than
six months after the beginning of an Award Year and shall specify in such writing the basis in
which the New Employee or an Employee promoted to a Group during an Award Year, shall be eligible
for an Incentive Compensation Award for the first Award Year.

     Section 4.06 — New Participating Entities. Except as otherwise provided in this
Section 4.06, a Participating Entity may only join the Plan as of the first day of an Award Year.
New Participating Entities acquired during an Award Year, or otherwise not participating in the
Plan at the beginning of the Award Year, may become a Participating Entity during an Award Year and
participate in the Plan

8

 

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

ARTICLE V

DETERMINATION OF INCENTIVE COMPENSATION AWARD

AND DISCRETIONARY BONUS

     Section 5.01 — Required Financial Performance Levels. In order for an
Incentive Compensation Award to be made for an Award Year, the following performance levels must be
met:

	 	(a)	 	The minimum level of Financial Performance, including the effect of any amounts
calculated as due under this or any other Incentive Compensation Plan, as established
by the Committee for an Award Year for Tollgrade Communications, Inc. or a
Participating Entity and as set forth on Appendix I hereto which shall be modified
annually for each Award Year, must be met before any Incentive Compensation Award based
on Tollgrade Communications, Inc.’s or such Participating Entity’s Financial
Performance can be made.
	 
	 	(b)	 	The Committee shall establish from time to time and communicate to Participants
the performance rating required to apply the minimum, maximum and other intermediate
percentages within the performance criteria established under Section 5.02 for purposes
of calculating the Incentive Compensation Award for an Award Year; provided, however,
that notwithstanding any other provision of the Plan to the contrary, any Participant
who receives a rating of “unsatisfactory” on any performance appraisal report during an
Award Year shall be ineligible for an Incentive Compensation Award for that Award Year,
and any Participant who receives a rating of “improvement needed” on any performance
appraisal report during an Award Year shall be eligible for all or part of any
Incentive Compensation Award for that Award Year only if approved by the Committee upon
recommendation of the Company’s management.

     Section 5.02 - Performance Criteria.

	 	(a)	 	The Incentive Compensation Award for a Participant may be calculated in part on
the basis of Financial Performance and in part on the basis of the Financial
Performance of the Participating Entity who employs the Participant.
	 
	 	(b)	 	In addition to the Financial Performance criteria referred to in paragraph (a)
above, the Incentive Compensation Award for a Participant may be calculated in part
based

9

 

	 	 	 	on the Participant’s individual performance and/or performance of the
Participant’s
job unit, the levels of which will be measured by general criteria (e.g., revenues,
margins, cost management, quality, customer service, etc.) and in part
may consist of a discretionary piece based on the Participant’s individual
performance measured by personal behavioral criteria (e.g. attitude, teamwork,
etc.). Guidelines for determining the requirements for achieving the various
performance levels (e.g., Outstanding, Meets Expectations, etc.) will be developed
by the Committee or its delegate and communicated to Participants from time to time
during the Award Year.

	 	(c)	 	The Committee may, in its sole discretion, change or eliminate the performance
criteria referred to in paragraphs (a) or (b) above, and may establish new or
additional performance criteria, from time to time, provided that the applicable
performance criteria are communicated to affected Participants.
	 
	 	(d)	 	the specific Group and Performance criteria in effect for the applicable Award
Year and until further amended by the Committee, is as set forth in Appendix I to this
Plan.

     Section 5.03 — Determination of Salary Percentage and Allocation of Performance
Criteria. The Committee shall determine and, itself or through its delegate, communicate to
Participants from time to time the percentage of a Participant’s Salary to be taken into account
for purposes of determining a Participant’s Incentive Compensation Award for an Award Year. The
Committee shall also determine and, itself or through its delegate, communicate to Participants the
percentages of the performance criteria established under Section 5.02 above which are applicable
to Participants in each Group, and for this purpose may subdivide each Group into Participants and
Participating Entity Participants, or such other subgroups as it may determine.

     Section 5.04 — Determination of Incentive Compensation Award. The amount of
a Participant’s Incentive Compensation Award for an Award Year, if any, shall be determined by the
Committee or its delegate in accordance with the terms of the Plan and shall be communicated in
writing to the Participant on or before March 15th of the next year.

     Section 5.05 — Determination of Discretionary Bonus. The Committee may
grant, from time to time in its sole discretion, a bonus to any Participant based on any criteria
it determines. Such bonus, if specifically designated by the Committee as payable under this Plan,
shall be subject to such provisions of the Plan as it shall specify.

