Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-K/A**

 

**Amendment No. 1**

 

x  **ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thefiscal year ended December 31, 2009**

 

**o**** ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**CommissionFile Number 001-34115**

 

**SONUS NETWORKS, INC.**

(Exact name of Registrant as specified in itscharter)

 

| **DELAWARE**                                                    | ** ** | **04-3387074**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**7Technology Park Drive, Westford, Massachusetts 01886**

(Address of principal executive offices,including zip code)

 

**(978)614-8100**

(Registrant’s telephone number, includingarea code)

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| **Title of each class**         | ** ** | **Name of each exchange on which registered** |
|---------------------------------|------------|-----------------------------------------------|
| Common Stock, par value  $0.001 |       | The NASDAQ Global Select  Market              |

 

Securitiesregistered pursuant to Section 12(g) of the Act:******None**

 

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.  Yes  o  No x

 

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes  o  No x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes  x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  Yes o  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained, tothe best of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act.  (Check one):

** **

| Large accelerated filer o                      |   | Accelerated filer x         |
|------------------------------------------------|--------|-----------------------------|
|                                           |   |                        |
| Non-accelerated filer o                        |   | Smaller reporting company o |
| (Do not check if a smaller  reporting company) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  No x

 

Theaggregate market value of the common stock held by non-affiliates of theRegistrant was approximately $274,438,000 based on the closing price for theCommon Stock on the NASDAQ Global Select Market on June 30, 2009.  As of February 17, 2010, there were274,640,550 shares of common stock, $0.001 par value, outstanding.

 

 

 

----

Table of Contents

 

**SONUSNETWORKS, INC.**

**FORM 10-K/A**

**Amendment No. 1**

**YEAR ENDEDDECEMBER 31, 2009**

**TABLE OFCONTENTS**

 
| **Item**          | ** ** | ** **                                                                                       | **Page** |
|-------------------|------------|--------------------------------------------------------------------------------------------------|----------|
| **Part III** |       |                                                                                             | 2        |
| 10.               |       | Directors,  Executive Officers and Corporate Governance                                          | 2        |
| 11.               |       | Executive  Compensation                                                                          | 16       |
| 12.               |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters | 36       |
| 13.               |       | Certain  Relationships and Related Transactions, and Director Independence                       | 40       |
| 14.               |       | Principal  Accounting Fees and Services                                                          | 41       |
| **Part IV**  |       |                                                                                             | 43       |
| 15.               |       | Exhibits  and Financial Statement Schedules                                                      | 43       |
|              |       | Signatures                                                                                       | 44       |
|              |       | Exhibit Index                                                                               | 45       |

 

2

----

Table of Contents

 

**Explanatory Note**

 

This Amendment No. 1 (this “Amendment”)on Form 10-K/A to the Annual Report on Form 10-K (the “Initial Filing”)of Sonus Networks, Inc., a Delaware corporation (the “Company”), for theyear ended December 31, 2009, which was filed with the Securities andExchange Commission, or the SEC, on February 25, 2010, is being filedsolely for the limited purpose of amending Items 10 through 14 to reflect theinclusion of the information required by the Form 10-K and Part IV,Item 15. The Initial Filing contemplated the incorporation of such informationfrom a Proxy Statement to be filed by the Company within 120 days following theend of the Company’s year ended December 31, 2009. The Company does notbelieve that such Proxy Statement will be filed within the requisite 120-daytime period and, accordingly, is including the information required by Items 10through 14 of the Form 10-K through this Amendment as contemplated byinstruction G(3) to the Form 10-K.

 

Except as contained herein, this Amendmentdoes not modify or update disclosures contained in the Initial Filing. ThisAmendment should be read in conjunction with the Company’s other filings madewith the SEC subsequent to the date of the Initial Filing, including anyamendments to those filings, as well as any Current Reports filed on Form 8-Ksubsequent to the date of the Initial Filing, if any. In addition, inaccordance with applicable rules and regulations promulgated by the SEC,this Amendment includes updated certificates from our Chief Executive Officerand Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.

 

----

Table of Contents

 

**PART III**

 

**Item 10. Directors, Executive Officers and Corporate Governance**

 

**Board of Directors**

 

The Board of Directors, orthe Board, of Sonus Networks, Inc. (Sonus, Sonus Networks, our, we, us or theCompany) is presently composed of nine members, eight of whom are independentwithin our director independence standards, which meet the directorindependence standards of the NASDAQ Stock Market Marketplace Rules.

 

At our 2009 annual meetingof stockholders, our stockholders voted to declassify our Board by the 2011annual meeting of stockholders. The class of directors whose term of officeexpires at the 2010 annual meeting of stockholders currently consists of threedirectors, each of whom is a current director; this will be our last class ofdirectors elected on a staggered basis.

 

Biographicalinformation regarding each director of the Company is set forth below.

 

***Directors Whose Terms Will Expire in 2010***

 

*Beatriz V.Infante,*56, has been a directorsince January 2010. Since January 2009, Ms. Infante has servedas the Chief Executive Officer of BusinessExcelleration LLC. She was previouslythe Chief Executive Officer and director of VoiceObjects Inc. (now VoxeoCorporation) from March 2006 to December 2008. From December 2004to June 2005, Ms. Infante served as Chief Executive Officer and adirector of Sychron Inc., which was sold to an investor group. From October 1998to October 2003, Ms. Infante held various positions with AspectCommunications, including the roles of Chairman, President and Chief ExecutiveOfficer. In addition to her current role as Chief Executive Officer ofBusinessExcelleration LLC, Ms. Infante is also an Executive-in-Residenceat U.S. Venture Partners, a leading Silicon Valley venture capital firm. Shecurrently serves on the Advisory Committee to the Princeton University Schoolof Engineering and Applied Science and is an advisor and investor in severalearly-stage technology companies. Ms. Infante also was on the Board ofDirectors and the Compensation Committee of Netli Inc., a private company, fromMarch 2005 to March 2007 and the Board of Directors of Joint VentureSilicon Valley Network, a not-for-profit organization, from January 2006to June 2008. Ms. Infante holds a Bachelor of Science and Engineeringdegree in Electrical Engineering and Computer Science from Princeton Universityand holds a Master of Science in Engineering and Computer Science fromCalifornia Institute of Technology. Based primarily upon Ms. Infante’s extensive executive managementand leadership experience as chairman and chief executive officer of variouscompanies; strong financial, risk analysis, corporate governance andadministrative skills and experience; as well as those demonstrated attributesdiscussed above and the leadership skills and other experience of Ms. Infante,the Board has determined that Ms. Infante is well qualified to continue serving as a director of Sonus atthe time that this report is filed with the SEC.

 

*Howard E.Janzen*, 56, has been a director since January 2006 and the Chairman ofthe Board since December 2008. Mr. Janzen has been Chief ExecutiveOfficer of One Communications Corp., a supplier of integrated advancedtelecommunications solutions to businesses, since March 2007 and hasserved on the Board of Directors of One Communications since June 2007. Heserved as President of Sprint Business Solutions, the business unit servingSprint Corporation’s business customer base with almost 10,000 employees and$12 billion in annual revenue from January 2004 to September 2005.From May 2003 to January 2004, he was President of Sprint Corporation’sGlobal Markets Group, responsible for Sprint Corporation’s long distanceservice for both consumer and business customers. From October 2002 to May 2003,Mr. Janzen was President and Chief Executive Officer of Janzen Ventures, Inc.,a private investment business venture. From 1994 until October 2002, Mr. Janzenserved as President and Chief Executive Officer, and Chairman from 2001, ofWilliams Communications Group, Inc., a high technology company, whichfiled a voluntary petition for reorganization under Chapter 11 of the UnitedStates Bankruptcy Code in April 2002 and emerged from bankruptcy in October 2002as WilTel Communications Group, Inc. Mr. Janzen currently serves as amember of the Board of Directors, the Compensation Committee and the CorporateGovernance Committee of Global Telecom & Technology, Inc.; amember of the Board of Directors and Compensation Committee of Macrosolve, Inc.;and a member of the Board of Directors of Clearwater Car Wash, LLC, a privatecompany.  Mr. Janzen had previouslyserved as a member of the Board of Directors and the Compensation Committee ofComsat International, a private company, and as a member of the Board ofDirectors and the Audit Committee of Exanet Ltd., a private company. He alsoserves on the Governor’s Science and Technology Council for the State of Oklahomaand is a Commissioner and Chairman for the Global Information InfrastructureCommission. Additionally, Mr. Janzen serves as a member on the Boards ofDirectors of the following non-profit organizations — Hillcrest HealthcareSystem, Morningside Foundation and Heart of America Boy Scout Council.  Mr. Janzen received his Bachelor ofScience and Master of Science degrees in Metallurgical Engineering from theColorado School of Mines. He also has completed the Harvard Business SchoolProgram for Management Development.  Based primarily upon Mr. Janzen’sextensive executive management and leadership experience as president and chief

 

2

----

Table of Contents

 

executive officerof various companies; strong strategic planning, risk analysis, corporategovernance and administrative skills and experience; and contributions as acurrent Board and Board committee member, as well as those demonstratedattributes discussed above and the leadership skills and otherexperience of Mr. Janzen, the Board has determined that Mr. Janzen is well qualified to continue servingas a director of Sonus at the time that this report is filed with the SEC.

 

*H. BrianThompson*, 71, has been a director since October 2003. Mr. Thompsonhas been Executive Chairman of Global Telecom and Technology, Inc., aglobal telecommunications network integrator, since October 2006.  He continues to head his own private equityinvestment and advisory firm, Universal Telecommunications, Inc.  From December 2002 to June 2007, Mr. Thompsonwas Chairman of Comsat International, one of the largest independenttelecommunications operators serving all of Latin America. He also served asChairman and Chief Executive Officer of Global TeleSystems Group, Inc.from March 1999 to September 2000. Mr. Thompson was Chairman and Chief Executive Officer of LCIInternational, Inc. from 1991 until its merger with Qwest CommunicationsInternational Inc. in June 1998. Subsequent to such merger, Mr. Thompson became Vice Chairman of theBoard of Directors for Qwest Communications International, Inc. until hisresignation in December 1998. Mr. Thompson previously served asExecutive Vice President of MCI Communications Corporation from 1981 to1990.  Prior to MCI CommunicationsCorporation, he was a management consultant with the Washington, D.C. officesof McKinsey & Company for nine years, where he specialized in themanagement of telecommunications.  He currentlyserves as a member of the Board of Directors and the Compensation Committee ofAxcelis Technologies, Inc.; a member of the Board of Directors, theCompensation Committee and the Audit Committee of ICO Global Communications(Holdings) Ltd.; and a member of the Board of Directors, the CompensationCommittee and the Nominating and Corporate Governance Committee of PenskeAutomotive Group, Inc. He formerly served as a member on the Boards ofDirectors of ArrayComm LLC, Bell Canada International Inc., Comcast UK CablePartners Limited, DynCorp International Inc., Williams Communications Group, Inc.and Golden Books. Mr. Thompson is a member of the Board of Trustees forthe Lab School of Washington & Baltimore Lab.  He was a former chairman of the U.S. CompetitiveTelecommunications Association and also served on the University ofMassachusetts Chancellor’s Executive Committee, as a member of the Boards ofTrustees of Capitol College in Laurel, Maryland, and the St. Stephens and St.Agnes School Foundation in Alexandria, Virginia. He received his Master ofBusiness Administration from Harvard University’s Graduate School of Business,and received an undergraduate degree in chemical engineering from theUniversity of Massachusetts.  Based primarily upon Mr. Thompson’sextensive executive management and leadership experience as chief executiveofficer of various companies; strong financial, risk analysis, corporategovernance and administrative skills and experience; and contributions as acurrent Board and Board committee member, as well as those demonstratedattributes discussed above and the leadership skills and otherexperience of Mr. Thompson, the Board has determined that Mr. Thompsonis well qualified to continueserving as a director of Sonus at the time that this report is filed with theSEC.

 

***Directors Whose Terms Will Expire in 2011***

 

*James K.Brewington,*66, has been a directorsince May 2009. Mr. Brewington is a veteran of the globalcommunications market with over 40 years of industry experience at AT&TInc. and Lucent Technologies before his retirement in 2007. From mid-2004 untilhis retirement from Lucent Technologies, Mr. Brewington was President ofthe then newly-formed Developing Markets group, tasked with expanding therevenue base beyond domestic borders, reflecting his prior success in buildingout their global footprint. Prior to this, he was President of LucentTechnologies’ Mobility Solutions division, where he was responsible for allwireless infrastructure for the mobility segment, including global wirelessdevelopment and product architecture, project management, and business andproduct management. Mr. Brewington joined Lucent Technologies in 1996. Hebegan his career at AT&T Inc. in 1968, and over the ensuing years heldvarious executive management positions in the telecommunications industry,including overseeing Bell Telephone Wireless Laboratories. Mr. Brewingtonserves on the Boards of Directors for Kopin Corporation and BDX, aprivately-held startup company in China. He also advises several technology startup companies. He has served onthe boards of the U.S.-Saudi Arabian Business Council and INROADS/North Jersey, Inc.,a non-profit organization that trains minority youth for careers in businessand industry. He is a member of the Cellular Telecommunications IndustryAssociation, or CTIA, and the CTIA Wireless Foundation.  Mr. Brewington has a Master of BusinessAdministration from Seattle University, a Master of Science from StanfordUniversity (Sloan Fellow) and a Bachelor of Arts from the College ofIdaho.  Based primarily upon Mr. Brewington’sextensive executive management and leadership experience in thetelecommunications industry; strong risk analysis, corporate governance andadministrative skills and experience; and contributions as a current Board andBoard committee member, as well as those demonstrated attributes discussedabove and the leadership skills and other experience of Mr. Brewington,Mr. Brewington is well qualifiedto continue serving as a director of Sonus at the time that this reportis filed with the SEC.

 

*John P.Cunningham*, 72, has been a director since September 2004.In June 2002, Mr. Cunningham retired from Citrix Systems, Inc.,a global leader in virtual workplace software and services. From May 2001 toJune 2002, Mr. Cunningham 

 

3

----

Table of Contents

 

was Senior Vice President, Finance andOperations of Citrix Systems, Inc. He joined Citrix Systems, Inc. in November 1999as Senior Vice President, Finance and Administration and served in thatcapacity until May 2001. From 1998 to June 1999, Mr. Cunninghamserved as Executive Vice President and Chief Financial Officer of Wang Global, aworldwide provider of network services. Prior to joining Wang Global, he servedas Chief Financial Officer of Whirlpool Corporation from 1996 to 1998 and ChiefFinancial Officer of Maytag Corporation from 1994 to 1996, both diversifiedmanufacturers. Mr. Cunningham has also held various management positionsat International Business Machines. He currently serves as a member of theBoard of Directors of Smart Disk Corporation as well as its Audit Committee. Mr. Cunninghamhas a Master of Business Administration from New York University and a Bachelorof Science from Fordham University.  Based primarily upon Mr. Cunningham’sextensive executive management and leadership experience as chief financialofficer of various companies; strong accounting, financial, risk analysis,corporate governance and administrative skills and experience; andcontributions as a current Board and Board committee member, as well as thosedemonstrated attributes discussed above and the leadership skills andother experience of Mr. Cunningham, Mr. Cunninghamis well qualified to continue serving as a director of Sonus at the timethat this report is filed with the SEC.

 

*Richard N.Nottenburg*, Ph. D., 56, has been our President, ChiefExecutive Officer and a director since June 2008, and is responsible forthe strategic direction and management of our company. From 2004 until 2008, Dr. Nottenburgwas an officer with Motorola, Inc., ultimately serving as its ExecutiveVice President, Chief Strategy Officer and Chief Technology Officer. While atMotorola, Inc., Dr. Nottenburg was responsible for shaping Motorola, Inc.’soverall corporate strategy. Prior to joining Motorola, Inc. as an officerin July 2004, Dr. Nottenburg was a strategic consultant to thecompany from January 2004 to July 2004. Prior to that, Dr. Nottenburgwas Vice President and General Manager of Vitesse Semiconductor Corporationafter its merger with Multilink Technology Corporation in 2003. From 1995 to2003, Dr. Nottenburg served as President and Chief Executive Officer ofMultilink Technology Corporation, leading the company from inception to asuccessful initial public offering in 2001. Dr. Nottenburg is currently amember of the Board of Directors and the Compensation and Corporate GovernanceCommittee of Comverse Technology Corp. He holds a Doctor of Science inElectrical Engineering from the Ecole Polytechnique Federale de Lausanne inLausanne, Switzerland, a Master of Science in Electrical Engineering fromColorado State University and a Bachelor of Science in Electrical Engineeringfrom Polytechnic Institute of New York. Basedprimarily upon Dr. Nottenburg’s extensive executive management andleadership experience as our Chief Executive Officer; strong financial, riskanalysis, corporate governance and administrative skills and experience; andcontributions as a current Board and Board committee member, as well as thosedemonstrated attributes discussed above and the leadership skills andother experience of Dr. Nottenburg, Dr. Nottenburgis well qualified to continue serving as a director of Sonus at the timethat this report is filed with the SEC.

 

*John A.Schofield*, 61, has been a director since January 2009.From 1999 to 2005, Mr. Schofield served as President, Chief ExecutiveOfficer and Chairman of the Board of Advanced Fibre Communications, Inc.,a leading supplier of next-generation edge access equipment and multi-servicebroadband solutions for the telecommunications industry. From 1992 to1999, Mr. Schofield served as Senior Vice President and then President ofthe Integrated Solutions Group of ADC Telecommunications, Inc., aworld-wide supplier of network equipment, software solutions, and integrationservices for broadband and multiservice networks. Since April 2000, Mr. Schofieldhas served as a member of the Board of Directors of Integrated DeviceTechnology, Inc. In 2008, Mr. Schofield was elected to the positionof Chairman of the Board of Directors of Integrated Device Technology, Inc.  He also serves as Chairman of the Governanceand Nominating Committee, as a member of the Compensation Committee and is apast member of the Audit Committee of Integrated Device Technology, Inc.  Mr. Schofield has a Bachelor of Sciencein Electrical Engineering from the NSW Institute of Technology in Sydney,Australia and is a graduate of Raytheon’s Advanced Management Program. Based primarily upon Mr. Schofield’sextensive executive management and leadership experience as president ofvarious companies; strong risk analysis, corporate governance andadministrative skills and experience; and contributions as a current Board andBoard committee member, as well as those demonstrated attributes discussedabove and the leadership skills and other experience of Mr. Schofield,Mr. Schofield is well qualifiedto continue serving as a director of Sonus at the time that this reportis filed with the SEC.

 

*Scott E.Schubert*, 56, has been a director since February 2009.From 2005 until June 2008, Mr. Schubert served as Chief FinancialOfficer of TransUnion LLC. From 2003 to 2005, Mr. Schubert served asChief Financial Officer and, prior to that, Executive Vice President ofCorporate Development of NTL, Inc. (now Virgin Media, Inc.). From1999 to 2003, Mr. Schubert held the position of Chief Financial Officer ofWilliams Communications Group, Inc., a high technology company, whichfiled a voluntary petition for reorganization under Chapter 11 of the UnitedStates Bankruptcy Code in April 2002 and emerged from bankruptcy in October 2002as WilTel Communications Group, Inc. Mr. Schubert also served as headof BP Amoco’s Global Financial Services, leading the initial integration of BPand Amoco’s worldwide financial operations following the merger of the twocompanies. Mr. Schubert is a graduate of the Krannert School of Businessat Purdue University, where he completed his Master of Business Administrationdegree in Finance and Economics in 1976. He also earned his Bachelor of Sciencedegree at Purdue University in 1975, with dual majors in Engineering andAccounting.  Based primarily upon Mr. Schubert’s extensive executive managementand leadership experience as chief financial officer of various 

 

4

----

Table of Contents

 

companies; strongaccounting, financial, risk analysis, corporate governance and administrativeskills and experience; and contributions as a current Board and Board committeemember, as well as those demonstrated attributes discussed above and the leadershipskills and other experience of Mr. Schubert, Mr. Schubert is well qualified to continue serving as adirector of Sonus at the time that this report is filed with the SEC.

 

*Paul J.Severino*, 63, has been a director since March 1999. Mr. Severinohas been an investment advisor to emerging companies and venture funds since1996.  He was a co-founder and ChiefExecutive Officer of Interlan, Inc. and Wellfleet Communications Inc. aswell as a co-founder and Chairman of Bay Networks, Inc. He currentlyserves as a member of the Board of Directors and the Compensation Committee ofAnalog Devices, Inc. and was a member of the Board of Directors ofMedia100, Inc. Mr. Severino has a Bachelor of Science in ElectricalEngineering from Rensselaer Polytechnic Institute. Mr. Severino alsoserves as a member of the Board of Trustees of Rensselaer Polytechnic Instituteand The Dana Farber Cancer Institute, Boston, MA.  Basedprimarily upon Mr. Severino’s extensive executive management andleadership experience in the telecommunications industry; strong risk analysis,corporate governance and administrative skills and experience; andcontributions as a current Board and Board committee member, as well as thosedemonstrated attributes discussed above and the leadership skills andother experience of Mr. Severino, Mr. Severinois well qualified to continue serving as a director of Sonus at the timethat this report is filed with the SEC.

 

Our directors are a diversegroup of leaders in their respective fields. Many of the current directors have leadership experience at majordomestic and international companies with operations inside and outside of theUnited States, as well as experience on other companies’ boards, which providesan understanding of different business processes, challenges andstrategies.  Other directors haveexperience as members on the board of directors of non-profit and philanthropicinstitutions, which brings unique perspectives to our Board and providesinsight into issues faced by companies.

 

The Nominating and CorporateGovernance Committee and the Board believe that the above-mentioned attributes,along with the leadership skills and other experience of its Board membersdescribed above, provide the Company with the perspectives and judgmentnecessary to guide the Company’s strategies and governance principles andmonitor their execution.

 

**CORPORATE GOVERNANCE AND BOARD MATTERS**

 

**Corporate Governance Guidelines**

 

Sonus’ Board has adhered togovernance principles designed to assure the continued vitality of the Boardand excellence in the execution of its duties. In order to reflect these principles, our Board has establishedCorporate Governance Guidelines to assist in the fulfillment of itsresponsibilities. The governance practices, which are memorialized in theCorporate Governance Guidelines, are intended to ensure that our Board has thenecessary authority and processes to review and evaluate our businessoperations as needed and to make independent decisions consistent with theinterests of our stockholders.

