SEPARATION AND MUTUAL RELEASE AGREEMENT

Exhibit 10.1

SEPARATION AND MUTUAL RELEASE
AGREEMENT

      THIS AGREEMENT (“Agreement”) is made as of the 16th day of November, 2007, by and between MARK B. PETERSON (“Executive”) and TOLLGRADE COMMUNICATIONS, INC., a Pennsylvania corporation (the “Corporation”) (Executive and the Corporation are referred to sometimes hereinafter individually as “Party” and collectively as, the “Parties”).

W I T N E S S E T H :

      WHEREAS, Executive has served as its Chief Executive Officer for close to three years; and

      WHEREAS, pursuant to that certain Employment Agreement dated as of May 31, 2005, as amended from time to time (the “Employment Agreement”), Executive currently is employed by the Corporation as its Chief Executive Officer; and

      WHEREAS , the Executive’s employment with the Corporation has terminated effective as of 4:00 p.m. on November 16, 2007 (the “Date of Termination”); and

      WHEREAS , Executive is a member of the Board of Directors of the Corporation (the “Board” or “Board of Directors”); and

      WHEREAS , the Executive will resign as a director of the Corporation effective as of the Date of Termination as required in the Employment Agreement; and

      WHEREAS , on and subject to the terms and conditions of this Agreement, Executive and the Corporation desire to settle fully and finally all matters between them, including, without limitation, any matters that relate to Executive’s employment, the termination of that employment, or Executive’s association with the Corporation generally, whether as an employee, director, officer, shareholder or otherwise.

      NOW, THEREFORE , in consideration of the premises and the covenants and agreements set forth herein, the Parties hereto, intending to be legally bound, agree as follows:

     1.  Termination/Resignation . Executive acknowledges that his employment with the Corporation has terminated and hereby resigns his position as an officer and director of the Corporation and any and all positions he holds with the Corporation, its subsidiary companies, or any of its other affiliates, effective as of the Date of Termination. From and after the Date of Termination, Executive shall not make any statements or engage in conduct which would lead any person or entity to believe that he is an employee, officer, director, consultant, agent or other authorized representative of the Corporation or any of its subsidiaries.

The Corporation acknowledges and agrees that the resignation of Executive constitutes the termination of employment of an employee being voluntarily terminated with the consent of the Corporation for purposes of the Corporation’s 1995 Long-Term Incentive Compensation Plan (as

amended through January 24, 2002) and that, accordingly, all options to acquire stock of the Corporation held by Executive which are vested as of the Termination Date shall remain exercisable by Executive for a period of not less than one year after the Termination Date.

     2.  Separation Pay; Waiver of Notice and Cure Periods . The Corporation shall pay to Executive as separation pay the following payments, to be paid on the Termination Date, net of any applicable tax and other required withholdings:

(a) a sum equal to $31,013.47, which represents any unpaid portion of the Executive’s full base salary for the period from the last period for which Executive was paid to the Date of Termination and any vacation pay and other cash entitlements accrued by Executive as of the Termination Date;

(b) a sum equal to two times the Executive’s base salary of $335,157, for a total of $670,314; and

(c) a sum equal to $14,176, which represents two times the average annual cash award received by the Executive as incentive compensation for the two calendar years immediately preceding the Date of Termination.

The Parties also hereby agree to waive any notice and cure periods that may be applicable under the Employment Agreement and further agree that the Date of Termination shall be the date set forth in the recitals hereof.

     3.  Employee Benefits, Corporation-Related Business Expenses and D&O Coverage . The Executive’s termination shall be deemed to be a termination under Section 4(c) of the Employment Agreement. The Corporation shall provide to or on behalf of Executive all of the benefits and coverages (including outstanding stock option agreements, welfare plan benefits (including medical insurance coverage continuation), executive placement assistance, director & officer indemnification and insurance, and any applicable tax gross-up payments) as may be required pursuant to such a termination. As it relates to Section 7(e) of the Employment Agreement, the Parties acknowledge and agree that Executive shall remain on the Corporation’s medical benefits for the entire required time of coverage, and as such, Executive will not be required to elect COBRA continuation coverage during that period. Notwithstanding the foregoing, to the extent the Corporation, in writing, reasonably requests Executive to so elect COBRA continuation coverage during such two year period to enable the continuation of medical benefits as required under the Employment Agreement, the Executive shall timely do so. The Corporation shall also reimburse Executive for any reasonable termination fees arising under any voice or data plan secured by the Executive during his employment, which were used primarily for business purposes and for any business expenses incurred by and not yet reimbursed to Executive prior to the Termination Date.