10

 

ARTICLE VI

PAYMENT TO PARTICIPANTS

     Section 6.01 — Timing of Payment. An Incentive Compensation Award for an
Award Year shall be paid to the Participant, or in the case of death to the Participant’s
Beneficiary, on or before March 15th of the next year.

     Section 6.02 — Payment in Common Stock. Consistent with the provisions of
the Tollgrade Communications, Inc. Long-Term Incentive Compensation Plan (LTIC) or any similar plan
in effect from time to time, and at the discretion of the Compensation Committee which administers
the LTIC (the “Committee”), Incentive Compensation Awards payable under any Section of this Article
VI may be paid in whole or in part in shares of Tollgrade Communications, Inc. Common Stock. The
number of shares of Common Stock to be paid would be determined by dividing the cash payment which
would otherwise be made by the Fair Market Value on the date on which the payment is to be made.
Any fractional shares shall be paid in cash. A Participant shall be considered, on the date as of
which Fair Market Value is determined for purposes of the stock distribution, as a shareholder of
Tollgrade Communications, Inc. with respect to the shares to be distributed.

     For purposes of this Section 6.02, Fair Market Value shall have the meaning assigned to it
under the LTIC or similar plan in effect at the time. To the extent there is no such plan in
effect, 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 or its
delegate, in its discretion, may determine to rely upon):

	 	(a)	 	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,
	 
	 	(b)	 	if the Common Stock is not listed on the New York Stock 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
Securities Exchange Act of 1934 on which the Common Stock is listed, or
	 
	 	(c)	 	if the Common Stock is not listed on any exchange referred to in paragraphs (a)
or (b) above, 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 sales 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 the Fair Market Value shall be determined by taking a weighted average of the
means

11

 

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 numbers 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 price 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 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 in the manner described above in this Section 6.02.

     If the Fair Market Value of the Common Stock cannot be determined on the basis previously set
forth in this Section 6.02 on the date as of which Fair Market Value is to be determined, the LTIC
Committee or its delegate 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.

     Section 6.03 — Beneficiary Designation. A Participant may file with the
Committee or its delegate a completed designation of Beneficiary Form as prescribed by the
Committee or its delegate. Such designation may be made, revoked or changed by the Participant at
any time before death. Such designation of Beneficiary will not be effective and supersedes all
prior designations until it is received and acknowledged by the Committee or its delegate. If the
Committee has any doubt as to the proper Beneficiary to receive payments hereunder, the Committee
shall have the right to withhold such payments until the matter is finally adjudicated. However,
any payment made in good faith shall fully discharge the Committee, the Participating Entities and
the Board from all further obligations with respect to that payment.

ARTICLE VII

MISCELLANEOUS PROVISIONS

     Section 7.01 - No Recourse. If the Financial Performance taken into account
for determination of an Incentive Compensation Award is found to be incorrect by the Company’s
independent certified public accountants and was more than the correct amount, there shall be no
recourse by the Company against any person or estate. However, the Company shall have the right to
correct such error by reducing by the entire excess amount any subsequent payments yet to be made
under the Plan for all Award Years.

     Section 7.02 — Expense. Incentive Compensation Awards shall be treated as
an expense for book purposes in the fiscal year of the Company or the Participating Entity, as
applicable, in which

12

 

the Incentive Compensation Award is earned by a Participant, as opposed to subsequent fiscal
year(s) during which the Incentive Compensation Award is paid.

     Section 7.03 - Merger or Consolidation. All obligations for amounts earned
but not yet paid under this Plan shall survive any merger, consolidation or sale of all or
substantially all of Tollgrade Communications, Inc. or a Participating Entity’s assets to any
entity, and be the liability of the successor to the merger or consolidation or the purchaser of
assets.

     Section 7.04 — Legal Costs. A Participant will be reimbursed by the Company
(or its successor) for any and all expenses incurred in successfully enforcing, by judgment of a
court of competent jurisdiction and after all appeals have been exhausted, the Participant’s right
to receive payments under the terms of this Plan.

     Section 7.05 — Gender and Number. The masculine pronoun whenever used in
the Plan shall include the feminine and vice versa. The singular shall include the plural and the
plural shall include the singular whenever used herein unless the context requires otherwise.

     Section 7.06 — Construction. The provisions of the Plan shall be construed,
administered and governed by the laws of the Commonwealth of Pennsylvania, including its statute of
limitations provisions, to the extent not preempted by ERISA or other applicable Federal law.
Titles of Articles and Sections of the Plan are for convenience of reference only and are not to be
taken into account when construing and interpreting the provisions of the Plan.