 

Our Board is responsible foroverseeing our management and financial results and is committed to diligentlyexercising its oversight responsibilities consistent with the highestprinciples of business ethics, and to meeting the corporate governance requirementsof both federal law and the NASDAQ Stock Market Marketplace Rules.

 

The Corporate GovernanceGuidelines, among other things, include information regarding the:

 

·                  various goalsof the Board, as well as a description of the roles and responsibilities of itsmembers;

 

·                  composition ofthe Board, including the independence of directors and an overview of thecandidate selection process;

 

·                  process ofmeetings of the Board and the various committees of the Board; and

 

·                  policies of theCompany relating to director orientation and the proper access by directors tovarious members of management and Company advisors.

 

The Corporate GovernanceGuidelines reflect the Company’s principles on corporate governancematters.  These guidelines are availableon our website *www.sonusnet.com*, in the sectionentitled About Us — Investor Relations — Governing Our Company, or in paperform upon request to the Company’s corporate secretary.

 

5

----

Table of Contents

 

**Code of Conduct and Ethics**

 

Our Board has adopted awritten Corporate Code of Conduct and Ethics, which qualifies as a “code ofethics” as defined by Item 406 of Regulation S-K of the Exchange Actof 1934, as amended. The Code of Conduct and Ethics was established to preserveSonus’ reputation and to reaffirm its existing policy for integrity to itsemployees, officers and directors and to persons who deal with the Company. Toensure that our business is conducted in a consistently legal and ethicalmanner, all of our directors, officers and employees must act in accordancewith our Code of Conduct and Ethics.

 

Among other matters, theCode of Conduct and Ethics is designed to deter wrongdoing and to promote:

 

·                  honest andethical conduct, including the ethical handling of actual and apparentconflicts of interest;

 

·                  proper use ofCompany resources;

 

·                  full, fair,accurate and timely disclosure in public communications and SEC reports;

 

·                  prompt internalreporting of violations of internal policies; and

 

·                  accountabilityfor adherence to the Code of Conduct and Ethics.

 

Our policies and procedurescover all areas of professional conduct, including relations with vendors,conflicts of interest, financial integrity and the protection of corporateassets, as well as adherence to all laws and regulations applicable to theconduct of our business. Employees and directors are required to report anyconduct that they believe in good faith to be an actual or apparent violationof the Code of Conduct and Ethics. In addition, our Audit Committee hasestablished procedures to receive, retain and treat complaints receivedregarding accounting, internal accounting controls or auditing matters and toallow for the confidential and anonymous submission by employees of concernsregarding questionable accounting or auditing matters.

 

Our Code of Conduct andEthics is available on our website *www.sonusnet.com*,in the section entitled *About Us — InvestorRelations — Governing Our Company*, or in paper form upon request tothe Company’s corporate secretary.

 

**Oversight of Risk Management**

 

At Sonus, we believe thatinnovation and leadership are impossible without taking risks.  We also recognize that imprudent acceptanceof risk or the failure to appropriately identify and mitigate risks could bedestructive of stockholder value. Senior management is responsible foroverseeing management in the execution of its responsibilities and forassessing the Company’s approach to risk management.  The Board exercises these responsibilitiesperiodically as part of its meetings and also through its committees, each ofwhich examines various components of enterprise risk as part of their responsibilities.  Generally, strategic risks are overseen bythe full Board, financial risks are overseen by the Audit Committee, and risksrelating to our compensation policies are overseen by the CompensationCommittee to ensure that our compensation programs do not encourage excessiverisk taking. Management regularly reports on each such risk to the relevantcommittee or the Board.  Additionalreview or reporting on risks is conducted as needed or as required by the Boardor one of its committees.

 

In addition, an overallreview or risk is inherent in the Board’s consideration of our long-termstrategies and in the transactions and other matters presented to the Board,including capital expenditures, acquisitions and divestitures, and financialmatters. The Board’s role in risk oversight of the Company is consistent withour leadership structure, with the Chief Executive Officer and other members ofsenior management having responsibility for assessing and managing our riskexposure, and the Board and its committees providing oversight in connectionwith those efforts.

 

**DirectorIndependence**

 

Under the NASDAQ StockMarket Marketplace Rules, a director will only qualify as an “independentdirector” if, in the opinion of our Board, that person does not have arelationship that would interfere with the exercise of independent judgment incarrying out the responsibilities of a director. SEC rules also impose,through the NASDAQ Stock Market Marketplace Rules, special independencerequirements for members of the Audit Committee. Our Board has determined thateach of James K. Brewington, John P. Cunningham, Howard E. Janzen, Paul J.Severino, John A. Schofield, Scott E. Schubert, H. Brian Thompson and BeatrizV. Infante does not have a relationship that would interfere with the exerciseof independent judgment in carrying out the responsibilities of a director andthat each of these directors is an “independent director” as defined 

 

6

----

Table of Contents

 

under Rule 4200(a)(15) of the NASDAQStock Market Marketplace Rules. The special independence requirements of theSEC for Audit Committee members are discussed below under “*BoardCommittees — Audit Committee*.”

 

In determining the independenceof the directors listed above, our Board considered each of the policies andprocedures specified in our related person transaction policy. There are nofamily relationships among our executive officers and directors.

 

**Board Meetings**

 

Our Board recognizes theimportance of director attendance at Board and committee meetings.  In 2009, overall attendance at Board andcommittee meetings was over 98%. Our Board held 13 meetings during 2009.Attendance was at least 75% for each director. We do not have a policy regarding the attendance of directors at ourannual meetings of stockholders. Each director who served on our Board during2009 attended the 2009 annual meeting of stockholders.

 

**Board Committees**

 

Our Board has three standingcommittees: the Audit Committee, the Compensation Committee and the Nominatingand Corporate Governance Committee, and one ad-hoc committee: the CorporateDevelopment and Investment Committee. With the exception of the CorporateDevelopment and Investment Committee, each of these Committees is composedentirely of independent directors as defined under applicable rules.

 

*AuditCommittee*

 

Our Board has established anAudit Committee consisting of four members: Messrs. Cunningham (Chairman),Janzen, Schofield and Schubert. Each of the members of the Audit Committee isan “independent director” as defined under the rules of the NASDAQ StockMarket and the additional independence requirements for members of auditcommittees imposed by Rule 10A-3 under the Securities Exchange Act of 1934,as amended. Our Board has determined that Mr. Cunningham is an “auditcommittee financial expert” as defined in Item 407(d)(5) ofRegulation S-K. The Audit Committee held 11 meetings during 2009.

 

The Audit Committee operatespursuant to a written charter adopted by the Board that reflects standards andrequirements adopted by the SEC and the NASDAQ Stock Market.

 

Among other things, thepurposes of the Audit Committee include:

 

·                  overseeing ouraccounting and financial reporting processes and the audits of our financialstatements; and

 

·                  maintaining theintegrity of our financial statements, the independence, qualifications andperformance of our independent registered public accounting firm, and ourcompliance with legal requirements.

 

The duties of the AuditCommittee include, among other things:

 

·                  selecting,compensating, retaining, terminating and overseeing the independent registeredpublic accounting firm;

 

·                  considering thequalifications, independence and performance of, and approving the scope of theproposed audit to be conducted by, our independent registered public accountingfirm and reviewing the results of the audit;

 

·                  reviewing ourfinancial reporting processes, including the accounting principles andpractices followed and the financial information provided to stockholders andothers;

 

·                  establishingand administering our procedures for the (i) receipt, retention andtreatment of complaints regarding accounting, internal accounting controls andauditing matters, and (ii) the confidential, anonymous submission byemployees of concerns regarding questionable accounting and auditing matters;

 

·                  overseeing ourinternal control over financial reporting and disclosure controls andprocedures; and

 

·                  serving as ourQualified Legal Compliance Committee.

 

7

----

Table of Contents

 

The duties of the AuditCommittee do not include determining whether our financial statements arecomplete and accurate or whether they are in prepared accordance with generallyaccepted accounting principles. Management of the Company is responsible forpreparing our financial statements and our independent auditors are responsiblefor auditing those financial statements.

 

**AUDIT COMMITTEE REPORT**

 

*Theinformation contained in this report shall not be deemed to be “solicitingmaterial” or “filed” or incorporated by reference in future filings with theSEC, or subject to the liabilities of Section 18 of the SecuritiesExchange Act of 1934, as amended, except to the extent that we specificallyrequest that it be treated as soliciting material or specifically incorporateit by reference into a document filed under the Securities Act of 1933, asamended, or the Securities Exchange Act of 1934, as amended.*

 

We reviewed Sonus’ auditedfinancial statements for the fiscal year ended December 31, 2009 anddiscussed these financial statements with Sonus’ management, including adiscussion of the quality, not just the acceptability, of the accountingprinciples, the reasonableness of significant judgments and the clarity ofdisclosures in the financial statements. Sonus’ management is responsible forSonus’ financial reporting process, including its system of internal controls,and for the preparation of consolidated financial statements in accordance withgenerally accepted accounting principles. Sonus’ independent registered publicaccounting firm, Deloitte & Touche LLP, or Deloitte, isresponsible for performing an independent audit of Sonus’ financial statementsin accordance with standards of the Public Company Accounting Oversight Board(United States) (PCAOB) and issuing a report on those financial statements andissuing a report on the effectiveness of Sonus’ internal control over financialreporting as of the end of the fiscal year. Our responsibility is to monitorand review these processes. We also reviewed and discussed with Deloitte theaudited financial statements and the matters required by SECRegulation S-X Rule 2-07 and Statement on Auditing Standards No. 61,*Communication with Audit Committees*,as amended (AICPA *Professional Standards*,Vol. 1. AU section 380), as adopted by the PCAOB.

 

Deloitte also provided uswith the written disclosures and the letter required by PCAOB Ethics andIndependence Rule 3526, *Communicationswith Audit Committees Concerning Independence*. This Standardrequires independent registered public accounting firms annually to disclose inwriting all relationships that in the independent registered public accountingfirm’s professional opinion may reasonably be thought to bear on independence,to confirm their independence and to engage in a discussion of independence. Wealso considered whether Deloitte’s provision of other, non-audit relatedservices to Sonus is compatible with maintaining Deloitte’s independence.

 

Based on its discussionswith management and Deloitte, and our review of information provided bymanagement and Deloitte, we recommended to the Sonus Board of Directors thatthe audited financial statements and management’s report on internal controlover financial reporting be included in this Amendment.

 

Submitted by,

*AUDITCOMMITTEE:*

John P. Cunningham(Chairman)

Howard E. Janzen

John A. Schofield

Scott E. Schubert

 

*CompensationCommittee*

 

The Compensation Committeeconsists of four members: Messrs.  Severino (Chairman), Schofield, andThompson and Ms. Infante. Each of the members of the CompensationCommittee is an “independent director” as defined under the rules of theNASDAQ Stock Market. The Compensation Committee held 10 meetings during 2009.

 

The Compensation Committeeoperates pursuant to a written charter adopted by the Board that reflectsstandards and requirements adopted by the NASDAQ Stock Market.

 

Among other things, thepurposes of the Compensation Committee include:

 

·                                          discharging theBoard’s responsibilities relating to the compensation of the Company’s ChiefExecutive Officer and other executive officers;

 

8

----

Table ofContents

 

·              administering the Company’sequity-based compensation plans; and

 

·                                          reviewing thedisclosures in the Compensation Discussion and Analysis and producing an annualcompensation committee report for inclusion in the Company’s proxy statement.

 

The responsibilities of theCompensation Committee include, among other things:

 

·                  reviewing andapproving the compensation, as well as evaluating the performance, of ourexecutive officers, including our Chief Executive Officer;

 

·                  periodicallyreviewing, with input from the full Board, issues related to successionplanning for the Chief Executive Officer and other members of management;

 

·                  reviewing theCompany’s various public disclosures regarding compensation and preparing anannual executive compensation report for the stockholders of the Company inaccordance with the rules and regulations of the SEC; and

 

·                  advising andassisting management in developing our overall compensation strategy to assurethat it promotes stockholder interests, supports our strategic and tacticalgoals, and provides for appropriate rewards and incentives for our managementand employees.

 

In exercising itsresponsibilities, the Compensation Committee establishes and monitors policiesgoverning the compensation of executive officers and determines the terms,conditions, restrictions and performance criteria relating to incentivecompensation.  As discussed below in theCompensation Discussion and Analysis, the Compensation Committee has retainedcompensation consulting firm Frederic W. Cook & Company to provideadvice and data to this Committee.  In2009, Frederic W. Cook & Company also provided consulting services forthe Compensation Committee relating to compensation paid to non-employeedirectors of our Board as well as consulting services for the Company relatingto the Exchange Program.

 

*Nominatingand Corporate Governance Committee*

 

The Nominating and CorporateGovernance Committee consists of three members: Messrs. Thompson(Chairman), Brewington and Janzen. Each of the members of the Nominating andCorporate Governance Committee is an “independent director” as defined underthe current rules of the NASDAQ Stock Market. The Nominating and CorporateGovernance Committee held 2 meetings during 2009.

 

The Nominating and CorporateGovernance Committee operates under a written charter adopted by the Board thatreflects standards and requirements adopted by the NASDAQ Stock Market.

 

Among other things, thepurposes of the Nominating and Corporate Governance Committee include:

 

·                  assisting theBoard in identifying individuals qualified to serve as members of the Board;

 

·                  developing andrecommending to the Board a set of corporate governance principles for theCompany; and

 

·                  overseeing theevaluation of the Board and management of the Company.

 

The duties of the Nominatingand Corporate Governance Committee include, among other things:

 

·                  developingcriteria for the selection of new directors and identifying candidatesqualified to become members of the Board;

 

·                  recommending tothe Board the director nominees (a) for election by the stockholders ateach meeting of stockholders at which directors will be elected and (b) tofill any vacancies and newly created directorships on the Board; and

 

·                  developing andrecommending to the Board a set of corporate governance guidelines applicableto the Company and reviewing and reassessing the adequacy of such guidelines.

 

9

----

Table of Contents

 

The Nominating and CorporateGovernance Committee encourages the selection of directors who will contributeto our overall corporate goals of responsibility to our stockholders, customersand employees. The Nominating and Corporate Governance Committee reviews fromtime to time the appropriate skills and characteristics required of individualdirectors to contribute to our success in today’s business environment. TheNominating and Corporate Governance Committee has the authority to engageindependent advisors to assist in the process of identifying and evaluatingdirector candidates, but has not engaged any such advisors to date. Asdiscussed below under “*Director NominationProcess*,” the Nominating and Corporate Governance Committee appliesthe same selection criteria to stockholder-nominated director candidates as tothose nominated by the Company.

 

*CorporateDevelopment and Investment Committee*

 

TheCorporate Development and Investment Committee is an ad-hoc committee of theBoard and consists of five members: Messrs. Brewington, Cunningham,Nottenburg and Schubert and Ms. Infante. Each of Messrs. Brewington, Cunningham and Schubert and Ms. Infanteis an “independent director” as defined under the rules of the NASDAQStock Market.  The Corporate Developmentand Investment Committee held 10 meetings during 2009.

 

TheCorporate Development and Investment Committee operates pursuant to a writtencharter adopted by the Board.

 

Amongother things, the purposes of the Corporate Development and InvestmentCommittee include providing advice to the Board with respect to:

 

·      the Company’s minorityinvestments;

·      the issuance of debtsecurities of the Company;

·      stock repurchase programsthat may be adopted by the Board;

·      potential acquisitions,merger transactions, joint ventures and other investment transactions;

·      uses of the Company’s cashand short-term investments; and

·      tax planning.

 

TheCorporate Development and Investment Committee also performs any otheractivities or responsibilities from time to time assigned to it by action ofthe Board, which is consistent with the Corporate Development and InvestmentCommittee Charter as the Board deems necessary or appropriate.  The Corporate Development and InvestmentCommittee, however, does not have any authority to act on behalf of or bind theCompany, unless the Board delegates such authority to the Corporate Developmentand Investment Committee.

 

**Director Nomination Process**

 

The process followed by theNominating and Corporate Governance Committee to identify and evaluate directorcandidates includes requests to our Board members and others forrecommendations, meetings from time to time to evaluate biographicalinformation and background material relating to potential candidates andinterviews of selected candidates by members of the Nominating and CorporateGovernance Committee and our Board.

 

In considering whether torecommend any particular candidate for inclusion in our Board’s slate ofrecommended director nominees, the Nominating and Corporate GovernanceCommittee applies the criteria generally set forth in the Nominating andCorporate Governance Committee Charter. There are no specific minimumqualifications for a recommended nominee to our Board; however, the Nominatingand Corporate Governance Committee considers, among other skills and criteria,the following criteria for nomination as a director: demonstrated businessknowledge and experience and an ability to exercise sound judgment in mattersthat relate to our current and long-term objectives; commitment tounderstanding us and our industry and to regularly attend and participate inmeetings of our Board and its committees; a reputation for integrity, honestyand adherence to high ethical standards; the ability and experience tounderstand the sometimes conflicting interests of our various constituenciesand to act in the interests of all stockholders; and the absence of anyconflict of interest that would impair the nominee’s ability to represent theinterest of all our stockholders and to fulfill the responsibilities of being adirector. The Nominating and Corporate Governance Committee does not assignspecific weights to particular criteria and no particular criterion is aprerequisite for each prospective nominee. Our Board believes that thebackgrounds and qualifications of its directors, considered as a group, shouldprovide a composite mix of experience, knowledge and abilities that will allowour Board to fulfill its responsibilities. In identifying potential director candidates, the Nominating andCorporate Governance Committee and the Board also focus on ensuring that theBoard reflects a diversity of experiences, backgrounds, skills, races, gendersand national origins.

 

10

----

Table of Contents

 

Stockholders may recommendindividuals to the Nominating and Governance Committee for consideration aspotential director candidates by submitting the candidate’s name, together withappropriate biographical information and background materials and a statementas to whether the stockholder or group of stockholders making therecommendation has beneficially owned more than 5% of our common stock for atleast a year as of the date such recommendation is made, to the Nominating andCorporate Governance Committee, c/o Corporate Secretary, Sonus Networks, Inc.,7 Technology Park Drive, Westford, MA 01886, with a copy to Sonus Networks, Inc.,Attn: Chief Financial Officer, 7 Technology Park Drive, Westford, MA 01886.Assuming that appropriate biographical and background materials have beenprovided on a timely basis, the Nominating and Governance Committee willevaluate stockholder-recommended director candidates by following substantiallythe same process, and applying substantially the same criteria discussed above,as it follows for candidates submitted by others.

 

**Board Leadership Structure**

 

TheCompany’s Amended and Restated By-laws delegate to the Board the right toexercise its discretion to either separate or combine the offices of Chairmanof the Board and Chief Executive Officer. In 2008, our Board undertook a comprehensive review of ourcurrent corporate governance practices, the corporate governance environmentand current trends, and, as a result, instituted a number of important changes,including separating the roles of Chairman and Chief Executive Officer. TheBoard has determined that the Board leadership structure that is mostappropriate at this time, given the specific characteristics and circumstancesof the Company, the skills and experience of Howard E. Janzen and Richard N.Nottenburg and succession planning, is leadership based upon the experiencedmanagement afforded by a non-executive Chairman and a full-time Chief ExecutiveOfficer, both positions being subject to oversight and review by the Company’sindependent directors. The Board recognizes that depending on the specificcharacteristics and circumstances of the Company, other leadership structuresmight also be appropriate.  A combinedChairman and Chief Executive Officer Board leadership structure has previouslyserved the Company and its stockholders well and may serve them well in the future.  The Company is committed to reviewing thisdetermination on an annual basis.

 

The Board’s leadership isdesigned so that independent directors exercise oversight of the Company’smanagement and key issues related to strategy and risk.  Only independent directors serve on the AuditCommittee, the Compensation Committee and Nominating and Corporate GovernanceCommittee and standing Board committees are chaired by independent directors.

 

*Non-Executive Chairman*

 

In December 2008, infurtherance of our desire to strengthen our corporate governance policies, ourBoard separated the positions of Chairman and Chief Executive Officer. At thattime, our Board appointed Howard E. Janzen as non-executive Chairman of theBoard. The duties of the non-executive Chairman of the Board, among others, are to:

 

·                  preside atBoard meetings;

 

·                  preside atexecutive sessions or other meetings of the independent directors;

 

·                  coordinate withcommittee chairs in the development and recommendations relative to Board andcommittee meeting content and schedules; and

 

·                  provide theChief Executive Officer’s annual performance evaluation communicating thefeedback from the Compensation Committee and the Board.

 

*Lead Independent Director*

 

Our independent directorsappointed****Paul Severino as lead independentdirector for fiscal 2009 to strengthen the independence and the role of theindependent directors. The duties of the lead independent director were to:

 

·                  preside atBoard meetings in the absence of the Chairman of the Board, or upon designationby a majority of directors;

 

11

----

Table of Contents

 

·                  preside atexecutive sessions or other meetings of the independent directors in theabsence of the Chairman of the Board; and

 

·                  consult withthe Chairman of the Board as to agenda items for board and committee meetings.

 

Generally, our independentdirectors appointed the lead independent director annually to serve for aperiod of one year.  It was appropriatefor the Company to have a lead independent director for fiscal 2009 since theCompany had separated the roles of Chairman and Chief Executive Officer in December 2008and the lead independent director helped to transition the non-executiveChairman in his new role. For fiscal 2010, however, the Board eliminated therole of lead independent director because the non-executive Chairman had servedin this capacity for over one year. The Board recognizes that depending on thespecific characteristics and circumstances of the Company, other leadershipstructures might also be appropriate.  Alead independent director position has previously served the Company and itsstockholders well and may serve them well in the future.  The Company is committed to reviewing thisdetermination on an annual basis.

 

**Executive Sessions of the Board**

 

Under our CorporateGovernance Guidelines, our independent directors are required to meet regularlyin executive session without management to review the performance of managementand our company and any related matters. Generally, executive sessions will beheld in conjunction with regularly scheduled meetings of the Board.

 

We expect the Board to havea least four executive sessions each year.

