Exhibit
10.1


December 26, 2006


[Name and Address of Officer/Director]


 


Dear [Name of Officer/Director]:


As you are aware, Sonus is reviewing its option grant
practices to determine whether the Company properly calculated the stock
compensation expense charges associated with those option grants.  Although our review is not yet complete, we
have determined that it appears likely that for certain options, the
measurement date used to prepare its historical financial statements will be
found to differ from the appropriate measurement date as determined for
accounting purposes.  While those options
had an exercise price that was equal to the fair market value of the Company’s
stock on the originally used measurement date, the exercise price may be less
than the fair market value of the stock on the re-determined measurement
date.  As a result, the Company would be
required to record compensation expense related to such stock option
grants.  We do not expect to complete our
review of these issues until after December 31, 2006.


Sonus is also considering the federal income tax
consequences that may arise should we conclude that the previously used
measurement date for certain options is not the appropriate measurement
date.  Recent changes to the U.S. tax
laws related to deferred compensation may result in adverse tax consequences to
you with respect to certain of your options listed on Schedule A
attached hereto or other options you have received that are not included on
Schedule A (the “Options”) unless you consent by December 31, 2006 to the
amendment of those Options to increase the exercise price to the fair market
value on the re-determined measurement date, in the manner and to the extent
described below.  You should read this
letter thoroughly and discuss the issues with your tax advisor.


Why may my Options
need to be amended?


In October 2004, Congress enacted Section 409A of the
Internal Revenue Code, which implements rigorous documentary and operational
rules related to nonqualified deferred compensation and imposes steep penalties
on U.S. individual income taxpayers for failure to comply with the new
law.  Stock options that have an exercise
price that is less than the fair market value of the stock on the date of grant
are subject to Section 409A.


If any of your Options are determined to have a
different measurement date than we originally used, and the exercise price of
the Option is less than the fair market value









 



of our stock on the re-determined date, you may be
subject to adverse tax consequences unless you agree to amend those Options as
described below.  Pursuant to transition
rules established by the Internal Revenue Service, such amendment must take
place no later than December 31, 2006. 
Because the results of our review may not be complete by December 31 of
this year, we are offering you the opportunity to irrevocably agree now that
the exercise price of your Options will be increased to the extent that it is
less than the fair market value of our stock on a re-determined measurement
date.


What amendment will
be made to my Options?


We are offering you the opportunity to irrevocably
agree that if the restated financial statements of Sonus included as part of
any amended Form 10-K filed with the Securities and Exchange Commission
(or any similar periodic SEC filing) after the date hereof include an
adjustment to the Company’s compensation expense with respect to any of your
Options, and such adjustment results from the fair market value of our common
stock on a re-determined measurement date being greater than your exercise
price, then with respect to any such Option, the exercise price will be
increased to be equal to the fair market value of our stock on the
re-determined date.


By agreeing to the amendment, you must agree that you
will not exercise your Options prior to the time that Sonus notifies you
whether there has been a re-determination of the measurement date with respect
to your Options.


When will Sonus
tell me whether the measurement date with respect to any of my Options has been
re-determined?


The Company will inform you of any re-determination of
the measurement date of any of your Options promptly after its filing an
amended Form 10-K (or similar periodic SEC filing) with the Securities and
Exchange Commission that reflects compensation expense with respect to any such
Option.


Will all of my
options need to be amended?


No, although it may be determined that some of your
options were granted at a discount from the original measurement date value,
they could be “grandfathered” from the new tax rules under Section 409A.  The effective date of the new tax rules is
January 1, 2005; therefore, options that vested prior to January 1, 2005 do not
need to be amended. All of the Options you have received could be affected by
the amendment.


Does my election
need to be completed by December 31, 2006 or 2007?


The Internal Revenue Service issued transition rules
governing the implementation of the new tax rules that extended the opportunity
for compliance from 2005 to 2006.  This
transition relief was again extended until December 31, 2007 for some
taxpayers.  However, the 2007 extension
specifically precludes its use for



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discounted options for certain persons.  Although IRS Notice 2006-79 will give most of
our employees until the end of 2007 to amend their options if necessary, it
specifically precludes “Section 16” persons from taking advantage of this
extended compliance date.  Therefore, you
will need to amend your Options by December 31, 2006, or you may be subject to
adverse tax consequences under Section 409A.


Are you proposing
to make any other amendments to my Options?


No.  Your
Options will continue to be governed by the Sonus stock plan under which they
were granted and your applicable option agreements.  All of your rights, and Sonus’ rights, with respect
to the Options will continue to be as set forth in the plan and agreement,
except as provided in this letter and the attached consent form.