     4.  Return of Corporation Property . Executive agrees that he will promptly return to the Corporation all property belonging to the Corporation and that he will otherwise comply with the Corporation’s normal employment termination procedures. By way of example only, the Corporation’s property includes, but is not limited to, items such as keys, vehicles, credit cards, cell phones, pagers, computers, all originals and copies (regardless of the form or format on which such originals and copies are maintained) of all Corporation specifications and pricing

information, all customer lists and other customer-related information, all supplier lists and other supplier-related information, computer discs, tapes and other documents which relate to the business of the Corporation and/or its customers and/or its suppliers.

     5.  Standstill Provision . Through the second anniversary of the Date of Termination, Executive and his Representatives (as defined below) shall not, directly or indirectly, without the prior written consent of the Board: (a) acquire or offer or agree to acquire, directly or indirectly, by purchase or otherwise, more than five percent (5%) of any outstanding class of voting securities or securities convertible into voting securities of the Corporation, (b) propose to, or attempt to induce any other individual or entity to, enter into, directly or indirectly, any merger, consolidation, business combination, asset purchase (other than routine purchases in the ordinary course of business of product offered for sale by the Corporation) or other similar transaction involving the Corporation or any of its affiliates, (c) make, or in any way participate in any solicitation of proxies to vote, execute any consent as a Corporation shareholder, act to call a meeting of the Corporation’s shareholders, make a proposal to be acted upon by the Corporation’s shareholders or seek to advise or influence any person with respect to the voting or not voting of any securities of the Corporation, (d) form, join or in any way participate in a partnership, syndicate, joint venture or other “group” (as defined under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)), with respect to any voting securities of the Corporation or transfer Executive’s voting rights with respect to any securities of the Corporation (by voting trust or otherwise), (e) otherwise act, alone or in concert with others, to seek to control or influence the management, Board or policies of the Corporation or seek a position on the Board, (f) disclose any intention, plan or arrangement inconsistent with the foregoing, or (g) advise, assist or encourage any other persons in connection with any of the foregoing. If Executive has initiated any of the foregoing activities prior to the Date of Termination, Executive shall cease, terminate and otherwise refrain from conducting such activities and shall take any and all necessary steps to effect the foregoing and any proposals made by Executive as a shareholder of the Corporation on or before the Date of Termination, are hereby withdrawn. As used herein, the term “Representative” shall include Executive’s employees, agents, investment bankers, advisors, affiliates and associates of any of the foregoing and persons under the control of any of the foregoing (as the term “affiliate,” “associate” and “control” are defined under the 1934 Act). Executive also agrees during such period not to request the Corporation or its representatives, directly or indirectly, to amend or waive any provision of this Section 5 (including this sentence) to take any action which might require the Corporation to make a public announcement regarding the possibility of a merger, consolidation, business combination or other transaction of any kind with the Executive or any affiliate of the Executive.

     6.  Mutual General Release and Covenant Not-to-Sue .

          (a) By Executive .

(i)

Except as is otherwise explicitly provided herein, Executive, for himself, his agents, attorneys, Representatives, affiliates, heirs and assigns and all persons claiming by, through, for or under any of them or on any of their behalf, hereby fully and forever releases and discharges the Corporation, its subsidiaries and other affiliates,

predecessors and successors, their respective shareholders, officers, directors, employees, heirs and assigns (individually, a “Releasee” and collectively, “Releasees”), from any and all Claims which Executive may have had, may now have, or may hereafter claim or assert against the Releasees on account of any matter whatsoever, arising out of or relating to (A) Executive’s employment or termination of employment or other association with the Corporation, its subsidiaries or other affiliates (as an employee, director, officer, shareholder or otherwise) or (B) any other act, event, failure to act or thing which has occurred or was created at any time on or before the Date of Termination. As used herein, “Claims” shall mean all claims, counterclaims, cross-claims, actions, causes of action, demands, obligations, debts, disputes, covenants, contracts, agreements, rights, suits, rights of contribution and indemnity, liens, expenses, assessments, penalties, charges, injuries, losses, costs (including, without limitation, attorneys’ fees and costs of suit), damages (including, without limitation, compensatory, consequential, bad faith or punitive damages), and liabilities, direct or indirect, of any and every kind, character, nature and manner whatsoever, in law or in equity, civil or criminal, administrative or judicial, in contract or in tort (including, without limitation, bad faith and negligence of any kind) or otherwise, whether now known or unknown, claimed or unclaimed, asserted or unasserted, suspected or unsuspected, discovered or undiscovered, accrued or unaccrued, anticipated or unanticipated, fixed or contingent, liquidated or unliquidated, state or federal, under common law, statute or regulation. Without limiting the generality hereof, this release (and the defined term “Claims” as used in this Agreement) covers Claims based upon torts (such as, for example, negligence, fraud, defamation, wrongful discharge); express and implied contracts (except this Agreement); federal, state or local statutes and ordinances; and every other source of legal rights and obligations which may be validly waived or released.

(ii)

Executive covenants and represents that he has not file