 

**Additional Governance Matters**

 

*Public Availabilityof Corporate Governance Documents*

 

Our key corporate governancedocuments, including our Corporate Governance Guidelines, Corporate Code ofConduct and Ethics and the charters of our Audit Committee, CompensationCommittee, Nominating and Corporate Governance Committee and CorporateDevelopment and Investment Committee are:

 

·                  available onour corporate website at *http://www.sonusnet.com*(by including the foregoing Internet address link, we do not intend toincorporate by reference to this report material not specifically referencedherein);

 

·                  available inprint to any stockholder who requests them from our corporate secretary; and

 

·                  filed asexhibits to our securities filings with the SEC.

 

*StockholderCommunications with the Board of Directors*

 

Stockholders may communicatewith our Board by writing, e-mailing or calling our Investor RelationsDepartment at Sonus Networks, Inc., 7 Technology Park Drive, Westford, MA01886, Attention: Investor Relations, (978) 614-8142, *ir@sonusnet.com.* Our Investor RelationsDepartment will review all such communications and will forward to the chairmanof the Audit Committee of our Board all communications that raise an issueappropriate for consideration by our Board. In general, communications relatingto corporate governance and long-term corporate strategy are more likely to beforwarded than communications relating to ordinary business affairs, personalgrievances and matters as to which we tend to receive repetitive or duplicativecommunications.

 

**Director Compensation**

 

Members of our Board who areemployees or officers of Sonus receive no compensation for their service asdirectors. For 2009, non-employee directors of our Board received cashcompensation as follows:

 
| **Description of Board and Committee Service** | ** ** | **Board  Member  Annual Fee** | ** ** |
|------------------------------------------------|------------|-------------------------------|------------|
| Board Membership                               |       | $                             | 20,000     |   |
| Audit Committee Membership                     |       | $                             | 7,500      |   |
| Other Committee Membership  (1)                |       | $                             | 3,750      |   |
| Audit Committee Chair (2)                      |       | $                             | 10,000     |   |

 

12

----

Table ofContents

 

----

| (1) | “Other Committee” includes the Compensation Committee, the Nominating  and Corporate Governance Committee and the Corporate Development and  Investment Committee. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Compensation for service as Chair is in addition to compensation for  Board/committee membership.                                                                            |

 

Directors also are eligibleto be reimbursed for reasonable out-of pocket expenses incurred in connectionwith attendance at our Board or committee meetings.

 

For 2009, non-employeedirectors of the Board were entitled to equity compensation as follows:

 
| **Type of Grant**     | ** ** | **Number of Shares of Common  Stock Underlying Options** | ** ** |
|-----------------------|------------|----------------------------------------------------------|------------|
| Initial Grant (1)     |       | 50,000                                                   |       |
| Annual Grant (1), (2) |       | 20,000                                                   |       |

 

----

| (1) | Option grants are subject to four-year vesting under the 2007 Plan.                                                        |
|-----|----------------------------------------------------------------------------------------------------------------------------|
| (2) | The Compensation Committee elected to forgo annual grants of common  stock to non-employee directors for fiscal year 2009. |

 

The following table containsinformation on compensation earned by each non-employee member of our Boardduring 2009:

 

**2009 Director Compensation**

 
| **Name**               | ** ** | **Fees Earned  or  Paid in Cash  ($)** | ** ** | **Option  Awards  (2)(3)  ($)** | ** ** | **Total  ($)** | ** ** |
|------------------------|------------|----------------------------------------|------------|---------------------------------|------------|----------------|------------|
| James K. Brewington(1) |       | $                                      | 16,928     |                            | $          | 51,300         |       | $ | 68,228 |   |
| John P. Cunningham     |       | $                                      | 39,375     |                            | —     |           | $          | 39,375 |   |
| Howard E. Janzen       |       | $                                      | 31,250     |                            | —     |           | $          | 31,250 |   |
| John A. Schofield(1)   |       | $                                      | 29,375     |                            | $          | 32,505         |       | $ | 61,880 |   |
| Scott E. Schubert(1)   |       | $                                      | 29,375     |                            | $          | 47,850         |       | $ | 77,225 |   |
| Paul J. Severino       |       | $                                      | 23,750     |                            | —     |           | $          | 23,750 |   |
| H. Brian Thompson      |       | $                                      | 27,500     |                            | —     |           | $          | 27,500 |   |

 

----

| (1)    | Messrs. Brewington, Schofield and Schubert were each appointed  to our Board in 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (2)    | The amounts in this column do not reflect compensation actually  received by the director. Instead, the amounts reflect the grant date fair  value of 2009 awards, as calculated in accordance with *Financial  Accounting Standards Board Accounting Standards Codification Topic 718 —  Compensation — Stock Compensation*, or ASC 718. The grant date fair  values of options to purchase common stock granted to our non-employee  directors in 2009 were estimated using the Black-Scholes valuation model with  the following assumptions: |

 
| Risk-free  interest rate     |   | 1.76% - 2.47% |   |
|------------------------------|--------|---------------|--------|
| Expected dividend yield      |   | —        |   |
| Weighted average  volatility |   | 64.3%         |   |
| Expected life (years)        |   | 4.5           |   |

 

For further discussion regarding the assumptions used in calculatingthe amounts in this column, please see Note 14 to our audited consolidatedfinancial statements included in our Annual Report on Form 10-K for theyear ended December 31, 2009.

 

(3)                                  The followingtable shows the aggregate number of outstanding stock options held by each ofour non-employee directors as of December 31, 2009 and the grant date fairvalue for each award as calculated in accordance with ASC 718:

 

13

----

Table of Contents

 
| **Non-employee Director** | ** ** | **Grant Date** | ** ** | **Number of  Shares  Underlying  Outstanding  Options** | ** ** | **Exercise or  Base Price of  Option  Awards  ($/Sh)** | ** ** | **Grant Date  Fair Value of  Option Awards** | ** ** |
|---------------------------|------------|----------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------|------------|
| James K. Brewington       |       | 05/15/09       |       | 50,000                                                  |       | $                                                      | 1.92       |                                         | $          | 51,300 |   |
|                      |       |           |       |                                                    |       |                                                   |       |                                         |       |
| John P. Cunningham        |       | 09/09/04       |       | 50,000                                                  |       | $                                                      | 5.37       |                                         | $          | 230,000 |   |
|                      |       | 10/12/05       |       | 20,000                                                  |       | $                                                      | 4.95       |                                         | 75,698     |   |
|                      |       | 12/17/07       |       | 40,000                                                  |       | $                                                      | 6.10       |                                         | 118,336    |   |
|                      |       |           |       | 110,000                                                 |       |                                                   |       | $                                            | 424,034    |   |
|                      |       |           |       |                                                    |       |                                                   |       |                                         |       |
| Howard E. Janzen          |       | 01/20/06       |       | 50,000                                                  |       | $                                                      | 4.77       |                                         | $          | 159,000 |   |
|                      |       | 12/17/07       |       | 40,000                                                  |       | $                                                      | 6.10       |                                         | 118,336    |   |
|                      |       |           |       | 90,000                                                  |       |                                                   |       | $                                            | 277,336    |   |
|                      |       |           |       |                                                    |       |                                                   |       |                                         |       |
| John A. Schofield         |       | 02/17/09       |       | 50,000                                                  |       | $                                                      | 1.25       |                                         | $          | 32,505 |   |
|                      |       |           |       |                                                    |       |                                                   |       |                                         |       |
| Scott E. Schubert         |       | 03/16/09       |       | 50,000                                                  |       | $                                                      | 1.84       |                                         | $          | 47,850 |   |
|                      |       |           |       |                                                    |       |                                                   |       |                                         |       |
| Paul J. Severino          |       | 05/11/01       |       | 10,000                                                  |       | $                                                      | 29.00      |                                         | $          | 265,700 |   |
|                      |       | 05/02/02       |       | 10,000                                                  |       | $                                                      | 2.51       |                                         | 21,940     |   |
|                      |       | 05/07/03       |       | 10,000                                                  |       | $                                                      | 3.31       |                                         | 29,200     |   |
|                      |       | 12/29/04       |       | 10,000                                                  |       | $                                                      | 5.52       |                                         | 46,800     |   |
|                      |       | 10/12/05       |       | 20,000                                                  |       | $                                                      | 4.95       |                                         | 75,698     |   |
|                      |       | 12/17/07       |       | 40,000                                                  |       | $                                                      | 6.10       |                                         | 118,336    |   |
|                      |       |           |       | 100,000                                                 |       |                                                   |       | $                                            | 557,674    |   |
|                      |       |           |       |                                                    |       |                                                   |       |                                         |       |
| H. Brian Thompson         |       | 10/24/03       |       | 14,583                                                  |       | $                                                      | 7.65       | *                                            | $          | 98,556 |   |
|                      |       | 10/24/03       |       | 35,417                                                  |       | $                                                      | 8.38       | *                                            | 239,419    |   |
|                      |       | 12/29/04       |       | 10,000                                                  |       | $                                                      | 5.52       |                                         | 46,800     |   |
|                      |       | 10/12/05       |       | 20,000                                                  |       | $                                                      | 4.95       |                                         | 75,698     |   |
|                      |       | 12/17/07       |       | 45,000                                                  |       | $                                                      | 6.10       |                                         | 133,128    |   |
|                      |       |           |       | 125,000                                                 |       |                                                   |       | $                                            | 593,601    |   |

 

----

*  Exercise prices for these awards, althoughgranted on the same day, differ due to the restatement of the Company’shistorical financial statements, which was completed in fiscal year 2007, andwhich resulted in the repricing of certain previously awarded stock optiongrants.

 

**EXECUTIVE OFFICERS OF THE REGISTRANT**

 

The executive officers ofthe Company as of the date hereof are listed below.

 
| **Name**              | ** ** | **Age** | ** ** | **Position**                                                                                                            |
|-----------------------|------------|---------|------------|-------------------------------------------------------------------------------------------------------------------------|
| Richard N. Nottenburg |       | 56      |       | President and Chief Executive Officer                                                                                   |
| Gurudutt Pai          |       | 44      |       | Executive Vice President and Chief Operating Officer                                                                    |
| Jeffrey M. Snider     |       | 46      |       | Senior Vice President, General Counsel and Secretary                                                                    |
| Wayne Pastore(1)      |       | 45      |       | Vice President, Finance, Interim Chief Financial Officer, Chief  Accounting Officer, Treasurer and Corporate Controller |
| Mohammed Shanableh    |       | 40      |       | Vice President, Worldwide Sales                                                                                         |
| Kathy Harris          |       | 51      |       | Vice President, Human Resources                                                                                         |
| Gale England          |       | 60      |       | Vice President, Product Operations                                                                                      |
| Matt Dillon           |       | 49      |       | Vice President, Global Services                                                                                         |
| Kumar Vishwanathan    |       | 40      |       | Vice President, Engineering and Chief Architect                                                                         |

 

----

| (1) Mr. Pastore succeeded Richard Gaynor, who resigned in  February 2010 and was our Chief Financial Officer for the full fiscal  year 2009. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

14

----

Table ofContents

 

Biographical informationregarding each executive officer other than Richard N. Nottenburg is set forthbelow. Dr. Nottenburg’s biographical information is set forth above under *Item 10. Directors, Executive Officers and Corporate Governance – Boardof Directors.*

 

***Gurudutt Pai*** has served asor our Executive Vice President and Chief Operating Officer since February 2010.Mr. Pai joined Sonus in December 2008 as Senior Vice President andGeneral Manager.  Mr. Pai has over20 years experience in the telecommunications industry. Mr. Pai joinedSonus from Veveo, Inc., where he was Vice President of Marketing andBusiness Development. Prior to joining Veveo, Inc., Mr. Pai was VicePresident of the Core Networks division of Motorola, Inc. Mr. Paijoined Motorola, Inc. in April 2003 through its acquisition ofWinphoria Networks, Inc., where he was Vice President of BusinessDevelopment, Product Management and Marketing. Prior to joining WinphoriaNetworks, Inc., he was a Sales Vice President at Lucent Technologies foremerging markets. Prior to Lucent Technologies, he held various positions insystems engineering and technical planning for the optical, switching, andwireless divisions of AT&T and AT&T Bell Laboratories. Mr. Paiholds a Master of Business Administration from the Wharton School of theUniversity of Pennsylvania, a Master of Science in electrical engineering fromthe New Jersey Institute of Technology, and a Bachelor of Science in electricalengineering from Kamatak University in India.

 

***Jeffrey M. Snider***has served asour Senior Vice President, General Counseland Secretary since June 2009. Prior to joining Sonus, Mr. Sniderserved in a dual legal and operating role as Executive Vice President andGeneral Counsel of Bankruptcy Management Solutions, Inc., a provider ofhardware, software and services to the bankruptcy industry. From 2003 to 2006, Mr. Sniderwas the Senior Vice President and General Counsel of Geac Computer Corporation,Ltd., a global software and services provider. Prior to Geac ComputerCorporation, Ltd., Mr. Snider was Senior Vice President and GeneralCounsel at Lycos, Inc., an industry-leading Internet conglomerate. Priorto his in-house career, Mr. Snider was a member of the Boston law firm ofHutchins & Wheeler. Mr. Snider served as a Director on the Boardof the New England Legal Foundation from 2001 to 2009, and was a Trustee of theBoston Bar Foundation from 2003 to 2007. Mr. Snider is a graduate ofAmherst College and the University of Virginia School of Law.

 

***Wayne Pastore*** has served as our Interim Chief FinancialOfficer since February 2010, our Treasurer since April 2010 and hasbeen our Vice President, Finance, Corporate Controller and Chief AccountingOfficer since May 2008. He had previously been our Director, BusinessProcess Improvement from February 2008 to May 2008. Prior to joiningthe Company, from September 2006 to February 2008, Mr. Pastorewas Director of Financial Planning and Analysis of Sycamore Networks, Inc.,an optical switching company. From December 2003 to September 2006,he was Corporate Controller of Spotfire, Inc., a business analyticssoftware company.  Mr. Pastore wasalso the Corporate Controller at eXcelon, Inc., a database softwarecompany, from 2000 to 2003. Mr. Pastore spent thirteen years in publicaccounting prior to his work in-house. He has a Bachelor of Science in accounting from the University ofMassachusetts/Lowell and a Juris Doctor from Suffolk University Law School.

 

***Mohammed Shanableh*** joined Sonus in September 2004.He has been our Vice President, Worldwide Sales since August 2007. From October 2006to July 2007, he was Vice President, Sales Engineering, and was VicePresident, Network Technology Solutions, from September 2004 to October 2006.Mr. Shanableh was Director, Carrier Strategy at Telica, a developer ofintelligent multi-service broadband switching systems for next generationservice providers, from January 2002 to September 2004. He co-foundedValiant Networks, where he was served as Vice President, Professional Services,from December 1999 to December 2001.

 

***Kathy Harris***hasbeen our Vice President, Human Resources since July 2007 and has more than20 years of experience in human resources. Prior to joining Sonus, Ms. Harrisheld the position of Vice President, Human Resources at Lightbridge, from 2000to 2007. Prior to Lightbridge, Ms. Harris was Vice President, HumanResources at Trend-Lines, Inc. Ms. Harris holds a Master of BusinessAdministration and a Bachelor of Science degree in Government from SuffolkUniversity, Boston. Ms. Harris is a member of the Human ResourcesLeadership Forum, Society for Human Resources Management and the NortheastHuman Resources Association.

 

***Gale England*** has been our Vice President, ProductOperations since May 2005. Prior to joining Sonus, Mr. England wasthe Chief Executive Officer and President of Numetrix Inc., a SanFrancisco-based software applications company. From 2000 to 2001, he wasGeneral Manager and Vice President of Engineering Development at VillaMontageSystems, a broadband access solution funded by Convergence Partners. Prior to2000, Mr. England had also held senior management positions at DigitalEquipment Corp., Wellfleet Communications, Inc., Bay Networks and NortelNetworks, Inc.

 

***Matt Dillon*** has been our Vice President, Global Servicessince 2001. Prior to joining Sonus, from 1987 to 2000, he was a founding memberof Boston Technology (later purchased by Comverse Technology Corp.), which created thede-facto standard in scalable central office-based voicemail platforms for BellAtlantic. From 1984 to 1987, Mr. Dillon was Vice President of Operationsfor Technology Enterprises.

 

15

----

Table of Contents

 

***Kumar Vishwanathan*** hasbeen our Vice President, Engineering and Chief Architect since August 2009.Mr. Vishwanathan holds 15 patents and has more than ten applicationspending in telephony, multimedia and collaboration. Prior to joining Sonus, Mr. Vishwanathanserved as the co-founder and Vice President of Solutions for envIO Networks, amobile content and social marketing platform provider. Mr. Vishwanathanwas part of the founding team at Winphoria Networks, Inc., helping thecompany to pioneer technology in the wireless softswitch and push-to-talk overcellular markets. After Motorola, Inc.’s acquisition of Winphoria Networks, Inc.in May 2003, Mr. Vishwanathan served as the Senior Director ofEngineering where he was responsible for overseeing the development of thecompany’s Core Networks product line. Prior to joining Winphoria Networks, Inc.in 2000, Mr. Vishwanathan worked at Lucent Bell laboratories defining theearly softswitch architectures and the development of the Lucent SoftSwitch.

 

**SECTION 16(a) BENEFICIAL OWNERSHIP REPORTINGCOMPLIANCE**

 

Section 16(a) of the Securities Exchange Act of 1934, asamended, requires our executive officers, directors and persons whobeneficially own more than 10% of our common stock to file reports of initialownership and subsequent changes in that ownership with the SEC. Based solelyon a review of the copies of reports furnished to us and the writtenrepresentations of our directors and executive officers, we believe that duringthe year ended December 31, 2009, our directors, executive officers andgreater than 10% stockholders complied with all Section 16(a) filingrequirements, except that Matt Dillon had one report covering one transactionfiled late with respect to 2009, one report covering two transactions filedlate with respect to 2008 and one report amending one transaction with respectto 2007.

 

**Item 11. Executive Compensation**

 

**EXECUTIVE COMPENSATION**

 

**Compensation Discussion and Analysis**

 

***Overview of the Compensation Program***

 

The Compensation Committee of the Board oversees ourexecutive compensation program, approves all compensation policies applicableto our executive officers in accordance with our compensation philosophy andmakes decisions regarding all forms of compensation to executive officers.

 

***Philosophy and Objectives***

 

The Compensation Committeebelieves that the most effective compensation programs are designed to attract,retain, motivate and reward executive talent as well as to align the interestsof our executive officers with those of our stockholders.

 

Compensation awarded or paidto our executive officers is based upon their scope of responsibilities,experience and demonstrated performance. The Compensation Committee relies upon its experience and judgment andnot upon rigid guidelines or formulas in determining the amount and mix ofcompensation elements for each executive officer.  The Compensation Committee believes that theexecutive compensation program should include competitive cash and stock-basedcompensation components that reward performance as measured against establishedgoals.  The Compensation Committeeannually reviews market data and information, which is provided from time totime by a compensation consultant, to determine the appropriate level andcombination of incentive and non-incentive, cash and equity-based compensation,based upon competitive data.  TheCompensation Committee believes that as a growth-oriented company, Sonus shouldcontinue to provide significant equity incentives as a component ofcompensation.

 

The Compensation Committeeevaluates executive compensation to ensure that we have an effective executivecompensation program. The Compensation Committee believes that such a programshould be tied to annual and long-term strategic goals for the business andshould align executives’ interests with those of the stockholders by rewardingperformance 

 

16

----

Table of Contents

 

that achieves those goals with the objectiveof ultimately increasing shareholder value. As the Compensation Committeebelieves that our executives should have incentives to bring us to a higherlevel of performance as compared to our peer group, total direct compensationis intended to represent a strong competitive position (60th percentile opportunityif goals are achieved) as compared to our peer group.  For further information on our peer group,please see below.

 

Our executive compensationprogram is designed to: (i) offer compensation opportunities that attracthighly talented executives; (ii) motivate individuals to perform at theirhighest levels; (iii) reward outstanding initiative and achievement; (iv) reinforcecritical measures of performance derived from our business strategy and keysuccess factors; and (v) retain those individuals with the leadershipabilities and skills necessary to build long-term shareholder value bysupporting executive ownership and shareholder alignment.

 

The Compensation Committeereviews our executive compensation program to ensure that it does not encourageexcessive risk taking.  Morespecifically, this review includes the executive cash-based incentive programthat covers all executives, except for our Vice President of Worldwide Sales.Based on the Compensation Committee’s review of our executive compensationprogram, it concluded that such program does not encourage excessive orinappropriate risk taking by our executive officers for the following reasons,among others: our executive compensation program pays for performance againstfinancial targets that are set to be challenging to motivate a high degree ofbusiness performance, with an emphasis on longer-term financial success andprudent risk management; and qualitative factors beyond the quantitativefinancial metrics are a significant consideration in the determination ofindividual executive compensation payments — how our executive officers achievethe financial results and demonstrate leadership consistent with the Sonusvalues are critical to individual compensation decisions.  The Compensation Committee is confident thatour executive compensation program is aligned with the interests of ourstockholders and rewards for performance.

 

In order to achieve theobjectives of our program, the Compensation Committee believes that theexecutive compensation program must include competitive cash and stockincentive-based compensation components that reward performance and that areheavily weighted towards incentive-based compensation rather than fixed basesalaries as a percentage of total compensation. Consistent with thisphilosophy, the executive compensation program historically was structured withexecutive base salaries that were below the median of our peer group, but withannual cash incentives designed to make us competitive with our peer group(total cash compensation at the 50th percentile opportunity if annual goals wereachieved), and long-term equity incentives that were highly competitive withour peer group (75th percentileopportunity if goals were achieved). More recently, however, the performance ofthe stock markets in general, and the Company’s stock in particular, have diminishedthe value of the Company’s equity incentives, and as a result, the CompensationCommittee and management have been required to increase the base salaries inorder to attract and retain talented executives necessary to create a companywith strong growth and earnings potential.