Are there any
negative consequences to me of agreeing to the amendment?


If you agree to the amendment, the exercise price of
some or all of your Options may be increased. 
Moreover, the exercise price will be increased even if the value of our
common stock is currently, or subsequently falls below, that value.


In addition, even if you agree to an amendment to your
Options, there can be no assurance that the Internal Revenue Service (i) will
agree that the amendment set forth herein is sufficient to comply with the
transition rules under Section 409A and (ii) will not assert that the
measurement date is different than the date as we determine it.  As a result, the adverse tax consequences of
Section 409A may nevertheless apply to your Options. However, if you do
not agree to amend your Options, you may be subject to the adverse tax
treatment under Section 409A described below in the event of a re-determined
measurement date with respect to any of such Options.


Will Sonus
compensate me for the increase in the exercise price on my Options?


Yes. Sonus will either pay you in cash in 2008 (or
later, as and when the underlying Options vest that have had an increase in
exercise price), or pay you in restricted stock in 2007, with the choice of
payment remaining in the Company’s discretion. 
The payment for an impacted Option, whether in cash or stock, will be
calculated based on the difference between the original exercise price of the
Option and the increased exercise price based on the change in measurement date
multiplied by the number of shares in the Option. A payment will only be made
if you agree to amend your Options in the manner set forth above. Your right to
the cash or the restricted stock, as the case may be, will vest on January 1,
2008, if it is paid with respect to Options that have vested in 2007 or
earlier.  If such cash or restricted
stock is paid to you with respect to Options that have not vested by January 1,
2008, then these rights will vest as and when the underlying Options vest, and
the cash, if any, will be paid at such time. Whether we pay you in cash or
stock, the amount of the cash or the fair market value of any stock paid to
you, as the case may be, will be income to you for tax purposes when we pay the
cash or when the stock vests.  Sonus will
comply with all applicable wage withholding and reporting obligations with
respect to such amounts that are paid to you. 
Please note



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that the delay in payment or vesting until 2008 is
necessary to comply with IRS transition rules under Section 409A.


What happens if I
do not agree to amend my Options?


If you do not agree to amend your Options in the
manner set forth above, then your Options will remain outstanding and will be
subject to the same terms and conditions as are currently in effect.  If you do not agree to amend your Options
pursuant to this offer, you will not be compensated as set forth above. Also,
if you do not agree to amend your Options pursuant to this offer, you may be
subject to adverse taxation under Section 409A in the event of a re-determined
measurement date with respect to any of such Options.  On November 30, 2006, IRS issued Notice
2006-100, which set forth the following interim guidance concerning Section
409A consequences:


·                  For discounted
options that vested in 2005 and that continued to be held on December 31, 2005,
you would be required to include in income for 2005 an amount equal to the
excess of the fair market value of the underlying stock on December 31, 2005
over (i) the exercise price and (ii) any amount paid for the option.  This option spread is subject to regular
income and employment taxes, plus a 20 percent penalty tax and interest under
Section 409A.


·                  For discounted
options that vested in 2005 or 2006 and that continue to be held on December
31, 2006, you would be required to include in income for 2006 an amount equal
to the excess of the fair market value of the underlying stock on December 31,
2006 over (i) the exercise price, (ii) any amount paid for the option and (iii)
any amount previously included in income with respect to such discounted option
(for example, any option spread with respect to the option required to be
included in income in 2005).  This option
spread is subject to regular income and employment taxes, plus a 20 percent
penalty tax and interest under Section 409A.


Please note that for
discounted options that vest on or after January 1, 2005 similar inclusions and
Section 409A penalties and interest will be required in all future years in
which vested options are outstanding at the end of the year, until the time of
exercise or expiration of the discounted option, unless the IRS adopts a
different approach in final guidance with respect to these rules.


Please further note that
Sonus intends to comply with all reporting and withholding requirements under
Section 409A, including any such requirements established by the Internal
Revenue Service after the date hereof. 
Sonus will require you to satisfy any of your tax liabilities as a
result of these withholding rules.


The Section 409A transition rules that permit the
proposed amendment expire on December 31, 2006. 
As a result, there will be no future opportunity to amend your Options
to avoid the application of Section 409A.



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What do I need to
do to amend my Options?


If you want to irrevocably amend your Options, you
need to sign the attached consent form, acknowledging your understanding of,
and agreement with, the amendment to your Options.  The consent form must be signed and returned
to Charles Gray, Vice President and General Counsel no later than December 27,
2006.  Your agreement will be effective
upon our receipt of your signed consent. 
You may not revoke your consent.