     Section 7.07 - Non-alienation. Except as may be required by law, neither the
Participant nor any Beneficiary shall have the right to, directly or indirectly, alienate, assign,
transfer, pledge, anticipate or encumber (except by reason of death) any amount that is or may be
payable hereunder, including in respect of any liability of a Participant or Beneficiary for
alimony or other payments for the support of a spouse, former spouse, child or other dependent,
prior to actually being received by the Participant or Beneficiary hereunder, nor shall the
Participant’s or Beneficiary’s rights to benefit payments under the Plan be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Participant or Beneficiary or to the debts, contracts, liabilities,
engagements, or torts of any Participant or Beneficiary, or transfer by operation of law in the
event of bankruptcy or insolvency of the Participant or any Beneficiary, or any legal process.

     Section 7.08 — No Employment Rights. Neither the adoption of the Plan nor
any provision of the Plan shall be construed as a contract of employment between the Company or a
Participating Entity and any Employee or Participant, or as a guarantee or right of any Employee or
Participant to future or continued employment with the Company or a Participating Entity, or as a
limitation on the right of the Company or a Participating Entity to discharge any of its Employees
with or without cause. Specifically, designation as a Participant does not create any rights, and
no rights are created under the Plan, with respect to continued or future employment or conditions
of employment.

     Section 7.09 - Minor or Incompetent. If the Committee determines that any
Participant or

13

 

Beneficiary entitled to a payment under the Plan is a minor or incompetent by reason of
physical or mental disability, it may, in its sole discretion, cause any payment thereafter
becoming due to such person to be made to any other person for his benefit, without responsibility
to follow application of amounts so paid. Payments made pursuant to this provision shall
completely discharge the Participating Entities, the Plan, the Committee and the Board.

     Section 7.10 — Illegal or Invalid Provision. In case any provision of the
Plan shall be held illegal or invalid for any reason, such illegal or invalid provision shall not
affect the remaining parts of the Plan, but the Plan shall be construed and enforced without regard
to such illegal or invalid provision.

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APPENDIX I

TOLLGRADE COMMUNICATIONS, INC.

FINANCIAL, GROUP AND PERFORMANCE CRITERIA

EFFECTIVE FOR AWARD YEAR 2007

I. Performance Criteria

   A. Financial Performance Criteria

     The parameter upon which Awards under the Plan may be made will be a measurement of the
attained Operating Income as determined by applicable generally accepted accounting standards
consistently applied, based upon a minimum threshold which must be achieved before any Award may be
made. The Committee, at its sole discretion, will establish the Operating Income goal. It also
may provide that adjustments be made to the stated Operating Income goal for certain non-recurring
financial items that may arise from time to time. For Award Year 2007, the Committee has
established the minimum Operating Income levels set forth in Table 1 below. The Committee has also
established a fixed sum of funds which will be available for Awards, based on the commensurate
level of Operating Income achieved, as specified in Table 1 (herein, the “Annual Award Pool”).

     For Award Year 2007, the following matrix defines the achievement factors to be used to
develop an Award payment:

Table 1: Award Year 2007 Achievement Factors

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Benchmark A	 	 	 	 	 	 
	 	 	(Minimum	 	 	 	 	 	 
	 	 	Threshold)	 	Benchmark B	 	Benchmark C	 	Benchmark D
	2007 Operating
Income
	 	$	7.5  million		 	$	11.2 million*		 	$	17 million		 	$	25 million	
	Annual Award Pool
	 	$	375,000	 	 	$	560,000  	 	 	$	1,020,000	 	 	$	2,125,000	 

 

			
	*	 	Based on Board-approved 2007 Operating Plan, calculated at 5% of Plan Net Operating Income number.

     To the extent that the Operating Income level achieved is between the benchmarks specified in
Table 1, the Annual Award Pool shall be prorated accordingly, provided that, no adjustment shall be
made to the Minimum Threshold specified in Table 1.

15

 

     If the Operating Income level achieved is at Benchmark D, applicable Awards will be
calculated at 100% of the individual Award Achievement levels specified in this Appendix I, applied
to the Annual Award Pool. At the other Benchmark levels, applicable Awards will be prorated based
upon the Benchmark D Operating Income level at 100%, provided that, no Awards shall be made if the
Operating Income is not equal to or greater than the Minimum Threshold.

     The Operating Income which determines attainment must include the effect of any Awards
calculated under the Plan.

     Once an Award payment is determined to exist under the guidelines of the Plan, eighty
percent (80%) of the amount due will be based on the financial performance criteria.