 

The Compensation Committeecompared the Company’s programs with a peer group of global telecommunicationscompanies, which was selected with the help of compensation consultant FredericW. Cook & Company.  The peercompanies included Acme Packet, Inc., ADTRAN, Inc., Airvana, Inc.(which recently announced that it is to be acquired by a group of privateequity firms), Blue Coat Systems, Inc., Digi International Inc., EMSTechnologies, Inc., Emulex Corporation, Extreme Networks, Inc.,Harmonic Inc., Ixia, Starent Networks LLC (which recently announced that it isto be acquired by Cisco Systems) and Tekelec. The peer group selection factors included revenue size (primarilycompanies in the $100 million to $500 million annual revenue range withmedium revenue of $357 million) and industry (including allhigh-technology companies with a majority in the networking/telecommunicationsindustry). A new group was used for purposes of 2009 compensation decisions.The Compensation Committee no longer included Juniper Networks, Inc., LEAPWireless International, Inc., UT Starcom, Inc., Ciena Corporation andXO Communications, LLC because each of these companies had significantly higherrevenues, total assets and headcount than Sonus and its other peercompanies.  Sycamore Networks, Inc.was not included because it had significantly less revenue than Sonus and itsother peer companies.  Red Hat, Inc.was not considered a peer because it is in the systems software business andLEAP Wireless International, Inc. was not considered a peer because it isin the wireless telecommunications services industry.  The Compensation Committee believed that the2009 peer group was more cohesive than the 2008 peer group, as the updated peercompanies had similar revenues ranging from $116 million to $501 million andhired similar types of employees with comparable skill sets. Additionally, eachof the companies in our 2009 peer group was classified under the “CommunicationsEquipment” Global Industry Classification Standard sub-industry description. Asa result of recently announced acquisitions of companies within our peer group,the Compensation Committee has amended the peer group for 2010.

 

While our executivecompensation program is intended to provide competitive, incentive-basedcompensation to our executives, actual executive compensation can vary greatly.The amount of incentive-based cash compensation awarded is based on measures ofprofitability and revenue and therefore, executives are only awarded suchcompensation if they achieve the annual corporate performance goals set by ourBoard and their individual measures of performance. Over the last several 

 

17

----

Table of Contents

 

years, although target annual cash incentivesand target long-term equity incentives have been competitive and highlycompetitive, respectively, with our peer group, because we have not achievedour target performance goals, executives have been compensated well belowtarget levels and below that of our peer group and survey market references.Please see “*Determining ExecutiveCompensation.*”

 

Over the last several years,it has become even more important to maintain target incentive-basedcompensation at the higher level of the annual revenue range within our peergroup because executive retention and motivation have been affected by thechallenging market environment and the price of our stock has not led to appreciationin the value of previously granted stock options.****Executiveturnover has influenced executive compensation decision-making as we promoted anew Chief Operating Officer and a new Interim Chief Financial Officer in February 2010,hired a new Vice President, Engineering and Chief Architect in August 2009,a new Senior Vice President and General Counsel in June 2009, a new SeniorVice President and General Manager in December 2008 (who was laterpromoted to Chief Operating Officer in January 2010), and a new Presidentand Chief Executive Officer in June 2008. With the need to attract thesenew hires, our executive compensation became market-driven.****Weface competition for executives from larger companies with significantlygreater cash compensation and from smaller private companies with greaterperceived equity growth potential through an initial public offering oracquisition and therefore must be competitive in our total compensation inorder to attract and retain highly talented executives.

 

***Compensation Components***

 

Our executive compensationprogram has three major components: (i) base salary, (ii) cash-basedincentives and (iii) equity-based incentives. The Compensation Committeereviews the executive compensation program on an annual basis.

 

*Base Salary.*  Aggregate base salaries are designed toreflect the scope of responsibilities, performance and competencies of theindividual executives. Increases in salary are based on an evaluation of theindividual’s performance and level of pay compared to benchmark data forsimilar positions at peer companies. The salary for each Named ExecutiveOfficer, other than our Vice President of Worldwide Sales, was originallydetermined in their respective employment agreements, is reviewed on an annualbasis, as well as at the time of a promotion or other change inresponsibilities. For 2009, the Compensation Committee, based onrecommendations by management, decided that in light of the overall economicenvironment and business conditions, executive salaries would be frozen at 2008levels.

 

*Cash-basedIncentives.*  Cash-basedincentives are expected to represent a substantial part of total compensationfor our executives and are based on measures that reflect annual financial andmanagement objectives, as applicable. A significant portion of each executiveofficer’s cash-based compensation is tied to the achievement of both corporatefinancial goals and individual performance objectives, while Dr. Nottenburg’sbonus compensation is tied to the achievement of corporate financial goals. TheCompensation Committee determined that Dr. Nottenburg should be focusedsolely on corporate financial goals and therefore, his individual goals for2009 were our corporate financial goals for 2009. While the CompensationCommittee has the discretion to pay Dr. Nottenburg even if the corporatefinancial goals are not achieved, they did not exercise such discretionrelating to Dr. Nottenburg’s bonus compensation for 2009 because weachieved our corporate goals for 2009.

 

Under the 2009 executivecash-based incentive program, which covered all executive officers other thanthe Vice President of Worldwide Sales, the Compensation Committee set eachexecutive’s cash-based incentive as a percentage of his or her base salary.(The incentive compensation for the Vice President of Worldwide Sales was basedon a commission plan more fully described under the Summary Compensation Tableand under “*Employment, Severance and Change of ControlArrangements*” below.) One hundred percent of the cash incentivebonus for our Chief Executive Officer, which was targeted at 80% of his basesalary, was based upon the achievement of corporate goals alone.  Each of the other executives was allocated atarget cash incentive as a percentage of base salary ranging from 20% to 60%,as determined by the Compensation Committee, and awarded 50% based uponachievement of corporate operating and financial goals and 50% based uponachievement of individual performance objectives established for eachexecutive, subject to the discretion of the Compensation Committee. The targetbonus levels were chosen based upon competitive market and peer group data andanalysis as described in “*Determining ExecutiveCompensation*” below. The corporate goals were chosen based uponfinancial metrics which are generally used by investors and financial analystsin measuring our corporate performance. Individual objectives included productdevelopment and quality metrics, improvement of corporate processes,development of strategic partnerships, expansion of geographic infrastructure,growth of customer base and supply chain improvement.

 

The corporate goals for the2009 executive cash-based incentive program consisted of three measures, whichwere calculated independently. Each had designated thresholds as indicatedbelow and a maximum payout at 125% of the measurement metric. Given theuncertain economic environment in 2009, one of our corporate goals was topreserve cash. 

 

18

----

Table of Contents

 

Therefore, one cash metric, which wasdesigned to reward our executives if the cash goal exceeded 100%, had anaccelerator of two times the incremental portion of the award which exceeded100% of target:

 
| **Corporate Goal**                      | ** ** | **% of Target** | ** ** | **Threshold  Performance Level** | ** ** |
|-----------------------------------------|------------|-----------------|------------|----------------------------------|------------|
| 1. Revenue                              |       | 10              | %          | 85                               | %          |
| 2. Full Year Operating  Earnings (Loss) |       | 15              | %          | 60                               | %          |
| 3. Cash                                 |       | 25              | %          | 85                               | %          |
|                                    |       | 50              | %          |                             |       |

 

The potential payout ofindividual goals was based upon performance levels ranging from 70% to 130%.

 

The formula for calculatingthe payment under the 2009 executive cash-based incentive program was asfollows: corporate revenue goal achievement % × 0.10 (targetincentive dollars) *plus* corporatefull year operating earnings (loss) achievement % × 0.15 (targetincentive dollars) *plus* corporatecash achievement % × 0.25 (target incentive dollars) *plus* individual management bonusobjectives, or MBO, achievement % × 0.5 (target incentive dollars) *plus* accelerators, if earned for cash goalexceeding 100%.

 

The corporate goals targetfor the 2009 executive cash-based incentive program was based upon achievementof corporate goals as follows:

 
| **Weight**  | ** ** | **Objective**                           | ** ** | **Measurement  Metrics** | ** **  | **Achievement  Leverage  Factor** | ** ** | **Accelerator(4)** | ** **                                   | **Achievement  Percentage**             | ** ** |
|-------------|------------|-----------------------------------------|------------|--------------------------|-------------|-----------------------------------|------------|--------------------|----------------------------------------------|-----------------------------------------|------------|
| 10%         |       | Revenue(1)                              |       | $                        | 225,000,034 |                              | 85-125%    |               | 0                                            |                                    | 101.2%     |   |
| 15%         |       | Full Year Operating Earnings (Loss) (2) |       | $                        | (14,918,000 | )                                 | 60-125%    |               | 0                                            |                                    | 125%       |   |
| 25%         |       | Cash (3)                                |       | $                        | 353,489,000 |                              | 85-125%    |               | 2x for delta if metric  exceeds $353,489,000 |                                    | 119%       |   |
| 50%         |       | Individual MBO                          |       |                     |        | 70-130%                           | ** ** | ** **         |                                         | Varies based on individual  performance |       |
| Total: 100% |       |                                    |       |                     |        |                              |       |               |                                         |                                    |       |

 

----

| (1)    | If this measure was not achieved, it would be deemed achieved if the  sum of (i) the actual performance of this measure and (ii) the  amount of any positive change in deferred revenue for 2009 met or exceeded  the target performance for this measure. However, the impact of any positive  change in deferred revenue did not count towards greater than 100%  achievement for this measure. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| (2)    | Operating earnings (loss) is a non-GAAP measure that excluded  stock-based compensation expense, amortization of intangible assets and  restructuring expense in 2009. In addition, this metric excludes any effect  of activities relating to mergers and acquisitions.                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| (3)    | This metric excludes any effect of activities relating to mergers and  acquisitions.                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| (4)    | Accelerator only applied if the achieved metric was over 100%.                                                                                                                                                                                                                                                                                                                                              |

 

As an example, the bonuscalculation for an executive who achieved 100% of his individual performanceobjectives and whose target cash incentive was $100,000 is set forth below,based on a range of performance levels of corporate goals:

 
| **Weight** | ** ** | **Objective**                       | ** ** | **Accomplish  85% of  Corporate  Objectives  ($)** | ** ** | **Accomplish  100% of  Corporate  Objectives  ($)** | ** ** | **Accomplish  105% of  Corporate  Objectives  ($)** | ** ** | **Accomplish  150% of  Corporate  Objectives  ($)** | ** ** |
|------------|------------|-------------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| 10%        |       | Revenue                             |       | $                                                  | 8,500      |                                                | $          | 10,000                                              |       | $                                                   | 10,500     |   | $ | 12,500 |   |
| 15%        |       | Full Year Operating Earnings (Loss) |       | 12,750                                             |       | 15,000                                              |       | 15,750                                              |       | 18,750                                              |       |
| 25%        |       | Cash                                |       | 21,250                                             |       | 25,000                                              |       | 25,000                                              |       | 25,000                                              |       |
|       |       | Accelerator                         |       | —                                             |       | —                                              |       | 2,500                                               |       | 12,500                                              |       |
| 50%        |       | Individual MBO                      |       | 50,000                                             |       | 50,000                                              |       | 50,000                                              |       | 50,000                                              |       |
|       |       | Total                               |       | $                                                  | 92,500     |                                                | $          | 100,000                                             |       | $                                                   | 103,750    |   | $ | 118,750 |   |

 

The Compensation Committeehas established a Senior Management Cash Incentive Plan, effective as of February 23,2010, pursuant to which the Compensation Committee expects to create cash-basedaward opportunities for 2010 based upon the achievement of financial metricsconsistent with our 2010 operating plan and the financial objectives associatedwith that plan. We consider our corporate goals to be confidential and theirdisclosure would cause competitive harm for us and, therefore, we do notdisclose these goals for performance periods not yet completed. We reasonablybelieve we will achieve 

 

19

----

Table of Contents

 

these targets; based on past experience, weachieved approximately 100% of the corporate goals for 2006, 64% of thecorporate goals for 2007, 14.8% of the corporate goals for 2008 and 117% of thecorporate goals for 2009.  A high levelof performance by management will be required to achieve the corporate goalsfor 2010. The 2010 individual MBOs will be based upon the achievement ofcertain financial, operating and strategic goals.

 

*Equity-basedIncentives.*  Equity-basedincentives are provided to executives whose decisions and actions have a directimpact upon our performance and success. Stock options and restricted stock areawarded to our executive officers in order to tie compensation directly to ourlong-term success and to increase in shareholder value. In determining the sizeof the stock option and/or restricted stock grants awarded to each executiveofficer, the Compensation Committee takes into account the executive officer’sposition, past performance, anticipated contribution to our long-term goals,and industry practices and norms. Long-term incentives granted in prior yearsand existing levels of stock ownership are also taken into consideration. TheCompensation Committee believes that a combination of stock options andrestricted stock is most effective in meeting the key objectives of employeeretention, motivation, and shareholder alignment, and is the most costeffective and efficient manner of share usage, taking into account stock-basedcompensation expense and cash flow. Under the 2007 Plan, a finite number ofshares are available. The aggregate number of shares under the 2007 Plan wasbased upon projected requirements in the normal course of business over atwo-year period, within recommended guidelines, assuming similar usage rates toprior years based upon our hiring and annual stock incentive programs, as wellas the use of restricted stock in addition to stock options. The historicalpractice of allocating equity awards to top performers and critical positionswill be continued.

 

***Determining Executive Compensation***

 

The Compensation Committeeevaluates and approves goals and objectives of the Chief Executive Officer;reviews and approves goals and objectives of other key executive officers;evaluates the performance of the executives in light of those goals andobjectives; determines and approves the compensation level for the ChiefExecutive Officer; reviews and sets compensation levels of other key executiveofficers; evaluates and approves all grants of equity-based compensation toexecutive officers and recommends to our Board compensation policies foroutside directors. The Compensation Committee may form and delegate authority toone or more subcommittees as it deems appropriate from time to time.

 

At the outset of the fiscalyear, our Board sets the overall corporate performance goals for the year,while the Compensation Committee reviews and approves each executive’sindividual MBOs and target bonus, except as otherwise predetermined by anemployment agreement. After the end of the fiscal year, the CompensationCommittee reviews the actual corporate and individual performance against thepredetermined corporate performance goals and individual MBOs to determine theappropriate bonus amount, as well as other performance considerations relatedto unforeseen events during the year. For each of the performance goals, aformula establishes a payout range based upon the target bonus allocation. Theformula also determines the percentage of the target bonus to be paid based ona percentage of goal achievement.

 

The Compensation Committeehas the authority to retain compensation consultants and other outside advisorsto assist in the evaluation of executive officer compensation. The CompensationCommittee reviews each component of the executive’s compensation againstexecutive compensation surveys. The surveys used for comparison reflectcompensation levels and practices for persons holding comparable positions atcertain of our peer group companies. The Compensation Committee also solicitsappropriate input from our Chief Executive Officer, who works with our VicePresident of Human Resources, to recommend compensation for those executivesreporting directly to him. The Compensation Committee considers, but is notbound by, recommendations made by Company management. Similarly, theCompensation Committee may accept, reject or modify any recommendations bycompensation consultants or other outside advisors. All decisions regarding theChief Executive Officer’s compensation are made by the Compensation Committeein executive session, without the Chief Executive Officer present.

 

For fiscal 2009, theCompensation Committee retained Frederic W. Cook & Company as itscompensation consultant to provide an analysis of the total compensationpractices for our executive and senior management positions. The purpose of thestudy was to provide management and the Compensation Committee with currentinformation on the competitiveness of our total cash and long-term incentivecompensation. The study provided a significant amount of comparativeinformation, using peer group and market data. The Compensation Committeedetermined the need to review the current compensation strategy and the marketreference peer group based on larger company metrics, considering our currentand future growth potential. Our 2009 target compensation was compared to bothour peer group and survey data.  Whilethe competitive positioning of individual executives varied, in the aggregate,the findings by Frederic W. Cook & Company indicated that our basesalaries were generally commensurate with that of our peer group and surveymedians; for eight of the nine executives whose target bonuses were scheduledto be reduced by 50% in 2009, target total annual cash compensation wasgenerally below the peer group and survey medians; and target total directcompensation was above the peer group and survey medians for the top fiveexecutives but below the survey medians for the next four highest paidexecutives.  Due to the uncertainty of macroeconomic 

 

20

----

Table of Contents

 

conditions and business results and because base salaries weregenerally commensurate with that of our peer group and survey medians, theCompensation Committee determined to keep 2009 executive compensation at 2008levels.

 

For 2009, the methodology forthe compensation review conducted by Frederic W. Cook & Companyincluded a compensation analysis and comparison on a job description level withpeer companies based upon information derived from publicly-disclosedinformation provided on proxy statements. The primary peer group included Acme Packet, Inc.,  ADTRAN, Inc., Airvana, Inc. (whichrecently announced that it is to be acquired by a group of private equityfirms), Blue Coat Systems, Inc., Digi International Inc., EMS Technologies, Inc.,Emulex Corporation, Extreme Networks, Inc.,  Harmonic Inc., Ixia, Starent Networks LCC(which recently announced that it is to be acquired by Cisco Systems) andTekelec.  The peer group selectionfactors included revenue size (primarily companies in the $100 million to$500 million annual revenue range with medium revenue of$357 million) and industry (including all high technology companies with amajority in the networking/telecommunications industry).

 

Our compensation philosophyis that the overall compensation structure should be competitive within theindustry in order to attract and retain talented executives and motivate ourexecutive officers to achieve our business goals.

 

*Annual Bonus*

 

The Company’s compensation program includeseligibility for an annual performance-based incentive program in the case ofall management employees with a management title of “Director” or higher. Theaward of an annual incentive bonus, which is paid in cash, creates an incentivefor management employees to achieve desired short-term corporate goals that arein furtherance of the Company’s long-term objectives. The program establishestarget bonuses, set as a percentage of base salary, for each position. Thetarget bonus for executive officers included, in fiscal 2009, a weighting ofannual corporate and individual performance goals. In fiscal 2009, the targetbonuses for our officers ranged from 20% to 60% of their base salary, and theportion of the bonus that was tied to corporate performance was 50%. TheCompensation Committee annually reviews target bonuses as a component ofexecutive compensation against the peer group data.  It believed the target bonuses for ourexecutive officers for 2009 were within the appropriate range as a percentageof base salary and overall total compensation.

 

Non-executive vice presidents and management directorsare eligible for a similar performance-based bonus with their target bonus at alower percentage of salary. All other eligible employees have target bonuses at10% to 30% of salary, with their actual bonus awards dependent on theachievement of corporate goals and individual MBOs. The 2010 annualperformance-based incentive program will include all employees, except forcommissioned sales employees.

 

The Compensation Committee determines the annual bonusto be paid to the Chief Executive Officer given his target bonus, achievementof corporate goals, and the Compensation Committee’s overall assessment ofperformance based on achievement of such corporate goals.  For the Chief Executive Officer’s directreports, the Compensation Committee reviews and approves the annual bonuses tobe paid to such individuals, based upon the Chief Executive Officer’srecommendations.  The Chief ExecutiveOfficer determines the annual bonus to be paid to all other managementemployees with a management title of “Director” or higher who are not hisdirect reports. The Board may approve, modify or override the determination ofthe Compensation Committee or the Chief Executive Officer, as applicable, of amanagement employee’s bonus payment based on its view of the achievement ofperformance goals.

 

When Dr. Nottenburg joined the Company in June 2008,pursuant to his employment agreement with the Company, for fiscal year2008, Dr. Nottenburg was guaranteed a bonus of 80% of his base salary prorated for the days in 2008 he was employed by us. Similarly, when our SeniorVice President and General Counsel Jeffrey Snider joined us in June 2009,pursuant to his employment agreement with the Company, for fiscal year 2009, Mr. Sniderwas guaranteed a bonus of 50% of his base salary pro rated for the days in 2009he was employed by us.  Dr. Nottenburgand Mr. Snider were each guaranteed an initial pro-rated bonus as anincentive to join the Company.  They alsoreceived such a bonus because it would be difficult for the CompensationCommittee to determine the effect each would ultimately have during their firstyear at the Company.  The decision by theCompensation Committee to guarantee such bonuses is made on a case-by-base basis.

 

The Chief ExecutiveOfficer is responsible for determining the level of achievement of eachexecutive, including his direct reports, against the stated corporate goals andthe executive’s achievement of certain individual goals.  The Chief Executive Officer works with eachof the Named Executive Officers to identify individual goals that are alignedwith corporate objectives, strategic plan objectives and individual departmentobjectives that are unique to each Named Executive Officer’s position and scopeof responsibility.  Individual goalstypically pertain to meeting financial targets, leading and overseeing majorprojects, operational efficiencies, reliability and compliance. For each NamedExecutive Officer’s performance (other than the Chief Executive Officer), theChief Executive Officer bases his evaluation on his conversations with the VicePresident of Human Resources regarding the development and objectives of eachNamed Executive Officer, his knowledge of the 

 

21

----

Table ofContents

 

individual’saccomplishments as well as discussions with each of the Named ExecutiveOfficers.  The achievement level isdetermined in the first quarter of each year based on the performance in thepreceding year. In fiscal 2009, the corporate goals included revenue of$225,000,034, operating loss of $14,918,000, and cash of $353,489,000. Fiscal2009 corporate goals incorporated an operating loss because of the economicoutlook for fiscal 2009 as well as lower revenues as compared to fiscal 2008.Based on the Company’s performance in fiscal 2009, the Compensation Committeedetermined that the metric payout level of achievement against fiscal 2009corporate goals was 113.38%.  Achievement ofthe individual fiscal goals was as follows: 101.2% of the revenue goal, 125% ofthe operating earnings goal and 119% of the cash goal.

 

Withthe exception of Dr. Nottenburg’s 2009 executive cash incentive program,which consisted entirely of corporate achievement metrics, the Company’s 2009executive cash incentive program consisted of both individual and corporateachievement metrics.  Over sixty executives and senior managers wereeligible to participate in the program.  After the 2009 corporate metricswere approved on February 20, 2009, however, the Compensation Committeedetermined to reduce the payout at target to 50% of the original amount on April 24,2009.  This was approved for several reasons, including the willingness ofour executives and senior managers to demonstrate to non-executive employeesthat our executives and senior managers were willing to sacrifice theircompensation at the same time headcount restructuring efforts were undertakenby us throughout 2009; the desire to implement such changes to the 2009executive cash incentive program without amending the individual metrics onwhich each of the executives’ and senior managers’ incentives was based; andthe uncertainty of macroeconomic conditions and business results.  Inlight of the Company’s performance for 2009, and significant efforts undertakenby executives and senior managers to achieve that performance, on January 27,2010, the Compensation Committee ultimately determined to increase the payoutat target to 75% of the original amount.