If I agree to amend
my options, am I free from any negative tax consequence due to Section 409A?


As noted above, Sonus cannot guarantee the ultimate
outcome of this issue nor can it provide you with personal tax advice.  You should consult with your personal tax
advisor.


In addition, the transition rules of Section 409A
require your non-grandfathered options be corrected in a permissible
manner.  As such, if you have already
exercised some non-grandfathered options since December 31, 2004, you may have
already subjected yourself to a violation and you may be subject to Section
409A’s penalties.  You should consult
your tax advisor.


What if I have more
questions?


If you have additional questions, you can contact
Chris Colonero, or our tax counsel Bob Stack of WilmerHale at
202-663-6272.  However, the amendment is
being made for tax reasons and tax matters are very complicated.  We therefore encourage you to talk to your
personal tax advisor regarding whether you should consent to the proposed
amendment of your Options.


Sincerely,


 


Charles J. Gray


Vice President and General Counsel



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CONSENT FORM


PLEASE CHECK ONE BOX ONLY AND SIGN
BELOW


o   Consent
to Amendment.  I have read the
memorandum dated December 26, 2006 to me from Sonus.  I hereby irrevocably agree as of the date
hereof that if the restated financial statements of Sonus included as part of
any amended Form 10K filed with the Securities and Exchange Commission (or any
similar periodic SEC filing) after the date hereof include an adjustment to
Sonus’ compensation expense with respect to any of my Options, and such
adjustment results from the fair market value of our common stock on a
re-determined measurement date being greater than my exercise price, then with
respect to any such option, the exercise price of the option will be increased
to be equal to the fair market value of our stock on the re-determined
measurement date.


I understand and agree that:


·                  the amendment is
effective regardless of how high the fair market value of the stock is on the
re-determined measurement date;


·                  the amendment to
the stock options in no way provides me with any additional rights with respect
to my options;


·                  I may not
exercise any of the Options prior to the time that Sonus notifies me whether
there has been a re-determination of the measurement date with respect to any
of such options;


·                  my stock options
will remain subject to the terms of the plan under which they were granted and
my option agreements, except as provided in this Consent Form;


·                  Sonus shall have
no liability to me or any other party for any tax obligations arising with
respect to my stock options, whether imposed under Section 409A of the
Internal Revenue Code or otherwise;


·                  Sonus will
either make cash payment to me in 2008 (or later, as and when the underlying
options vest that have had an increase in exercise price), or pay me in
restricted stock in 2007, with the choice of payment remaining in the Company’s
discretion. The payment for an impacted Option, whether in cash or stock, will
be calculated based on the difference between the original exercise price of
the Option and the increased exercise price based on the change in measurement
date multiplied by the number of shares in the Option. My right to the cash or
the restricted stock, as the case may be, will vest on January 1, 2008, if it
is paid with respect to options that have vested in 2007 or earlier.  If such cash or restricted stock is paid to
me with respect to options that have not vested by January 1, 2008, then these
rights will vest as and when the underlying options vest, and the cash, if any,
will be paid at such time.



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o   No
Consent to Amendment.  I have read
the memorandum dated December 26, 2006 to me from Sonus.  I do NOT agree to any adjustment to the
exercise price of my stock options.  My
election is effective regardless of whether the restated financial statements
of Sonus included as part of any amended Form 10K filed with the Securities and
Exchange Commission (or any similar periodic SEC filing) after the date hereof
include an adjustment to Sonus’ compensation expense with respect to any of my
Options


I understand and agree that:


·                  the exercise
prices of my stock options will remain as is;


·                  my stock options
will remain subject to the terms of the plan under which they were granted and
my option agreements;


·                  Sonus may be
required to withhold income and employment taxes as my stock options vest or
otherwise in accordance with Section 409A of the Internal Revenue Code and
other applicable tax laws, and that Sonus intends to comply with all reporting
and withholding requirements under Section 409A, including any such
requirements established by the Internal Revenue Service after the date
hereof.  I understand that Sonus will
require me to satisfy any of my tax obligations under these withholding rules;


·                  I may be subject
to the 20% penalty tax and interest imposed under Section 409A as and when my
options vest on the amount of income determined under Section 409A; and


·                  Sonus shall have
no liability to me or any other party for any tax obligations arising with
respect to my stock options, whether imposed under Section 409A or
otherwise.


·                  If I do not
agree to amend my Options pursuant to this offer, I understand that I will not
be compensated as set forth above.


 


	
   

  	
  Very truly yours

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
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