B. Discretionary Performance Criteria

     Twenty percent (20%) of any Award calculated under the Plan will be based on the appropriate
achievement of specific individual performance goals as established between the individual and
their immediate supervisor. These goals must be established in the following format:

	 	 	 
	Discretionary Criteria	 	Discretionary Achievement Factor
	Attitude/Teamwork
	 	20%
	Achieving Operating Budget
	 	20%
	Discretionary Criteria (3)
	 	         20% each

	II.	 	Groups

	 	 	 	 	 
	Group	 	Title	 	Percentage
	I
	 	CEO	 	45
	 
	 	 	 	 
	II
	 	Chief Financial Officer	 	35
	 
	 	Vice President, Marketing	 	35
	 
	 	 	 	 
	III
	 	Vice President, Research & Development	 	25
	 
	 	Vice President, Operations	 	25
	 
	 	General Counsel	 	25
	 
	 	Vice President, Human Resources	 	25
	 
	 	Vice President, Global Sales	 	25
	 
	 	 	 	 
	IV
	 	Chief Information Officer	 	20
	 
	 	Controller	 	20

16

 

	 	 	 	 	 
	Group	 	Title	 	Percentage
	 
	 	Director, Manufacturing	 	20
	 
	 	Executive Director, Engineering	 	20
	 
	 	Executive Director, Engineering Cable Development	 	20
	 
	 	Executive Director, Technology	 	20
	 
	 	Executive Director, Systems Engineering & Product Development	 	20
	 
	 	Executive Director, Development, Test & Support	 	20
	 
	 	Executive Director, Business Development	 	20
	 
	 	Executive Director, Marketing	 	20
	 
	 	Executive Director, Quality	 	20
	 
	 	 	 	 
	V
	 	Assistant Controller	 	15
	 
	 	Director, Customer Service	 	15
	 
	 	Director, Software Development	 	15
	 
	 	Assistant Secretary	 	15
	 
	 	Director, Marketing	 	15
	 
	 	Director, Corporate Communications	 	15
	 
	 	Director, Facilities & Environmental Management	 	15
	 
	 	Director, Sustaining Engineering	 	15
	 
	 	Director, Regulatory Compliance	 	15
	 
	 	Director, Purchasing	 	15
	 
	 	Director, Validation	 	15
	 
	 	Engineering Manager - All	 	15
	 
	 	Taxation & Compliance Manager	 	15
	 
	 	Marketing Manager - All	 	15
	 
	 	Principal Engineer - All	 	15
	 
	 	Product Marketing Manager	 	15
	 
	 	Manager,  Test Engineering Cable	 	15
	 
	 	Manager, Hardware/Software Test Engineering	 	15
	 
	 	Senior Network Administrator	 	15
	 
	 	Director, Sales Engineering	 	15
	 
	 	 	 	 
	VI
	 	Accounts Payable Manager	 	10
	 
	 	Corporate Attorney	 	10
	 
	 	Communications Manager	 	10
	 
	 	Customer Service Supervisor	 	10
	 
	 	Director, CAD	 	10
	 
	 	Director, Documentation	 	10
	 
	 	Group Leader-Shipping & Receiving	 	10
	 
	 	Manager , Business Development	 	10
	 
	 	Lead Positions (All)	 	10
	 
	 	Manager, Accounting	 	10

17

 

	 	 	 	 	 
	Group	 	Title	 	Percentage
	 
	 	Product Validation & Certification Manager	 	10
	 
	 	Manager, Production Support Engineering	 	10
	 
	 	Manager, Technical Communications	 	10
	 
	 	Manager, Repairs	 	10
	 
	 	Payroll Manager	 	10
	 
	 	Production Support Team Leader	 	10
	 
	 	Production Team Leader	 	10
	 
	 	Project Manager - All	 	10
	 
	 	Test Engineer Hardware Design Engineer	 	10
	 
	 	Quality Control Team Leader	 	10
	 
	 	Senior CAD Designer	 	10
	 
	 	Senior Engineer - All	 	10
	 
	 	Sr. Technical Writer	 	10
	 
	 	Senior Field Engineer	 	10
	 
	 	Senior Systems Administrator	 	10
	 
	 	Senior Team Leader – Production	 	10
	 
	 	Team Leader -  Test Engineering All	 	10
	 
	 	Manager, Technical Services     (Cable Status Monitoring Group)	 	10
	 
	 	 	 	 
	VII
	 	All other exempt	 	5
	 
	 	 	 	 
	VIII
	 	All non-exempt personnel	 	5

18

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