 

Target bonus levels were determined based uponcompetitive market and peer group data and analysis.

 

For fiscal 2009, individual performance of anexecutive officer was assessed based on the level of achievement of individualgoals. Each executive was given a performance ranking based on this assessment.For all executive officers other than the Chief Executive Officer and hisdirect reports, the Compensation Committee considered the recommendations of theChief Executive Officer and his direct reports. According to Dr. Nottenburg’semployment agreement, he will be entitled to two performance stock grants of250,000 shares each upon our achieving certain performance metrics between January 1,2010 and December 31, 2012, as approved by the Compensation Committee.

 

The Chief Executive Officer and/or his direct reportsreviewed the performance reviews for all management employees and presented theperformance data and his recommendations to the Compensation Committee based onthe guidelines previously established by management for review. Similar toawards by the Company of equity-based incentives, Mr. Snider’s and Mr. Vishwanathan’srespective target bonus levels were based upon competitive data, including peergroup and survey data, their positions in the Company, and their anticipatedcontributions to our long-term goals. As new hires, their respectiveexperiences were also taken into consideration. The Chief Executive Officerprovided a recommendation as to Messrs. Snider’s and Vishwanathan’s targetbonuses to the Compensation Committee for the Compensation Committee’sapproval. Pursuant to Mr. Snider’s employment agreement, during each yearhe is employed by the Company, Mr. Snider is eligible to receive a targetbonus of 50% of his then-current annual base salary.  For 2009, his target bonus was pro-ratedbecause he joined the Company in June 2009, and his 2009 target bonus of$77,188 was guaranteed and payable by April 15, 2010. Pursuant to Mr. Vishwanathan’semployment agreement, during each year he is employed by the Company, Mr. Vishwanathanis eligible to receive a target bonus of 50% of his then-current annual basesalary.  For 2009, his target bonus waspro-rated because he joined the Company in August 2009.  Mr. Vishwanathan willalso be entitled to one performance stock grant of 75,000 shares upon ourachieving certain performance metrics for each of the three fiscal years endingDecember 31, 2009, 2010 and 2011. 3,860,860 shares were granted as equityincentive awards by the Compensation Committee in 2009 under the 2007 Plan.

 

As Vice President of Worldwide Sales, Mr. Shanableh’scash incentives were based upon the achievement of goals related to revenue andsales orders, which supported our corporate goals.  Mr. Shanableh’s cash incentive was basedupon commissions as a percentage of sales orders and revenue quotas achievedand he was eligible for additional commissions based upon achievement of 80% ofthe sales order and 80% of the revenue goals. For 2009, Mr. Shanableh’s commission rates on sales orders up to80% of quotas was 0.03739% and his commission rates on revenues up to 80% was0.03988%.  The rates for achievement ofsales orders and revenue in excess of quotas were 0.18694% and 0.19940%, respectively.Mr. Shanableh also received commissions based upon annual gross marginattainment of 60%, which was payable quarterly and at a rate of $672.98 pergross margin percentage in 2009.  Mr. Shanableh’scompensation plan provided an incentive bonus of $25,000 for achieving$225,000,000 in revenue and an additional bonus of $25,000 for achieving$225,000,000 in revenue and 62% in gross margin.

 

Based on the criteria described above,****the Compensation Committee approved cash bonuses for ourmanagement officers in February 2010. The annual cash incentive bonus paidto our Named Executive Officers in February 2010 is set forth in theSummary Compensation Table following this report.

 

22

----

Table of Contents

 

In January 2010, our Board, based upon therecommendation of the Compensation Committee, approved our fiscal 2010 bonusplan.  This plan is based on thefollowing design: corporate metrics, team goals, individual goals and/orperformance. The Compensation Committee set such target at a level where theexecutives would be expected to be paid 100% of their target bonus if theCompany achieves its fiscal 2010 projected pre-bonus adjusted earnings beforeinterest, taxes, depreciation and amortization, or EBITDA, subject toadjustments for actual performance above or below the projection up to amaximum of 225% of the executive’s targeted bonus under extraordinary circumstances.

 

*Severance and Retention Program and Agreements*

 

In February 2010, Mr. Gaynor,our former Chief Financial Officer, resigned from the Company. He was noteligible to receive, and did not receive, any compensation package or severancepursuant to the terms of his Executive Severance and Arbitration Agreement orhis employment agreement.

 

In 2008, the CompensationCommittee approved a severance and retention program and agreement for certainexecutive officers, including our former principal financial officer. TheCompensation Committee considered the value of services provided by suchofficers and their unique capabilities. The Compensation Committee engaged anexecutive compensation consultant, the Wilson Group, and the CompensationCommittee negotiated a compensation package and terms for such officers. TheCompensation Committee concluded it was in our best interests to provide aretention package with incentives based on performance and appreciation ofstock value. Our former principal financial officer and certain other keyemployees each entered into an Executive Severance and Arbitration Agreementwith us on October 7, 2008, which is described below under “*Employment, Severance and Change of Control Arrangements*”.

 

***Benefits and Other Compensation***

 

Executives are eligible forthe same benefits that are available to all employees, which include grouphealth insurance, life and disability insurance, dental insurance, and paidholidays. All employees begin accruing three weeks vacation upon date of hire.We offer a 401(k) program and an Amended and Restated 2000 Employee StockPurchase Plan.

 

We do not typically offerperquisites or employee benefits to executive officers that are not also madeavailable to employees on a broad basis.

 

***Stock Option Grant Policy***

 

We have granted stock optionsunder the 2007 Plan as a means of promoting the long-term success of ourbusiness because we believe that sharing ownership with our employees alignstheir interests with our interests and the interests of our stockholders andencourages our employees to devote the best of their abilities and efforts toour company. Each stock option award specifies the exercise price that theemployee must pay to purchase shares of common stock when the option isexercised. The exercise price per share is set at the closing market price of ashare of our common stock on the date the option is granted. Employees receivevalue from their options only by exercising their rights under the options topurchase shares of common stock and subsequently selling the purchased sharesat a price that exceeds their purchase price.

 

*Exchange Program*

 

On May 10, 2005, we fileda Registration Statement, or the Prior Registration Statement, on Form S-8(333-124777) with the SEC to register 40,000,000 shares of common stock, whichhad been authorized and reserved for issuance under the Amended and RestatedSonus Networks, Inc. 1997 Stock Incentive Plan, or the 1997 Plan.  Atour annual meeting of stockholders held on November 12, 2007, ourstockholders approved the Sonus Networks, Inc. 2007 Stock IncentivePlan.  At the our annual meeting of stockholders held on June 19,2009, or the 2009 Annual Meeting, our stockholders approved a proposal toengage in the Exchange Program, whereby we would offer to certain employees,subject to specified conditions, the right to exchange some or all of theiroutstanding stock options for shares of restricted stock.  In connectionwith the Exchange Program, our stockholders also approved the 2007 Plan at the2009 Annual Meeting.  The 2007 Plan was amended to reserve an additionalnumber of shares of common stock to be tendered pursuant to the ExchangeProgram.  The Exchange Program began on September 8, 2009 and expiredon October 5, 2009, at 11:59 p.m. Eastern Daylight Time.  At theconclusion of the Exchange Program, options to purchase 5,476,701 shares of ourcommon stock were tendered, which we accepted for cancellation, and inexchange, we issued 1,015,360 shares of restricted stock.

 

23

----

Table of Contents

 

The Exchange Program allowed usto provide our employees, who are important to our future growth, withrestricted shares that would provide them with a more certain measure ofrealizable value in accordance with the vesting schedule. Our executiveofficers, however, were not eligible to participate in the Exchange Program.The Compensation Committee believed that the Exchange Program would improveemployee morale and increase employee retention, while aligning employee andstockholder interests.

 

*New HireGrants*

 

The Compensation Committeehas delegated authority to our Chief Executive Officer to grant new hireoptions consistent with approved guidelines and restrictions governing thedelegation. These guidelines are as follows:

 

·      Such optionsare granted pursuant to the 2007 Plan;

 

·      Such optionsare on the terms of our standard form of stock option agreement;

 

·      Such optionsmust, to the maximum extent permitted by applicable federal tax laws, begranted as incentive stock options;

 

·      The grant dateis the 15th day ofthe month following the employee’s start date and the exercise price of theseoptions is equal to the closing price of our common stock on that grant date,or the next business day in the event that the 15th day falls on a day that the NASDAQ StockMarket is closed;

 

·      The ChiefExecutive Officer is not authorized to grant options (a) to himself or toany of our executive officers, or (b) to any new employee for more than100,000 shares of our common stock;

 

·      The ChiefExecutive Officer is authorized to delegate his authority to our ChiefFinancial Officer and/or Vice President of Human Resources (or the most seniorhuman resources executive); and

 

·      The ChiefExecutive Officer must maintain a list of the options granted pursuant to thedelegated authority and must, upon request, report to the CompensationCommittee regarding the options granted.

 

The Compensation Committeereviews all new hire grants issued under the delegation of authority. TheCompensation Committee also reviews and, if appropriate, approves the grants tonew hires in excess of 100,000 shares at a Compensation Committee meeting. Theactions taken at the meetings are documented in meeting minutes subsequentlyapproved by the Compensation Committee. The list of proposed individual grantsis provided in advance of the Compensation Committee meeting and is included inthe meeting minutes.

 

*AnnualEquity Incentive Grants*

 

The Compensation Committeeannually considers an equity incentive grant for certain of our key employees,including executives, in connection with its annual review of employee andexecutive compensation. At a Compensation Committee meeting, the CompensationCommittee reviews a proposed plan for the granting of equity awards toexecutives and employees in connection with the annual equity incentiveprogram. Typically, employee eligibility is based upon hire date with arequired minimum of one year of service. Among the eligible employees, awardsare allocated to employees based upon management’s evaluation of employeeperformance and other business criteria.

 

The proposed plan includesoverall parameters of the plan and a pool of shares to be allocated under theplan. The Compensation Committee discusses the plan with management and thenrequests that management provide the Compensation Committee with a specificlist of individual grants for employees consistent with the CompensationCommittee’s guidance. The Compensation Committee determines specific grants forexecutives. Management then prepares a list of individual grants for employeesand executives and submits to the Compensation Committee the list of individualgrants for employees and executives. The Compensation Committee reviews and, ifappropriate, approves the list of individual grants at a Compensation Committeemeeting. The actions taken at the meetings are documented in meeting minutessubsequently approved by the Compensation Committee. The list of individualgrants is attached to the meeting minutes.

 

The Compensation Committeehas established the grant date for annual equity incentive grants to be August 15of each year, or the next business day following August 15 if August 15falls on a weekend or holiday. The Compensation 

 

24

----

Table of Contents

 

Committee retains the right to change thisdate based on business events that might warrant using another date for theannual equity incentive grant date.

 

The Compensation Committeefollowed this practice for 2009 equity incentive grants.  However, based upon the recommendation ofmanagement, the Compensation Committee made the decision to refrain fromimplementing a broad-based equity incentive grant program to employees,including the Named Executive Officers, in 2009. The recommendation was basedupon a consideration of the number of shares that remained available for grantunder the 2007 Plan and an estimate of the number of shares which would berequired to fulfill our employee hiring plans.

 

*Promotionand Achievement Grants*

 

From time to time, ourmanagement recommends to the Compensation Committee promotion or achievement grantsto our employees or executives. Our management includes all recommendedindividual stock option grants for approval by the Compensation Committee inthe meeting materials provided in advance of the meeting. We document allCompensation Committee meetings with minutes reflecting any stock option grantsapproved during the meeting. The Compensation Committee approves promotion orachievement grants at Compensation Committee meetings. The actions taken at themeetings are documented in meeting minutes. Promotion and achievement grantstypically have a grant date of the 15th day of the month following the CompensationCommittee’s approval of the grant, or the next business day if such 15th day of the month is a weekend or holiday.

 

No such awards were made in2009 to any of the Named Executive Officers.

 

*Vesting*

 

Provided that an employeecontinues his or her employment with us, on the applicable vesting date,options will vest and become exercisable as follows: (i) new hire grants:25% of the shares vest on the first anniversary of the date that employmentwith us commences, or the employment date, and the remaining 75% of the sharesvest in equal increments of 2.0833% monthly thereafter through the fourthanniversary of the employment date; (ii) all other option grants: 25% ofthe shares vest on the first anniversary of the grant date (as defined in theapplicable notice of grant of stock options and option agreement) and theremaining 75% of the shares vest in equal increments of 2.0833% monthly thereafterthrough the fourth anniversary of the grant date; and (iii) restrictedstock grants: 25% of the shares vest on the first anniversary of the employmentdate or the grant date and the remaining 75% vest in equal increments of 12.5%semi-annually through the fourth anniversary of the employment date or the dateof the grant.

 

Grants to non-employeedirectors have the same vesting schedule as specified above subject tocontinued service on our Board.

 

For more disclosure relatingto outstanding equity awards granted to the Named Executive Officers, pleasesee page 30, below.

 

*Termination*

 

Options typically terminateon the tenth anniversary of the grant date (or the fifth anniversary of thegrant date, if the optionee owns more than 10% of our common stock), providedthat if an employee’s employment relationship with us terminates, the optiontermination date is determined based upon the reason for employment terminationas follows: (i) death or total and permanent disability of optionee (asdefined in Section 22(e)(3) of the Internal Revenue Code of 1986, asamended or the Code) — 180 days thereafter; or (ii) termination forany other reason — 30 days thereafter under the 1997 Plan or 90 daysthereafter under the 2007 Plan, unless otherwise extended.

 

We have entered intoagreements with certain executives providing for extended terms for stockoption grants following the executive’s termination, as described under “*Employment, Severance and Change of Control Arrangements*”below.

 

*Acceleration*

 

In the event of anacquisition of us, or the Acquisition, as defined in the 2007 Plan, ourstandard stock option and restricted stock agreement and stock plan documentsprovide a pre-determined vesting schedule for such Awards.

 

25

----

Table of Contents

 

Under our standard stockoption agreement, effective immediately prior to the occurrence of anAcquisition, the lesser of the number of then unvested shares subject to astock option Award or 25% of the total number of shares subject to that stockoption Award will become vested.  In suchevent, the balance of the unvested shares subject to a stock option Award willcontinue to vest pursuant to the vesting schedule set forth in the Award.  Additionally, the vesting schedule will beshortened by 12 months.

 

Under our standardrestricted stock agreement, effective immediately prior to the occurrence of anAcquisition, an additional 25% of the number of shares covered by therestricted stock Award will become vested and the remaining unvested sharessubject to the restricted stock Award will continue to vest pursuant to thevesting schedule set forth in the Award. Additionally, the vesting schedule will be shortened by 12 months.

 

Under our standardrestricted stock agreement executed pursuant to the Exchange Program, effectiveimmediately prior to the occurrence of an Acquisition, an additional 33 1/3% ofthe number of shares covered by such restricted stock Award will become vestedand the remaining unvested shares subject to the restricted stock Award willcontinue to vest pursuant to the vesting schedule set forth in the Award.  Additionally, the vesting schedule will beshortened by 12 months.

 

We have entered intoagreements with certain executives providing for acceleration of the vesting ofstock options and restricted stock upon a change of control as described under “*Employment, Severance and Change of Control Arrangements*”below.

 

***Tax and Accounting Considerations***

 

*Accountingfor Stock-Based Compensation.*  We account for stock-based compensation inaccordance with ASC 718.

 

*IncentiveStock Options.*  Optionsgranted to employees are intended to qualify as “incentive stock options” underSection 422 of the Code. However, we make no representation or warranty asto the tax treatment to the optionee upon receipt or exercise of the option orsale or other disposition of the shares covered by the option. In addition,options will not be treated as incentive stock options for tax purposes to theextent that options covering in excess of $100,000 of stock (based upon fairmarket value of the stock as of the respective dates of grant of such options)become exercisable in any calendar year; and such options will be subject todifferent tax treatment.

 

*Policy onDeductibility of Executive Compensation.*  The Internal Revenue Service, pursuant to Section 162(m) ofthe Code, generally disallows a tax deduction for compensation in excess of$1.0 million paid to our Chief Executive Officer and to each other officer(other than the Chief Executive Officer and Chief Financial Officer) whosecompensation is required to be reported to our stockholders pursuant to theExchange Act of 1934, as amended, by reason of being among our three mosthighly paid executive officers. Certain compensation, including qualifiedperformance-based compensation, will not be subject to the deduction limit ifcertain requirements are met. The Compensation Committee reviews the potentialeffect of Section 162(m) of the Code periodically and uses itsjudgment to authorize compensation payments that may be subject to the limitwhen the Compensation Committee believes such payments are appropriate and inour best interests and our stockholders best interests, after taking intoconsideration changing business conditions and the performance of ouremployees.  Of the total $1,970,937compensation expense recorded in fiscal 2009, $1,369,467 was disallowed for taxpurposes under Section 162(m) of the Code.

 

**COMPENSATION COMMITTEE REPORT**

 

The Compensation Committeeconsists of Paul J. Severino (Chairman), John A. Schofield, Beatriz V. Infanteand H. Brian Thompson. The Compensation Committee has reviewed and discussedthe Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with our management. Based on this review and discussion,the Compensation Committee recommended to our Board of Directors that theCompensation Discussion and Analysis be included in this Amendment.

 
|   | Submitted by,                |
|--------|------------------------------|
|   | *COMPENSATION  COMMITTEE:*   |
|   | Paul J. Severino  (Chairman) |
|   | Beatriz V. Infante           |
|   | John A. Schofield            |
|   | H. Brian Thompson            |

 

26

----

Table of Contents

 

*The information contained in theforegoing report shall not be deemed “filed” or to be “soliciting material”with the Securities and Exchange Commission, nor shall such information beincorporated by reference into any future filing under the Securities Act of1933, as amended, or the Securities Exchange Act of 1934, as amended, except tothe extent that the Company specifically incorporates it by reference.*

 

**CompensationProgram as it Relates to Risk**

 

Sonus management and theCompensation Committee review Sonus’ compensation practices to ensure that theydo not encourage excessive risk taking. Based upon our comprehensive review of our compensation program, weconcluded that our compensation program does not encourage excessive orinappropriate risk taking for the following reasons, among others:

 

·      We structureour pay to consist of both fixed and variable compensation.

 

·      Our stockoption awards generally vest over a period of four years and are only valuableif our stock price increases over time.

 

·      Our incentiveplans include a profit metric as a significant component of performance topromote disciplined progress toward financial goals.  None of Sonus’ incentive plans are basedsolely on signings or revenue targets, which mitigates the risk of employeesfocusing exclusively on the short term.

 

We are confident that our compensation program for 2009 was alignedwith the interests of our stockholders and rewards for performance.

 

The Compensation Committee and our management recognize that dependingon the specific characteristics and circumstances of the Company, othercompensation practices might also be appropriate.  Therefore, the Compensation Committee and ourmanagement are committed to reviewing this determination on an annual basis.

 

**Executive Compensation Tables**

 

***Summary of Executive Compensation***

 

The following table setsforth, for the year ended December 31, 2009 and for either of the twoyears prior thereto in which the individual was a Named Executive Officer, thecompensation earned by our Chief Executive Officer, our former Chief FinancialOfficer and the other three most highly compensated executive officers servingas executive officers at December 31, 2009 (collectively, the NamedExecutive Officers).

 

**SUMMARY COMPENSATION TABLE**

 
| **Name  and Principal  Positions** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)(1)** | ** ** | **Stock  Awards  ($)(2)** | ** ** | **Option  Awards  ($)(3)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)(4)** | ** ** | **All Other  Compensation  ($)(5)** | ** ** | **Total  ($)** | ** ** |
|------------------------------------|------------|----------|------------|-----------------|------------|-------------------|------------|---------------------------|------------|----------------------------|------------|------------------------------------------------------|------------|-------------------------------------|------------|----------------|------------|
| Richard N. Nottenburg              |       | 2009     |       | $               | 500,000    |              | $          | —                    |       | $                          | 2,175,000  |                                                 | $          | 405,300                             |       | $              | 380,310    |   | $ | 2,322 |   | $ | 3,462,932 |   |
| President and Chief                |       | 2008     |       | $               | 272,756    |              | $          | 216,667                   |       | $                          | 2,175,000  |                                                 | $          | 1,647,800                           |       | $              | —     |   | $ | 673 |   | $ | 4,312,896 |   |
| Executive Officer                  |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
|                               |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| Richard J. Gaynor(6)               |       | 2009     |       | $               | 285,010    |              | $          | —                    |       | $                          | —     |                                                 | $          | —                              |       | $              | 139,003    |   | $ | 4,148 |   | $ | 428,161 |   |
| Former Chief                       |       | 2008     |       | $               | 285,000    |              | $          | —                    |       | $                          | 448,000    |                                                 | $          | —                              |       | $              | 262,549    |   | $ | 10,749 |   | $ | 1,006,298 |   |
| Financial Officer                  |       | 2007     |       | $               | 67,500     |              | $          | 40,500                    |       | $                          | 209,300    |                                                 | $          | 1,015,070                           |       | $              | —     |   | $ | 99 |   | $ | 1,332,469 |   |
|                               |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| Jeffrey M. Snider(7)               |       | 2009     |       | $               | 160,952    |              | $          | 77,188                    |       | $                          | 407,400    |                                                 | $          | 217,707                             |       | $              | 10,328     |   | $ | 3,747 |   | $ | 877,322 |   |
| Senior Vice                        |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| President, General                 |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| Counsel and Secretary              |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
|                               |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| Mohammed Shanableh                 |       | 2009     |       | $               | 241,960    |              | $          | —                    |       | $                          | —     |                                                 | $          | —                              |       | $              | 497,149    |   | $ | 3,725 |   | $ | 742,834 |   |
| Vice President,                    |       | 2008     |       | $               | 264,878    |              | $          | —                    |       | $                          | 416,670    |                                                 | $          | 345,288                             |       | $              | 330,823    |   | $ | 15,634 |   | $ | 1,373,293 |   |
| Worldwide Sales                    |       | 2007     |       | $               | 197,916    |              | $          | —                    |       | $                          | 141,000    |                                                 | $          | 749,625                             |       | $              | 289,424    |   | $ | 16,310 |   | $ | 1,394,275 |   |
|                               |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| Kumar Vishwanathan(8)              |       | 2009     |       | $               | 81,250     |              | $          | —                    |       | $                          | 289,500    |                                                 | $          | 139,590                             |       | $              | 46,061     |   | $ | 2,510 |   | $ | 558,911 |   |
| Vice President,                    |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| Engineering and                    |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |
| Chief Architect                    |       |     |       |            |       |              |       |                      |       |                       |       |                                                 |       |                                |       |           |       |

 

27

----

Table of Contents

 

----

(1)           These amounts represent aguaranteed bonus for the year in which each Named Executive Officer joined us.

 

(2)           The amounts in this columndo not reflect compensation actually received by the Named Executive Officer.Instead, the amounts reflect the grant date fair value of awards calculated inaccordance with ASC 718.

 

(3)           The amounts shown in thiscolumn do not reflect compensation actually received by the Named ExecutiveOfficer. Instead, the amounts reflect the grant date fair value of each optionaward granted to each Named Executive Officer. The grant date fair values ofoption awards were estimated in accordance with ASC 718 using the Black-Scholesvaluation model with the following assumptions, excluding the options grantedto Dr. Nottenburg:

 
| ** **                   | ** ** | **Year ended December 31,** | ** ** |
|------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| Risk-free interest rate      |       | 1.76% - 2.47%                    |       | 2.18% - 3.12% |   | 4.5 | % |
| Expected dividend yield      |       | —                           |       | — |   | — |   |
| Weighted average  volatility |       | 64.3%                            |       | 71.75% |   | 60.1 | % |
| Expected life (years)        |       | 4.5                              |       | 4.5 |   | 4.5 |   |

 

The grant date fair valuesof Dr. Nottenburg’s option awards were estimated in accordance with ASC718 using the Black-Scholes valuation model with the following assumptions:

 
| ** **                   | ** ** | **January 15, 2009  award** | ** ** | **June 16, 2008  award** | ** ** |
|------------------------------|------------|----------------------------------|------------|-------------------------------|------------|
| Risk-free interest rate      |       | 2.0                              | %          | 3.84                          | %          |
| Expected dividend yield      |       | —                           |       | —                        |       |
| Weighted average  volatility |       | 70.24                            | %          | 77.25                         | %          |
| Expected life (years)        |       | 6.0                              |       | 6.0                           |       |

 

For further discussionregarding the assumptions used in calculating the amounts in this column,please see Note 14 to our audited consolidated financial statements included inour Annual Report on Form 10-K for the year ended December 31, 2009.

 

(4)           Please see “*Compensation Discussion and Analysis - Compensation Components -Cash-based Incentives*” for a description of our incentivecompensation program.  For 2009, targetbonuses and actual payments under the incentive compensation program for eachcurrent Named Executive Officer, other than the Vice President of WorldwideSales, were as follows:

 

Dr. Nottenburg’s targetbonus was 80% of his base salary.

 

Mr. Gaynor’s targetbonus was 60% of his base salary.

 

Mr. Snider’s targetbonus was $77,188 and represents 50% of his base salary, prorated for2009.  This guaranteed amount is reportedin the “Bonus” column.

 

As Vice President of Worldwide Sales, Mr. Shanableh’scash incentives were based upon the achievement of goals related to revenue andsales orders, which supported our corporate goals.  Mr. Shanableh’s cash incentive was basedupon commissions as a percentage of sales orders and revenue quotas achievedand he was eligible for additional commissions based upon achievement of 80% ofthe sales order and 80% of the revenue goals. In 2009, Mr. Shanableh’s commission rates on sales orders up to 80%of quotas was 0.03739% and his commission rates on revenues up to 80% was0.03988%.  The rates for achievement ofsales orders and revenue in excess of quotas were 0.18694% and 0.19940%,respectively. Mr. Shanableh also received commissions based upon annualgross margin attainment of 60%, which was payable quarterly and at a rate of$672.98 per gross margin percentage in 2009. Mr. Shanableh’s compensationplan provided an incentive bonus of $25,000 for achieving $225,000,000 inrevenue and an additional bonus of $25,000 for achieving $225,000,000 inrevenue and 62% in gross margin. Gross margin is a non-GAAPmeasure and excludes stock based compensation expense, amortization ofintangible assets, change in estimate — reduction of contingency for employmenttax audit. In addition, this metric excludes any effect of activities relatingto mergers and acquisitions.

 

Mr. Vishwanathan’starget bonus was 50% of his base salary, prorated for 2009.

 

28

----

Table of Contents

 

(5)                                  Dr. Nottenburg’s‘other’ compensation of $2,322 for 2009 relates to group term life insurance.

 

Mr. Gaynor’s ‘other’compensation of $4,148 for 2009 is comprised of $3,500 for our 401(k) matchingcontribution and $648 for group term life insurance.

 

Mr. Snider’s ‘other’compensation of $3,747 for 2009 is comprised of $3,500 for our 401(k) matchingcontribution and $247 for group term life insurance.

 

Mr. Shanableh’s ‘other’compensation of $3,725 for 2009 is comprised of $3,500 for our 401(k) matchingcontribution and $225 for group term life insurance.

 

Mr. Vishwanathan’s ‘other’compensation of $2,510 for 2009 is comprised of $2,438 for our 401(k) matchingcontribution and $72 for group term life insurance.

 

(6)           Mr. Gaynor resigned asour Chief Financial Officer in February 2010.

 

(7)           Mr. Snider joined theCompany in June 2009.

 

(8)           Mr. Vishwanathan joinedthe Company in August 2009.

 

***Plan-Based Awards***

 

The following table setsforth information about incentive plan awards made to the Named ExecutiveOfficers during the year ended December 31, 2009:

 

**2009 GRANTS OF PLAN-BASED AWARDS**

 
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   |          |   |          |    |         |    | **Grant**     |   |
|-----------------------|--------|-----------|--------|------------------|--------|---------------------------------------------------|--------|-------------------------------------------------|---------|---------------|--------|----------------|---------|--------------|--------|--------------|--------|---------------|--------|---------------|---------|--------------|---------|---------------|--------|
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   | **All Other** |   | **All Other** |    |         |    | **Date**      |   |
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   | **Stock**     |   | **Option**    |    |         |    | **Fair**      |   |
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   | **Awards:**   |   | **Awards:**   |    | **Exercise** |    | **Value**     |   |
|                  |   |      |   | **Date of**      |   | **Estimated Future Payouts Under** |   | **Estimated Future Payouts**          |    | **Number**    |   | **Number of**  |    | **or Base**  |   | **of Stock** |   |
|                  |   |      |   | **Compensation** |   | **Non-Equity Incentive Plan**           |   | ** Under**                                 |    | **of Shares** |   | **Securities** |    | **Price of** |   | **And**      |   |
|                  |   |      |   | **Committee**    |   | **Awards(1)**                                     |   | **Equity Incentive Plan Awards** |    | **of Stock**  |   | **Underlying** |    | **Option**   |   | **Option**   |   |
|                  |   | **Grant** |   | **Action**       |   | **Threshold**                                     |   | **Target**                                      |    | **Maximum**   |   | **Threshold**  |    | **Target**   |   | **Maximum**  |   | **or Units**  |   | **Options**   |    | **Awards**   |    | **Awards**    |   |
| **Name**              |   | **Date**  |   | **(2)**          |   | **($)**                                           |   | **($)**                                         |    | **($)**       |   | **(#)**        |    | **(#)(3)**   |   | **(#)(3)**   |   | **(#)**       |   | **(#)**       |    | **($/Sh)**   |    | **($)(3)(4)** |   |
| Richard N. Nottenburg |   | 1/15/09   |   | 5/9/08           |   | —                                            |   | $                                               | 400,000 |          | $      | 550,000        |    | —       |   | —       |   | —        |   | 500,000       |    | 500,000      |    | $             | 1.28   |   | $ | 2,580,300 |   |
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   |          |   |          |    |         |    |          |   |
| Richard J. Gaynor     |   | N/A       |   | N/A              |   | —                                            |   | $                                               | 142,506 |          | $      | 190,602        |    | —       |   | —       |   | —        |   | —        |    | —       |    | —        |   | — |   |
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   |          |   |          |    |         |    |          |   |
| Jeffrey M. Snider     |   | 6/15/09   |   | 6/19/10          |   | $                                                 | 77,188 |                                            | $       | 77,188        |   | $              | 103,239 |         | — |         | — |          | — |          | 210,000 |         | 210,000 |          | $      | 1.94 |   | $ | 625,107 |   |
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   |          |   |          |    |         |    |          |   |
| Mohammed Shanableh    |   | N/A       |   | N/A              |   | —                                            |   | $                                               | 403,790 | (5)           | — | (6)            | —  |         | — |         | — |          | — |          | —  |         | —  |          | — |   |
|                  |   |      |   |             |   |                                              |   |                                            |    |          |   |           |    |         |   |         |   |          |   |          |    |         |    |          |   |
| Kumar Vishwanathan    |   | 8/17/09   |   | 06/30/09         |   | —                                            |   | $                                               | 40,625  |          | $      | 54,336         |    | —       |   | —       |   | —        |   | 75,000        |    | 150,000      |    | $             | 1.74   |   | $ | 270,090 |   |
|                  |   | 12/29/09  |   | 06/30/09         |   | —                                            |   | —                                          |    | —        |   | —         |    | 50,000       |   | 50,000       |   | 25,000        |   | —        |    | —       |    | $             | 53,000 |   |
|                       |        |           |        |                  |        |                                                   |        |                                                 |         |               |        |                |         |              |        |              |        |               |        |               |         |              |         |               |        |  |  |  |  |  |

 

----

(1)                              Amounts reflectpotential cash award amounts payable under our incentive compensation programfor 2009 described above in “*CompensationDiscussion and Analysis*.”  Actual award amounts are set forth in the “*Non-Equity Incentive Plan Compensation*”column of the Summary Compensation Table.

 

(2)                              Date on whichCompensation Committee took action to approve the award.

 

(3)                              Mr. Vishwanathan is entitled toreceive two performance-based stock awards of 25,000 shares of common stockeach upon the satisfaction of certain individual performance conditions foreach of the two years ended December 31, 2010 and 2011.  The aggregate grant date fair value of theseunearned awards is $106,000.

 

(4)                              Amounts reflectthe fair value of the restricted stock awards and stock option grants as of therespective grant dates. The terms of the grants are as follows:

 

29

----

Table of Contents

 

Dr. Nottenburg wasgranted an option to purchase 500,000 shares of our common stock at an exerciseprice equal to the closing price of our common stock on the NASDAQ Stock Marketon the date of grant pursuant to his Employment Agreement described under “*Employment, Severance and Change of ControlArrangements*” below.

 

Mr. Snider was grantedan award of 210,000 shares of restricted stock which vest over four years, with25% of the shares vesting on the first anniversary of the grant date and theremaining 75% vesting in equal increments semi-annually thereafter through thefourth anniversary of the grant date.  Mr. Sniderwas also granted an option to purchase 210,000 shares of our common stock at anexercise price of $1.94 per share, the closing price of our common stock on thedate of grant, with 25% of the shares vesting on the first anniversary of thegrant date and the remaining 75% vesting in equal monthly increments thereafterthrough the fourth anniversary of the grant date.

 

Mr. Vishwanathan wasgranted an award of 75,000 shares of restricted stock, which vests over fouryears, with 25% of the shares vesting on the anniversary of the grant date andthe remaining 75% vesting in equal increments semi-annually thereafter throughthe fourth anniversary of the grant date. Mr. Vishwanathan was also granted an option to purchase 150,000shares of our common stock at an exercise price of $1.74 per share, the closingprice of our common stock on the date of grant, with 25% of the shares vestingon the first anniversary of the grant date and the remaining 75% vesting inequal monthly increments thereafter through the fourth anniversary of the grantdate.  Mr. Vishwanathan earned25,000 shares of common stock related to his performance-based stock award as aresult of the satisfaction of the related performance conditions in 2009.  These shares had a grant date fair value of$53,000 and were issued to Mr. Vishwanathan on March 15, 2010.

 

(5)                                  The targetamount is calculated using Mr. Shanableh’s commission targets for 2009.

 

(6)                                  Mr. Shanableh’ssales commissions are not capped.

 

***Option Holdings***

 

The following table setsforth information concerning stock options and unvested stock awards held bythe Named Executive Officers as of December 31, 2009:

 

**OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR-END**

 
| ** **            | ** ** | **Option Awards**                                                                      | ** ** | **Stock Awards**                                                                            | ** ** |
|-----------------------|------------|----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| **Name**              | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Unexercisable(1)** | ** ** | **Equity  Incentive  Plan Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options  (#)** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** | **Number  of  Shares or  Units of  Stock  that  Have Not  Vested  (#)(2)** | ** ** | **Market  Value of  Shares or  Units of  Stock That  Have Not  Vested  ($)(3)** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Unearned  Shares,  Units or  Other  Rights  That Have  Not Vested  (#)** | ** ** | **Equity  Incentive  Plan  Awards:  Market or  Payout  Value  of Unearned  Shares,  Units or  Other  Rights  That Have  Not Vested  ($)(3)(4)** | ** ** |
| Richard N. Nottenburg |       | 187,500                                                                                |       | 312,500                                                                                     |       | — |   | $ | 4.75 |   | 6/16/2018 |   | — |   | — |   | — |   | — |   |
|                  |       | 187,500                                                                                |       | 312,500                                                                                     |       | — |   | $ | 1.28 |   | 1/15/2019 |   | — |   | — |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 625,000 |   | $ | 1,318,750 |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | — |   | — |   | 500,000 |   | $ | 1,055,000 |   |
|                  |       |                                                                                   |       |                                                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Richard J. Gaynor (5) |       | 189,583                                                                                |       | 160,417                                                                                     |       | — |   | $ | 5.98 |   | 10/15/2017 |   | — |   | — |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 17,500 |   | $ | 36,925 |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 150,000 |   | $ | 316,500 |   | — |   | — |   |
|                  |       |                                                                                   |       |                                                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Jeffrey M. Snider     |       | —                                                                                 |       | 210,000                                                                                     |       | — |   | $ | 1.94 |   | 6/15/2019 |   | — |   | — |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 210,000 |   | $ | 443,100 |   | — |   | — |   |
|                  |       |                                                                                   |       |                                                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mohammed Shanableh    |       | 110,000                                                                                |       | —                                                                                      |       | — |   | $ | 5.79 |   | 9/20/2014 |   | — |   | — |   | — |   | — |   |
|                  |       | 50,000                                                                                 |       | —                                                                                      |       | — |   | $ | 4.91 |   | 9/9/2015 |   | — |   | — |   | — |   | — |   |
|                  |       | 20,000                                                                                 |       | —                                                                                      |       | — |   | $ | 5.37 |   | 9/15/2015 |   | — |   | — |   | — |   | — |   |
|                  |       | 145,833                                                                                |       | 104,167                                                                                     |       | — |   | $ | 5.64 |   | 8/15/2017 |   | — |   | — |   | — |   | — |   |
|                  |       | 46,875                                                                                 |       | 78,125                                                                                      |       | — |   | $ | 4.75 |   | 6/16/2018 |   | — |   | — |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 12,500 |   | $ | 26,375 |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 12,500 |   | $ | 26,375 |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 15,625 |   | $ | 32,969 |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 99,750 |   | $ | 210,473 |   | — |   | — |   |
|                  |       |                                                                                   |       |                                                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Kumar Vishwanathan    |       | —                                                                                 |       | 150,000                                                                                     |       | — |   | $ | 1.74 |   | 8/17/2019 |   | — |   | — |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | 75,000 |   | $ | 158,250 |   | — |   | — |   |
|                  |       | —                                                                                 |       | —                                                                                      |       | — |   | — |   | — |   | — |   | — |   | 50,000 |   | $ | 105,500 |   |

 

30

----

Table of Contents

 

----

(1)                              Of Dr. Nottenburg’s625,000 unvested stock options, 20,832 will vest on the fourteenth of eachmonth through June 14, 2012.

 

Of Mr. Gaynor’s 160,417unvested stock options, 7,292 would have vested on the first of each monththrough September 30, 2011.  Mr. Gaynorresigned his position effective February 8, 2010; accordingly, 14,584unvested stock options vested in 2010 through his termination date.  The remaining 145,833 unvested stock optionswill not vest and have been forfeited.

 

Of Mr. Snider’s 210,000unvested stock options, 52,500 stock options will vest on June 9, 2010 and4,375 will vest on the ninth of each month beginning July 9, 2010 through June 9,2013.

 

Of Mr. Shanableh’s104,167 unvested stock options from the August 15, 2007 grant, 5,208 stockoptions will vest monthly on the fifteenth of each month through August 15,2011. Of Mr. Shanableh’s 78,125 unvested stock options from the June 16,2008 grant, 2,604 stock options will vest monthly on the sixteenth of eachmonth through June 16, 2012.

 

Of Mr. Vishwanathan’s150,000 unvested stock options, 37,500 stock options will vest on August 4,2010 and 3,125 will vest monthly on the fourth of each month beginning September 4,2010 through August 4, 2013.

 

(2)                                  Dr. Nottenburg’s625,000 unvested shares of restricted stock will vest as follows:

 
| **Vest Date**          | ** ** | **Shares** | ** ** |
|------------------------|------------|------------|------------|
| June 13, 2010     |       | 125,000    |       |
| December 13, 2010 |       | 125,000    |       |
| June 13, 2011     |       | 125,000    |       |
| December 13, 2011 |       | 125,000    |       |
| June 13, 2012     |       | 125,000    |       |

 

Mr. Gaynor’s 167,500unvested shares of restricted stock would have vested as follows had he notresigned from the Company effective February 8, 2010:

 
| **Vest Date**           | ** ** | **Shares** | ** ** |
|-------------------------|------------|------------|------------|
| April 1, 2010      |       | 4,375      |       |
| September 15, 2010 |       | 50,000     |       |
| October 1, 2010    |       | 4,375      |       |
| April 1, 2011      |       | 4,375      |       |
| September 15, 2011 |       | 100,000    |       |
| October 1, 2011    |       | 4,375      |       |

 

Mr. Snider’s 210,000unvested shares of restricted stock will vest as follows:

 
| **Vest Date**         | ** ** | **Shares** | ** ** |
|-----------------------|------------|------------|------------|
| June 8, 2010     |       | 52,500     |       |
| December 8, 2010 |       | 26,250     |       |
| June 8, 2011     |       | 26,250     |       |
| December 8, 2011 |       | 26,250     |       |
| June 8, 2012     |       | 26,250     |       |
| December 8, 2012 |       | 26,250     |       |
| June 8, 2013     |       | 26,250     |       |

 

Mr. Shanableh’s 140,375unvested shares of restricted stock will vest as follows:

 
| **Vest Date**           | ** ** | **Shares** | ** ** |
|-------------------------|------------|------------|------------|
| February 14, 2010  |       | 6,250      |       |
| February 15, 2010  |       | 3,125      |       |
| June 16, 2010      |       | 3,125      |       |
| August 14, 2010    |       | 6,250      |       |
| August 15, 2010    |       | 3,125      |       |
| September 15, 2010 |       | 33,250     |       |
| December 16, 2010  |       | 3,125      |       |
| February 15, 2011  |       | 3,125      |       |
| June 16, 2011      |       | 3,125      |       |
| September 15, 2011 |       | 66,500     |       |
| August 15, 2011    |       | 3,125      |       |
| December 16, 2011  |       | 3,125      |       |
| June 16, 2012      |       | 3,125      |       |

 

31

----

Table of Contents

 

Mr. Vishwanathan’s75,000 unvested shares of restricted stock will vest as follows:

 
| **Vest Date**          | ** ** | **Shares** | ** ** |
|------------------------|------------|------------|------------|
| August 3,  2010   |       | 18,750     |       |
| February 3,  2010 |       | 9,375      |       |
| August 3,  2011   |       | 9,375      |       |
| February 3, 2011  |       | 9,375      |       |
| August 3, 2012    |       | 9,375      |       |
| February 3, 2012  |       | 9,375      |       |
| August 3, 2013    |       | 9,375      |       |

 

(3)                                  In accordancewith SEC rules, the market value of unvested shares of restricted stock isdetermined by multiplying the number of such shares by $2.11, the closingmarket price of our common stock on December 31, 2009.

 

(4)                                  Mr. Gaynorwas entitled to three performance-based grants aggregating 100,000 shares ofour common stock, contingent upon the Company’s satisfaction of performanceconditions for the three years ending December 31, 2010, 2011 and2012.  As of December 31, 2009, theperformance conditions had not been defined and accordingly, the grants did notmeet the criteria for an award and are excluded from the table above.  Mr. Gaynor resigned from the Companyeffective February 8, 2010.

 

Mr. Shanableh isentitled to three performance-based grants aggregating 66,000 shares of ourcommon stock contingent upon the Company’s satisfaction of performanceconditions for the three years ended December 31, 2010, 2011 and2012.  As of December 31, 2009, theperformance conditions had not been defined and accordingly, the grants did notmeet the criteria for an award and are excluded from the table above.

 

(5)                                  Due to Mr. Gaynor’sresignation effective February 8, 2010, any remaining awards that wouldnot have vested prior to his resignation date did not vest and have beenforfeited.

 

*OptionExercises and Stock Vested.*  The following table summarizes for the NamedExecutive Officers in 2009: (i) the number of shares acquired uponexercise of stock options and the value realized; and (ii) the number ofshares acquired upon the vesting of restricted stock and the value realized,before payout of any applicable withholding tax:

 

**2009 OPTION EXERCISES AND STOCK VESTED**

 
| ** **            | ** ** | **Option  Awards**                               | ** ** | **Stock  Awards**                     | ** ** |
|-----------------------|------------|--------------------------------------------------|------------|---------------------------------------|------------|
| ** **            | ** ** | **Number of  Shares Acquired  on Exercise  (#)** | ** ** | **Value  Realized  on Exercise  ($)** | ** ** | **Number of  Shares Acquired  on Vesting  (#)(1)** | ** ** | **Value  Realized  on Vesting  ($)(2)** | ** ** |
| Richard N. Nottenburg |       | —                                           |       | $                                     | —     |   | 375,000 |   | $ | 765,000 |   |
| Richard J. Gaynor     |       | —                                           |       | $                                     | —     |   | 58,750 |   | $ | 121,644 |   |
| Jeffrey M. Snider     |       | —                                           |       | $                                     | —     |   | — |   | $ | — |   |
| Mohammed Shanableh    |       | —                                           |       | $                                     | —     |   | 61,375 |   | $ | 118,720 |   |
| Kumar Vishwanathan    |       | —                                           |       | $                                     | —     |   | — |   | $ | — |   |

 

----

(1)                                  Of Dr. Nottenburg’s375,000 shares that vested in 2009, 119,060 shares were returned to us tosatisfy the tax withholding obligation associated with the vesting of theshares.  Of Mr. Gaynor’s 58,750shares that vested in 2009, 18,653 shares were returned to us to satisfy thetax withholding obligation associated with the vesting of the shares.  Of Mr. Shanableh’s 61,375 shares thatvested in 2009, 20,187 shares were returned to us to satisfy the taxwithholding obligation associated with the vesting of the shares.

 

(2)                                  In accordancewith SEC rules, the aggregate dollar amount realized upon vesting of shares ofrestricted stock was determined by multiplying the number of shares by theclosing market price of our common stock on the date of vesting.

 

**POTENTIAL PAYMENTS UPON TERMINATION OR UPON CHANGE INCONTROL**

 

The table below showspotential payments to the Named Executive Officers with severance or change incontrol arrangements upon termination or upon a change in control of ourCompany.  The amounts shown assume thattermination and/or change in control was effective as of December 31,2009, the last day of our fiscal year, and are estimates of the amounts thatwould have been paid to or realized by the Named Executives Officers upon sucha termination or change in control.  The 

 

32

----

Table of Contents

 

actual amounts to be paid or realized canonly be determined at the time of a Named Executive Officer’s termination orfollowing a change in control.

 
| ** **            | ** ** | **Termination  without Cause or  for Good Reason(1)** | ** ** | **Change in  Control:  Stock Options  Assumed or  Substituted by  Acquiring  Company(2)** | ** ** | **Change in  Control:  Stock Options  Not Assumed or  Substituted by  Acquiring  Company(3)** | ** ** | **Termination  without Cause or  for Good Reason  following  Change  in Control** | ** ** |
|-----------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| Richard N. Nottenburg |       |                                                  |       |                                                                                      |       |                                                                                          |       |                                                                              |       |
| Cash Severance        |       | $                                                     | 1,350,000  |                                                                                      | $          | —                                                                                        |       | $                                                                                 | —     |   | $ | 1,750,000 |   |
| Stock Options         |       | 207,500                                               |       | 415,000                                                                                   |       | 415,000                                                                                       |       | 415,000                                                                           |       |
| Stock Awards(5)       |       | 1,318,750                                             |       | 1,318,750                                                                                 |       | 1,318,750                                                                                     |       | 1,318,750                                                                         |       |
| Health Benefits       |       | 26,763                                                |       | —                                                                                    |       | —                                                                                        |       | 26,763                                                                            |       |
|                  |       | $                                                     | 2,903,013  |                                                                                      | $          | 1,733,750                                                                                     |       | $                                                                                 | 1,733,750  |   | $ | 3,510,513 |   |
| Richard J. Gaynor(6)  |       |                                                  |       |                                                                                      |       |                                                                                          |       |                                                                              |       |
| Cash Severance        |       | $                                                     | 456,016    |                                                                                      | $          | —                                                                                        |       | $                                                                                 | —     |   | $ | 456,016 |   |
| Stock Options(4)      |       | —                                                |       | —                                                                                    |       | —                                                                                        |       | —                                                                            |       |
| Stock Awards(5)       |       | 353,425                                               |       | 353,425                                                                                   |       | 353,425                                                                                       |       | 353,425                                                                           |       |
| Health Benefits       |       | 13,462                                                |       | —                                                                                    |       | —                                                                                        |       | 13,462                                                                            |       |
|                  |       | $                                                     | 822,903    |                                                                                      | $          | 353,425                                                                                       |       | $                                                                                 | 353,425    |   | $ | 822,903 |   |
| Jeffrey M. Snider     |       |                                                  |       |                                                                                      |       |                                                                                          |       |                                                                              |       |
| Cash Severance        |       | $                                                     | 427,500    |                                                                                      | $          | —                                                                                        |       | $                                                                                 | —     |   | $ | 427,500 |   |
| Stock Options         |       | 13,388                                                |       | 35,700                                                                                    |       | 35,700                                                                                        |       | 35,700                                                                            |       |
| Stock Awards(5)       |       | 443,100                                               |       | 443,100                                                                                   |       | 443,100                                                                                       |       | 443,100                                                                           |       |
| Health Benefits       |       | 13,462                                                |       | —                                                                                    |       | —                                                                                        |       | 13,462                                                                            |       |
|                  |       | $                                                     | 897,450    |                                                                                      | $          | 478,800                                                                                       |       | $                                                                                 | 478,800    |   | $ | 919,762 |   |
| Mohammed Shanableh    |       |                                                  |       |                                                                                      |       |                                                                                          |       |                                                                              |       |
| Cash Severance        |       | $                                                     | 645,750    |                                                                                      | $          | —                                                                                        |       | $                                                                                 | —     |   | $ | 645,750 |   |
| Stock Options(4)      |       | —                                                |       | —                                                                                    |       | —                                                                                        |       | —                                                                            |       |
| Stock Awards(5)       |       | 296,192                                               |       | 296,192                                                                                   |       | 296,192                                                                                       |       | 296,192                                                                           |       |
| Health Benefits       |       | 13,462                                                |       | —                                                                                    |       | —                                                                                        |       | 13,462                                                                            |       |
|                  |       | $                                                     | 955,404    |                                                                                      | $          | 296,192                                                                                       |       | $                                                                                 | 296,192    |   | $ | 955,404 |   |
| Kumar Vishwanathan    |       |                                                  |       |                                                                                      |       |                                                                                          |       |                                                                              |       |
| Cash Severance        |       | $                                                     | 146,250    |                                                                                      | $          | —                                                                                        |       | $                                                                                 | —     |   | $ | 146,250 |   |
| Stock Options         |       | —                                                |       | 55,500                                                                                    |       | 55,500                                                                                        |       | —                                                                            |       |
| Stock Awards(5)       |       | 158,250                                               |       | 39,563                                                                                    |       | 39,563                                                                                        |       | 158,250                                                                           |       |
| Health Benefits       |       | 6,731                                                 |       | —                                                                                    |       | —                                                                                        |       | 6,731                                                                             |       |
|                  |       | $                                                     | 311,231    |                                                                                      | $          | 95,063                                                                                        |       | $                                                                                 | 95,063     |   | $ | 311,231 |   |

 

----

(1)                                  Assumesemployment termination without a change in control.

 

(2)                                  If an acquiringcompany assumes or substitutes the stock options, under Sonus’ stock incentiveplans the number of shares subject to the option that are not then vested shallaccelerate in vesting by 12 months upon the closing of such acquisition.  In addition, 25% of the unvested shares ofrestricted stock shall become vested.

 

(3)                                  If an acquiringcompany does not assume or substitute the stock options, under Sonus’ stockincentive plans the number of shares subject to the option that are not thenvested shall accelerate in full and become immediately exercisable upon theclosing of such acquisition.  Inaddition, 25% of the shares of unvested restricted stock shall become vested.

 

(4)                                  Stock optionsheld by Mr. Gaynor and Mr. Shanableh were out of the money on December 31,2009.  Accordingly, there would be nogain realized at December 31, 2009 related to the accelerated vesting oftheir stock options.

 

(5)                                  The value of shares ofrestricted stock was calculated by multiplying the number of shares ofrestricted stock by $2.11, the closing market price of our common stock on December 31,2009.

 

33

----

Tableof Contents

 

(6)           Mr. Gaynor resignedfrom the Company in February 2010 and was not eligible to receive, and didnot receive, any payment pursuant to his severance or change in controlarrangements.  However, the amounts shownare estimates of what Mr. Gaynor would have been paid or realized upontermination or upon a change in control of our company, effective December 31,2009.

 

***Employment, Severance and Change of Control Arrangements***

 

In addition to compensationdesigned to reward employees and executives for service and performance, wehave approved certain severance and change of control provisions for Mr. Gaynorand Mr. Shanablah.

 

Executive retention andseverance agreements encourage executives to remain in our employ and tocontinue to devote their full attention to our success and provide enhancedfinancial security and incentive to the executives. In order to recruit andretain executives, we believed it was appropriate and necessary to provideassurance of certain severance payments if we terminated an executive’semployment without cause or if the executive terminated his or her employmentfor good reason. Sonus competes in a challenging market environment with largercompetitors which can provide greater cash incentives to executives. Inaddition, smaller private competitors can offer greater equity growthpotential.

 

On August 31, 2007,Richard J. Gaynor entered into an employment agreement with us, under which hebecame Chief Financial Officer as of October 1, 2007. In 2008, Mr. Gaynorreceived an initial annual base salary of $285,000. Pursuant to the terms ofhis employment agreement, Mr. Gaynor received an option to purchase350,000 shares of our common stock at an exercise price equal to the closingprice of our common stock on the NASDAQ Stock Market on October 15, 2007.25% of the shares subject to the option vested on the first anniversary of hiscommencement date. Subject to his continued employment, the remaining 75% vestsin equal monthly increments through the fourth anniversary of his commencementdate. Mr. Gaynor also received 35,000 shares of restricted stock, 25% ofwhich vested on the first anniversary of his commencement date with theremaining 75% vesting in equal increments semi-annually through the fourthanniversary of his commencement date.

 

The employment agreementprovides that if Mr. Gaynor’s employment is terminated following anacquisition of our company for any reason other than Cause (as defined in theagreement) or if he is not offered an equivalent position in the combinedentity, he will be eligible to receive the following severance and relatedpost-termination benefits: (i) 12 months salary continuation paymentsof his annual base salary; (ii) 12 months health benefitscontinuation; and (iii) 100% of all unvested options and restricted stockin his New Hire Grant shall immediately become vested and exercisable, subjectto his serving through a six month transition period, if requested.

 

Mr. Gaynor resigned asChief Financial Officer, effective February 8, 2010.  As a result, all unvested equity-based awardsas of this date were forfeited. Additionally, Mr. Gaynor was not entitled to receive, and did notreceive, any severance payments from the Company as a result of hisresignation.

 

On May 16, 2008, Dr. RichardN. Nottenburg entered into an employment agreement with us to commenceemployment no later than June 14, 2008 as Sonus’ President and ChiefExecutive Officer. Dr. Nottenburg also joined our Board. Pursuant to hisemployment agreement, Dr. Nottenburg received an initial annual basesalary of $500,000 and he is eligible for an “on target bonus” of at least 80%of his annual base salary subject to the achievement of specific objectives.For fiscal year 2008, Dr. Nottenburg was guaranteed a bonus of 80% of hisbase salary pro rated for the days in 2008 he was employed by us. We reimbursedDr. Nottenburg for relocation costs up to $25,000. Dr. Nottenburgalso received an option to purchase 500,000 shares of our common stock at anexercise price equal to the closing price of our common stock on the NASDAQStock Market on the date of grant. Pursuant to his employment agreement, on January 15,2009, Dr. Nottenburg received an option to purchase an additional 500,000shares of our common stock at an exercise price equal to the closing price ofour common stock on the NASDAQ Stock Market on the date of grant. Each of theforegoing grants are subject to vesting. Dr. Nottenburg will be entitledto two performance stock grants of 250,000 shares each upon our achievingcertain performance metrics between January 1, 2010 and December 31,2012 as approved by the Compensation Committee.

 

In the event of anAcquisition (as defined in Dr. Nottenburg’s employment agreement), 100% ofall unvested options and restricted stock shall accelerate and become vested.In addition, the options shall remain exercisable for the shorter of five yearsfrom the date of Acquisition or the original remaining life of the options. Dr. Nottenburg’semployment agreement also provides that if he is terminated for any reasonother than Cause (as defined in his employment agreement), or is terminated dueto his death or disability or if Dr. Nottenburg terminates his employmentwith Good Reason (as defined in his employment agreement), he will receive: (1) alump sum payment equal to one and one half times his then annual base salaryand one and a half times his then target bonus (or two and a half times histarget bonus if the termination follows an Acquisition); (2) healthbenefits continuation at our expense for 18 months following histermination; (3) acceleration of the vesting of options unvested as of thetermination which would have vested over the 24 months following termination;(4) the right to exercise all 

 

34

----

Table of Contents

 

vested options for the shorter of5 years from the termination date or the original remaining life of theoptions; and (5) accelerated vesting of all unvested restricted shares atthe time of termination.

 

On October 2, 2008,Mohammed Shanableh entered into an employment agreement with us to continue toserve as our Vice President, Worldwide Sales. Pursuant to his employment agreement, on November 15, 2008, Mr. Shanablehwas granted 133,000 shares of our common stock. This grant is subject to vesting. In addition to such grant, Mr. Shanablehwill be entitled to one performance stock grant of 66,000 shares upon ourachieving certain performance metrics for the three fiscal years ending December 31,2010, 2011 and 2012, as determined by the Compensation Committee.

 

In the event of a Change ofControl (as defined in Mr. Shanableh’s employment agreement), 100% of allunvested options and restricted stock shall accelerate and become vested andexercisable. Mr. Shanableh’s employment agreement also provides that if heis terminated for any reason other than Cause (as defined in his employmentagreement) or if Mr. Shanablah terminates his employment for Good Reason(as defined in his employment agreement), he will receive: (1) a lump sumpayment equal to his then annual base salary and his then target annual bonus,less applicable state and federal withholdings; (2) health benefitscontinuation at our expense for 12 months following his termination; (3) anyallowable unreimbursed expenses and any accrued but unused vacation pay owingto him at the time of termination; (4) acceleration of the vesting ofoptions unvested as of the termination which would have vested over the12 months following termination; (5) the right to exercise all vestedoptions for the shorter of 3 years from the termination date or theoriginal remaining life of the options; and (6) accelerated vesting of allunvested restricted shares at the time of termination.

 

On June 1, 2009,Jeffrey M. Snider entered into an employment agreement with us to commenceemployment no later than June 22, 2009 as our Senior Vice President andGeneral Counsel.  Pursuant to hisemployment agreement, Mr. Snider received an initial annual base salary of$285,000 and he is eligible for a target bonus of 50% of his annual base salarysubject to the achievement of specific objectives. For fiscal year 2009, Mr. Sniderwas guaranteed a bonus of 50% of his base salary pro rated for the days in 2009he was employed by us. Mr. Snider also received an option to purchase210,000 shares of our common stock at an exercise price equal to the closing priceof our common stock on the NASDAQ Stock Market on the date of grant.  Pursuant to his employment agreement, on June 15,2009, Mr. Snider was granted 210,000 restricted shares of our commonstock.  Each of the foregoing grants issubject to vesting.

 

In the event of a Change ofControl (as defined in Mr. Snider’s employment agreement), 100% of allunvested options and restricted stock shall accelerate and become vested. Mr. Snider’semployment agreement also provides that if he is terminated for any reasonother than Cause (as defined in his employment agreement) or if Mr. Sniderterminates his employment for Good Reason (as defined in his employmentagreement), he will receive: (1) a lump sum payment equal to one times histhen annual base salary and one times his then target bonus, less applicablestate and federal withholdings; (2) health benefits continuation at ourexpense for 12 months following his termination; (3) any allowableunreimbursed expenses and any accrued but unused vacation pay owing to him atthe time of termination; (4) acceleration of the vesting of optionsunvested as of the termination which would have vested over the 12 monthsfollowing termination; (5) the right to exercise all vested options forthe shorter of 3 years from the termination date or the original remaininglife of the options; and (6) accelerated vesting of all unvestedrestricted shares at the time of termination.

 

On July 6, 2009, KumarVishwanathan entered into an employment agreement with us to commenceemployment no later than August 3, 2009 as Sonus’ Vice President and ChiefArchitect. Pursuant to his employment agreement, Mr. Vishwanathan receivedan initial annual base salary of $195,000 and he is eligible for a target bonusof 50% of his annual base salary subject to the achievement of specificobjectives. For fiscal year 2009, Mr. Vishwanathan’s target bonus was prorated for the days in 2009 he was employed by us. Mr. Vishwanathan alsoreceived an option to purchase 150,000 shares of our common stock at an exerciseprice equal to the closing price of our common stock on the NASDAQ Stock Marketon the date of grant.  Pursuant to hisemployment agreement, on July 15, 2009, Mr. Vishwanathan was granted75,000 restricted shares of our common stock. Each of the foregoing grants is subject to vesting.  Mr. Vishwanathan is entitled to receive twoperformance-based stock awards of 25,000 shares of common stock each upon thesatisfaction of certain individual performance conditions for each of the twoyears ending December 31, 2010 and 2011.

 

Mr. Vishwanathan’semployment agreement also provides that if he is terminated for any reasonother than Cause (as defined in his employment agreement) or if Mr. Vishwanathanterminates his employment for Good Reason (as defined in his employmentagreement), he will receive: (1) a lump sum payment equal to six months ofhis then annual base salary and 50% of his then target bonus, less applicablestate and federal withholdings; (2) health benefits continuation at ourexpense for six months following his termination; (3) any allowableunreimbursed expenses and any accrued but unused vacation pay owing to him atthe time of termination; (4) acceleration of the vesting of optionsunvested as of the termination which would have vested over the six monthsfollowing termination; (5) the right to exercise all vested options forthe shorter of 3 years from 

 

35

----

Table of Contents

 

the termination date or the originalremaining life of the options; and (6) accelerated vesting of all unvestedrestricted shares at the time of termination.

 

On October 3, 2008, theCompensation Committee of our Board approved a severance and retention programand agreement for each of Richard J. Gaynor and Mohammed Shanableh (each anExecutive). The severance program and agreement provide for post-terminationbenefits in the event an Executive’s employment is terminated by us withoutCause (as defined in their respective agreement) or is terminated by theExecutive for Good Reason (as defined in their respective agreement). Thepost-termination benefits include: (1) a lump sum payment equal to theExecutive’s annual base salary and target bonus; (2) continuation ofpayment of our share of benefits for 12 months; (3) payment ofunreimbursed expenses and any accrued but unused vacation pay; (4) 12-monthsforward vesting of unvested options; and (5) complete vesting of unvestedrestricted stock. Pursuant to the program and agreement, we will grant eachExecutive: (1) certain restricted shares of our common stock $0.001 parvalue per share, or Restricted Stock, under the 2007 Plan, subject to the termsof the 2007 Plan and our restricted stock agreement, which Restricted Stockshall vest 25% on September 15, 2009, 25% on September 15, 2010 and50% on September 15, 2011, subject to continued employment by theExecutive; and (2) additional Restricted Stock upon the achievement ofcertain performance metrics for the 2010, 2011 and 2012 fiscal years asdetermined by the Compensation Committee of our Board, or Performance Stock,with the Executive eligible to be granted 1/3 of such Performance Stock duringeach of such fiscal years, and when issued, such Performance Stock shall befully vested on the date of grant. In the event of a change in control (asdefined in their respective agreement), 100% of all Restricted Stock granted toan Executive shall accelerate and become fully vested and any and all restrictionson such Restricted Stock shall be terminated.

 

The number of sharesgranted, or eligible for granting, as applicable, to each Executive under theseverance and retention program is set forth as follows:

 
| **Name**           | ** ** | **Title**                         | ** ** | **Restricted  Stock** | ** ** | **Performance  Stock** | ** ** |
|--------------------|------------|-----------------------------------|------------|-----------------------|------------|------------------------|------------|
| Richard J. Gaynor  |       | Former Chief Financial Officer    |       | 200,000               |       | 100,000                |       |
| Mohammed Shanableh |       | Vice President of Worldwide Sales |       | 133,000               |       | 66,000                 |       |

 

Generally, for eachemployee, in the event of an Acquisition in which an option is assumed orsubstituted in the Acquisition, then the number of shares subject to the optionthat are not then vested shall become accelerated in vesting by 12 monthsupon the closing of the Acquisition. If an option is not assumed orsubstituted, then the number of shares that are not then vested shallaccelerate in full and become immediately exercisable. In addition, 25% of thenumber of shares covered by a restricted stock award shall become vested.

 

***Indemnification Agreements***

 

Certain of our current andformer officers and directors are parties to legal proceedings because of theirstatus as officers and directors. We have generally entered intoindemnification agreements with our officers and directors and we may be liablefor judgments, fines and expenses in connection with such proceedings, which,in the aggregate, may be material. We are paying legal fees for counselrepresenting our officers and directors in connection with such proceedings.

 

***Compensation Committee Interlocks and Insider Participation***

 

No interlocking relationshipexists between any member of our Board or our Compensation Committee and anymember of our Board or Compensation Committee of any other company, and none ofthese interlocking relationships have existed in the past.

 

**Item 12. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters**

 

**Equity Compensation Plan Information**

 

The following table providesinformation as of December 31, 2009 with respect to the shares of ourcommon stock that may be issued under our existing equity compensation plans:

 

36

----

Table ofContents

 
| ** **                                              | ** ** | **(A)**                                                                                             | ** ** | **(B)**                                                                             | ** ** | **(C)**                                                                                                                                              | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan Category**                                       | ** ** | **Number of  Securities to  be Issued upon Exercise  of Outstanding Options,  Warrants and Rights** | ** ** | **Weighted  Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | ** ** | **Number of  Securities  Remaining Available for  Future Issuance Under  Equity Compensation  Plans (Excluding  Securities Reflected in  Column A)** | ** ** |
| Equity Compensation Plans  Approved by Stockholders(1)  |       | 24,081,565                                                                                          | (2)        | $                                                                                   | 4.90       |                                                                                                                                                 | 20,428,679 | (3) |
| Equity compensation Plans  Not Approved by Stockholders |       | —                                                                                              |       | —                                                                              |       | —                                                                                                                                               |       |
| Total                                                   |       | 24,081,565                                                                                          |       | $                                                                                   | 4.90       |                                                                                                                                                 | 20,428,679 |   |

 

----

(1)           Consists of the 2007 Planand the 2000 Employee Stock Purchase Plan, as amended, or the ESPP.

 

(2)           Excludes purchase rightsaccruing under the ESPP.  The purchaseprice of the stock under the ESPP is equal to 85% of the market price on thelast day of the offering period.  Participationis limited to 20% of an employee’s eligible compensation, not to exceed amountsallowed by the Internal Revenue Code.

 

(3)           Consists of shares available for future issuanceunder the 2007 Plan and the ESPP.  As of December 31,2009, 5,971,479 shares of common stock were available for issuance under the2007 Plan; and 14,457,200 shares of common stock were available for issuanceunder the ESPP. The ESPP incorporates an evergreen provision pursuant to which,on January 1 of each year, the aggregate number of shares reserved forissuance under the ESPP automatically increases by a number equal to the lesserof (i) 2% of the total number of shares of common stock outstanding on December 31of the preceding year, or (ii) such number as our Board may determine.However, not more than an aggregate of 25,000,000 shares of common stock may beissued pursuant to the ESPP.

** **

**Beneficial Ownership Of Our Common Stock**

 

The following table setsforth information regarding beneficial ownership of our common stock as of March 31,2010 by:

 

·      each person who beneficiallyowns, to the best of our knowledge, more than 5% of the outstanding shares ofour common stock;

 

·      each of our executiveofficers, including our Named Executive Officers (as defined in the SummaryCompensation Table below);

 

·      each of our directors; and

 

·      all of our executiveofficers, including our Named Executive Officers and directors as a group.

 

Beneficial ownership isdetermined in accordance with the rules of the SEC, and includes voting orinvestment power with respect to shares. In computing the number of sharesbeneficially owned by each person named in the following table and thepercentage ownership of that person, shares of common stock that are subject tostock options held by that person that are currently exercisable or exercisablewithin 60 days of March 31, 2010 are deemed owned by that person andare also deemed outstanding. These shares are not, however, deemed outstandingfor purposes of computing the percentage ownership of any other person.

 

Unless otherwise indicatedbelow, to our knowledge, all persons named in the table have sole voting andinvestment power with respect to their shares of common stock, except to theextent authority is shared by spouses under applicable law. The percentage ofcommon stock outstanding as of March 31, 2010 is based upon 275,006,930 shares of common stockoutstanding on that date plus shares subject to options to the extent notedabove.

 

37

----

Table ofContents

 
| **Name of Beneficial Owner**                                                                                         | ** ** | **Number of  Shares  Beneficially Owned** | ** ** | **Percentage  Outstanding** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------|------------|
| **Executive  Officers:**                                                                                             |       |                                      |       |                        |       |
| Richard N. Nottenburg(1)                                                                                             |       | 1,360,106                                 |       | *                           |       |
| Richard J. Gaynor(2)                                                                                                 |       | —                                    |       | *                           |       |
| Jeffrey M. Snider(3)                                                                                                 |       | 210,000                                   |       | *                           |       |
| Mohammed Shanableh(4)+                                                                                               |       | 611,008                                   |       | *                           |       |
| Kumar Vishwanathan(5)                                                                                                |       | 90,513                                    |       | *                           |       |
| Gurudutt Pai(6)                                                                                                      |       | 557,438                                   |       | *                           |       |
| Wayne Pastore(7)                                                                                                     |       | 80,801                                    |       | *                           |       |
| Kathy Harris(8)                                                                                                      |       | 101,520                                   |       | *                           |       |
| Gale England(9)                                                                                                      |       | 222,605                                   |       | *                           |       |
| Matt Dillon(10)                                                                                                      |       | 783,572                                   |       | *                           |       |
| **Non-Employee  Directors:**                                                                                         |       |                                      |       |                        |       |
| James K. Brewington(11)                                                                                              |       | 12,500                                    |       | *                           |       |
| John P. Cunningham(12)                                                                                               |       | 94,167                                    |       | *                           |       |
| Beatriz V. Infante                                                                                                   |       | —                                    |       | *                           |       |
| Howard E. Janzen(13)                                                                                                 |       | 74,167                                    |       | *                           |       |
| John A. Schofield(14)                                                                                                |       | 15,625                                    |       | *                           |       |
| Scott E. Schubert(15)                                                                                                |       | 14,583                                    |       | *                           |       |
| Paul J. Severino(16)+                                                                                                |       | 588,739                                   |       | *                           |       |
| H. Brian Thompson(17)                                                                                                |       | 127,188                                   |       | *                           |       |
| All executive officers,  including our Named Executive Officers, and directors as a group (18  persons)(18)          |       | 4,944,532                                 |       | 1.80                        | %          |
| **5%  Owners:**                                                                                                      |       |                                      |       |                        |       |
| Senate Limited  (Trustee)—P.O. Box 71082, Dubai, United Arab Emirates(19)                             |       | 67,295,079                                |       | 24.47                       | %          |
| FMR LLC—82 Devonshire  Street, Boston, MA 02109(20)                                                             |       | 1,189,083                                 |       | *                           |       |
| T. Rowe Price  Associates, Inc.—100 E. Pratt Street, Baltimore, MD 21202(21)                               |       | 11,770,400                                |       | 4.28                        | %          |
| Brookside Capital Trading  Fund, L.P. —c/o Brookside Capital, LLC, 111 Huntington Avenue, Boston, MA  02199(22) |       | 16,740,956                                |       | 6.09                        | %          |

 

----

*              Less than 1% of theoutstanding shares of common stock.

 

+              The executive officer ordirector has implemented a Rule 10b5-1 trading plan under which shares ofour common stock may be sold from time to time.

 

(1)           Includes 479,166 sharessubject to outstanding options that are exercisable as of May 30, 2010,and 625,000 shares of restricted stock subject to vesting.

 

(2)           Mr. Gaynor resigned asour Chief Financial Officer, effective February 8, 2010.

 

(3)           Shares are restricted stocksubject to vesting.

 

(4)           Includes 411,771 sharessubject to outstanding options that are exercisable as of May 30, 2010,and 131,000 shares of restricted stock subject to vesting.

 

(5)           Includes 75,000 shares ofrestricted stock subject to vesting.

 

(6)           Includes 106,250 sharessubject to outstanding options that are exercisable as of May 30, 2010,and 400,000 shares of restricted stock subject to vesting.

 

(7)           Includes 56,250 sharessubject to outstanding options that are exercisable as of May 30, 2010,and 20,000 shares of restricted stock subject to vesting.

 

(8)           Includes 70,833 sharessubject to outstanding options that are exercisable as of May 30, 2010,and 24,999 shares of restricted stock subject to vesting.

 

(9)           Includes 176,625 sharessubject to outstanding options that are exercisable as of May 30, 2010,and 30,624 shares of restricted stock subject to vesting.

 

(10)         Includes 671,250 sharessubject to outstanding options that are exercisable as of May 30, 2010,and 109,125 shares of restricted stock subject to vesting.

 

38

----

Table of Contents

 

(11)         Includes 12,500 sharessubject to outstanding options that are exercisable as of May 30, 2010.

 

(12)         Includes 94,167 sharessubject to outstanding options that are exercisable as of May 30, 2010.

 

(13)         Includes 74,167 sharessubject to outstanding options that are exercisable as of May 30, 2010.

 

(14)         Includes 15,625 sharessubject to outstanding options that are exercisable as of May 30, 2010.

 

(15)         Includes 14,583 sharessubject to outstanding options that are exercisable as of May 30, 2010.

 

(16)         Includes 84,167 sharessubject to outstanding options that are exercisable as of May 30, 2010.

 

(17)         Includes 107,188 sharessubject to outstanding options that are exercisable as of May 30, 2010.

 

(18)         Includes 2,374,542 sharessubject to outstanding options that are exercisable as of May 30, 2010,1,625,748 shares of restricted stock subject to vesting owned by all of ourexecutive officers, including our Named Executive Officers, and currentdirectors, and 224****shares pledgedas security, including shares held by brokers in margin loan accounts, whetheror not there are loans outstanding. With the exception of Mr. Gaynor, eachof our directors and executive officers may be reached at 7 Technology Drive,Westford, Massachusetts 01886. Mr. Gaynor is a Named Executive Officer forpurposes of the 2009 Summary Compensation Table and the accompanying tabularand narrative disclosure set forth below. However, he resigned as Chief Financial Officer of our company as of February 8,2010.  Therefore, as of March 31,2010, Mr. Gaynor was no longer an executive officer of the Company.

 

(19)         According to a Schedule 13D/A No. 10 filedwith the SEC on January 15, 2010, reporting the beneficial ownership of67,295,079 shares of our common stock, each of Galahad Securities Limited,Legatum Capital Limited, Legatum Global Holdings Limited, Legatum GlobalInvestment Limited and Senate Limited (acting on behalf of a trust formed underthe laws of The Cayman Islands as of July 1, 1996) reports sole votingpower and sole dispositive power of the 67,295,079 shares.

 

(20)         According to a Schedule 13G/A No. 8 filedwith the SEC on July 10, 2010, reporting the beneficial ownership of1,189,083 shares of our common stock, FMR reports sole dispositive power of the1,189,083 shares.  Pursuant to suchSchedule 13G/A No. 8, (i) Fidelity Management & ResearchCompany, or Fidelity, a wholly-owned subsidiary of FMR LLC and an investmentadviser registered under Section 203 of the Investment Advisors Act of1940, is the beneficial owner of 1,183,683 shares of common stock; (ii) membersof the family of Edward C. Johnson 3d, Chairman of FMR LLC, are the predominantowners, directly or through trusts, of Series B voting common shares ofFMR LLC, representing 49% of the voting power of FMR LLC; (iii) Edward C.Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each hassole power to dispose of the 1,183,683 shares owned by the funds; (iv) neitherFMR LLC nor Edward C. Johnson 3d has the sole power to vote or direct thevoting of the shares owned directly by the Fidelity funds, which power resideswith the funds’ Board of Trustees; (v) Pyramis Global Advisors TrustCompany, an indirect wholly-owned subsidiary of FMR LLC and a bank as definedunder the Securities Exchange Act of 1934, as amended, is the beneficial ownerof 5,400 shares of our common stock as a result of its serving as investmentmanager of institutional accounts owning such shares; and (vi) Edward C.Johnson 3d and FMR, LLC, through its control of Pyramis Global Advisors TrustCompany, each has sole dispositive power over 5,400 shares and sole power tovote or to direct the voting of 0 shares of our common stock owned by theinstitutional accounts managed by Pyramis Global Advisors Trust Company

 

(21)         According to a Schedule 13G/A No. 1 filed onFebruary 12, 2010, reporting the beneficial ownership of 11,770,400 sharesof our common stock, T. Rowe Price Associates, Inc. reports soledispositive power of the 11,770,400 shares and sole voting power over 3,304,400shares.  These shares of common stock,however, are owned by various individual and institutional investors, which T.Rowe Price Associates, Inc. serves as investment adviser with power todirect investments and/or sole power to vote the securities.  For purposes of the reporting requirements ofthe Securities Exchange Act of 1934, as amended, T. Rowe Price Associates, Inc.is deemed to be a beneficial owner of such securities; however, T. Rowe PriceAssociates, Inc. expressly disclaims that it is, in fact, the beneficialowner of such securities.

 

39

----

Table of Contents

 

(22)         According to a Schedule 13G/A No. 1 filed on February 16,2010, reporting the beneficial ownership of 16,740,956 shares of our commonstock, Brookside Capital Trading Fund, L.P. reports sole voting power and soledispositive power of the 16,740,956 shares.

 

**Item 13. Certain Relationships and Related Transactions, and DirectorIndependence**

 

**Transactions With Related Persons**

 

Our Board has adoptedwritten policies and procedures for the review of any transaction, arrangementor relationship in which we are a participant, the amount involved exceeds$120,000, and one of our executives, directors, director nominees or 5% stockholders(or their immediate family members), each of whom we refer to as “relatedperson,” has a direct or indirect material interest.

 

If a related person proposesto enter into such a transaction, arrangement or relationship, which we referto as a “related person transaction,” the related person must report theproposed related person transaction to the General Counsel. The policy callsfor the proposed related person transaction to be reviewed and, if deemedappropriate, approved by the Audit Committee. Whenever practicable, thereporting, review and approval will occur prior to entry into the transaction.If the General Counsel determines that advance review and approval is notpracticable under the circumstances, the Audit Committee will review and, in itsdiscretion, may ratify the related person transaction at the next meeting ofthe Audit Committee. The policy also permits the Chairman of the AuditCommittee to review and, if deemed appropriate, approve related persontransactions that arise between Audit Committee meetings, subject toratification by the Committee at its next meeting. Any related persontransactions that are ongoing in nature will be reviewed annually.

 

A related person transactionreviewed under the policy will be considered approved or ratified if it isauthorized by the Committee after full disclosure of the related person’sinterest in the transaction. As appropriate for the circumstances, theCommittee will review and consider:

 

·      the related person’sinterest in the related person transaction;

 

·      the approximate dollar valueof the amount involved in the related person transaction;

 

·      the approximate dollar valueof the amount of the related person’s interest in the transaction withoutregard to the amount of any profit or loss;

 

·      whether the transaction wasundertaken in the ordinary course of our business;

 

·      whether the transaction withthe related person is proposed to be, or was, entered into on terms no lessfavorable to us than terms that could have been reached with an unrelated thirdparty;

 

·      the purpose of, and thepotential benefits to us of, the transaction; and

 

·      any other informationregarding the related person transaction or the related person in the contextof the proposed transaction that would be material to investors in light of thecircumstances of the particular transaction.

 

The Audit Committee mayapprove or ratify the transaction only if the Audit Committee determines that,under all of the circumstances, the transaction is in our best interests. TheAudit Committee may impose any conditions on the Company or the related partythat it deems appropriate in connection with approval of the related partytransaction.

 

In addition to thetransactions that are excluded by the instructions to the SEC’s related persontransaction disclosure rule, our Board has determined that the followingtransactions do not create a material direct or indirect interest on behalf ofrelated persons and, therefore, are not related person transactions for thepurposes of our related person transaction policy:

 

·      transactions for which therelated person’s interest arises solely from the related person’s position asan executive officer of another entity (whether or not the person is also adirector of such entity) that is a participant in the transaction where (a) therelated person and all other related persons own in the aggregate less than a10% equity interest in such entity, (b) the related person and his or herimmediate family members are not involved in the negotiation of the terms ofthe transaction and do not receive any special benefits as a result of thetransaction, and 

 

40

----

Table of Contents

 

(c) theamount involved in the transaction equals less than the greater of $200,000 or5% of the annual consolidated gross revenues of the other entity that is aparty to the transaction; and

 

·      transactions that arespecifically contemplated by provisions of our charter or our amended and restatedby-laws.

 

Our related persontransaction policy provides that transactions involving compensation ofexecutive officers shall be reviewed and approved by the Compensation Committeein the manner specified in its charter. The Company is not aware of any transactions entered into since theadoption of this policy that did not follow the procedures outlined in thepolicy.

 

Our President and Chief Executive Officer serves onthe Board of Directors of Comverse Technology Corp., or Comverse, a worldwide providerof software and systems. Comverse has several majority-owned subsidiaries,including Ulticom, Inc. and Verint Systems. All three companies arevendors of the Company. The Company had well-established and ongoing businessrelationships with these vendors prior to the appointment of Dr. Nottenburgas the Company’s President and Chief Executive Officer, effective June 13,2008. Costs incurred for purchases from these companies, in the aggregate, were$6.5 million for the year ended December 31, 2009 and$3.5 million for the period from June 13, 2008 through December 31,2008. At December 31, 2009 and 2008, the Company had aggregate outstandingaccounts payable balances of $0.2 million and $0.5 million,respectively, to these companies.  While Dr. Nottenburgis paid as a director of Comverse, he did not have any direct monetary interestin the transactions discussed above.

 

The Company is not aware of any other transactions in2009 between the Company and any other related persons that would require reviewby the Compensation Committee.

 

**Item 14. Principal Accounting Fees and Services**

** **

**FEES FOR INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRMS DURING**

**FISCAL YEARS ENDED DECEMBER 31, 2009 AND 2008**

 

The following is a summaryof the aggregate fees billed to us by Deloitte & Touche LLP, ourindependent registered public accounting firm, for the fiscal years ended December 31,2009 and 2008 for each of the following categories of professional services:

 
| **Fee Category**   | ** ** | **Fiscal 2009  Fees** | ** ** | **Fiscal 2008  Fees** | ** ** |
|--------------------|------------|-----------------------|------------|-----------------------|------------|
| Audit Fees         |       | $                     | 2,711,480  |                  | $          | 4,344,091 |   |
| Audit-Related Fees |       | 912,248               |       | 20,850                |       |
| Tax Fees           |       | 386,945               |       | 635,951               |       |
| All Other Fees     |       | 10,000                |       | 18,000                |       |
| Total Fees         |       | $                     | 4,020,673  |                  | $          | 5,018,892 |   |

 

The following is a summaryof the aggregate fees billed to us by Ernst & Young LLP, our formerindependent registered public accounting firm, for the fiscal years ended December 31,2009 and 2008.

 
| **Fee Category**   | ** ** | **Fiscal 2009  Fees** | ** ** | **Fiscal 2008  Fees** | ** ** |
|--------------------|------------|-----------------------|------------|-----------------------|------------|
| Audit Fees         |       | $                     | —     |                  | $          | — |   |
| Audit-Related Fees |       | —                |       | 19,814                |       |
| Tax Fees           |       | —                |       | —                |       |
| All Other Fees     |       | —                |       | —                |       |
| Total Fees         |       | $                     | —     |                  | $          | 19,814 |   |

 

**Audit Fees**

 

Audit fees consist ofprofessional services rendered for the audit of our consolidated financialstatements included in our Annual Report on Form 10-K and review of theinterim condensed consolidated financial statements included in our QuarterlyReports on Form 10-Q, and the audit of the effectiveness of internalcontrol over financial reporting.

 

**Audit-Related Fees**

 

Audit-related fees consistof fees related to due diligence services and accounting consultations regardingthe application of generally accepted accounting principles to proposedtransactions.

 

41

----

Table of Contents

 

**Tax Fees**

 

Tax fees consist ofprofessional services for tax compliance, tax advice and tax planning. Theseservices include assistance regarding federal, state and international taxcompliance, value-added tax compliance, research and development tax creditcompliance, and transfer pricing advice and planning.

 

**All Other Fees**

 

All other fees consist ofprofessional services other than the services reported above, including feesfor our subscription to Deloitte & Touche LLP’s on-line accountingresearch tool.

 

**Policy On Audit Committee Pre-Approval Of Audit AndNon-Audit Services**

 

The Audit Committee hasadopted a policy to pre-approve audit and permissible non-audit servicesprovided by our independent registered public accounting firm. These servicesmay include audit services, audit-related services, tax services and otherservices. Prior to engagement of the independent registered public accountingfirm for the next year’s audit, the independent registered public accountingfirm and our management submit an aggregate of services expected to be renderedduring that year for each of the four categories of services to the AuditCommittee for approval. Pre-approval is generally provided for up to one yearand any pre-approval is detailed as to the particular service or category ofservices. The independent registered public accounting firm and our managementperiodically report to the Audit Committee regarding the extent of servicesprovided by the independent registered public accounting firm in accordancewith this pre-approval process. The Audit Committee may also pre-approveparticular services on a case-by-case basis. The Audit Committee may ratify,without prior approval, certain *de minimis*non-audit services if the aggregate amount of all such non-audit servicesprovided to us constitutes not more than $5,000 during the fiscal year in whichthe services are provided. During the fiscal years ended December 31, 2009and 2008, there were no *de minimis*non-audit services provided that the Audit Committee subsequently ratified.

 

Our Audit Committee requiresthe regular rotation of the lead audit partner and concurring partner asrequired by Section 203 of the Sarbanes-Oxley Act of 2002 and isresponsible for recommending to our Board policies for hiring employees orformer employees of the independent registered public accounting firm.

 

42

----

Tableof Contents

 

**PART IV**

 

**Item15.  Exhibits and Financial StatementSchedules**

 

(a)(3) The followingexhibits are filed as part of this Form 10-K/A:

 
| **Exhibit No.** | ** ** | **Description**                                                                |
|----------------------|------------|--------------------------------------------------------------------------------|
| 31.1                 |       | Certification of Chief  Executive Officer.                                     |
| 31.2                 |       | Certification of  Principal Financial Officer.                                 |
| 32.1                 |       | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2                 |       | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

43

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                | SONUS NETWORKS, INC. |
|---------------------|----------------------|
|                |                 |   |
|                |                 |   |
| April 27, 2010 | By:                  | /s/ Richard N. Nottenburg |
|                |                 | Richard N. Nottenburg |
|                |                 | President and Chief Executive Officer |

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and onthe dates indicated:

 
| **Signature**             | ** ** | **Title**                                                | ** ** | **Date**            |
|---------------------------|------------|----------------------------------------------------------|------------|---------------------|
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Richard N. Nottenburg |       | President and Chief Executive Officer                    |       | April 27, 2010 |
| Richard N. Nottenburg     |       | (Principal Executive Officer)                            |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Wayne Pastore         |       | Vice President of Finance, Corporate Controller and      |       | April 27, 2010 |
| Wayne Pastore             |       | Chief Accounting Officer (Principal Accounting Officer), |       |                |
|                      |       | Treasurer and Interim Chief Financial Officer (Principal |       |                |
|                      |       | Financial Officer)                                       |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Howard E. Janzen      |       | Chairman                                                 |       | April 27, 2010 |
| Howard E. Janzen          |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ James K. Brewington   |       | Director                                                 |       | April 27, 2010 |
| James K. Brewington       |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ John P. Cunningham    |       | Director                                                 |       | April 27, 2010 |
| John P. Cunningham        |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Beatriz V. Infante    |       | Director                                                 |       | April 27, 2010 |
| Beatriz V. Infante        |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ John A. Schofield     |       | Director                                                 |       | April 27, 2010 |
| John A. Schofield         |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Scott E. Schubert     |       | Director                                                 |       | April 27, 2010 |
| Scott E. Schubert         |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ Paul J. Severino      |       | Director                                                 |       | April 27, 2010 |
| Paul J. Severino          |       |                                                     |       |                |
|                      |       |                                                     |       |                |
|                      |       |                                                     |       |                |
| /s/ H. Brian Thompson     |       | Director                                                 |       | April 27, 2010 |
| H. Brian Thompson         |       |                                                     |       |                |

 

44

----

Tableof Contents

 

**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                |
|----------------------|------------|--------------------------------------------------------------------------------|
| 31.1                 |       | Certification of Chief  Executive Officer.                                     |
| 31.2                 |       | Certification of  Principal Financial Officer.                                 |
| 32.1                 |       | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2                 |       | Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

45

----