ShoreTel Inc (Form: 10-Q, Received: 02/07/2014 12:02:43)

November 22, 2013

Keith Nealon

c/o ShoreTel, Inc.

960 Stewart Drive

Sunnyvale, CA 94085

Dear Keith,

RE: Transitional Employment

We acknowledge receipt of your resignation of employment to be effective on February 28, 2014. We are pleased that you will be staying on in your current role through December 31, 2013 and in an advisory role for a transitional period of employment with us (“ ShoreTel ” or the “ Company ”). This letter (the “ Agreement ”) confirms the agreement between you and ShoreTel regarding the terms of your continued transitional employment and your separation and offers you such continued transitional employment and potential separation compensation in exchange for a general release of claims and covenant not to sue.

Position and Duties. Commencing January 1, 2014, you will be employed in the position of advisor to the Company’s Chief Executive Officer. We anticipate that your full-time transitional employment will commence on January 1, 2014 and that your last day of employment with the Company will be the earlier of February 28, 2014 or any earlier date on which your employment ends (the “ Separation Date ” and such period of employment, the “ Transition Period ”). Your duties during the Transition Period will include supporting integration activities, and advising and providing support as reasonably requested by the CEO.

Your employment with ShoreTel is employment “at-will”. This means that you are free to terminate your employment with ShoreTel at any time, with or without Cause. Likewise, ShoreTel has the right to terminate your employment with or without Cause, and with or without notice, at any time.

Transition Compensation and Benefits. Provided you both accept this Agreement and sign and do not revoke the general release and waiver of claims in favor of the Company, in the form attached hereto (the “ First Release ”), and satisfy all conditions stated in the First Release to make such release effective as of the date of this Agreement, you will be eligible for continued employment during the Transition Period and the compensation set forth in this “Transition Compensation and Benefits” section.

Until the Separation Date, the Company will continue to pay you your regular base salary (annualized at $285,000), and you will continue to be eligible for benefits currently afforded to you, including vacation accrual, participation in the ESPP, 401(k) Plan, continued vesting of your equity awards and Company-sponsored health benefit plans to the fullest extent allowed by such plans.

You will remain eligible to receive and will be paid your bonus under the Company’s executive bonus plan for the first half of the Company’s 2014 fiscal year for which you were eligible in your capacity as the Company’s President & General Manager, Cloud Division, subject to determination and approval by the Company’s Board of Directors (the “ 1HFY14 Variable Bonus ”) and your continued employment on the earlier of: (a) the date the bonus is paid, and (b) February 28, 2014. For clarity, there will be no adjustment to the 1HFY14 Variable Bonus paid to you based on any calculation of the Company’s executive bonus plan for the second half of the Company’s 2014 fiscal year.

You acknowledge that the Company paid you a one-time bonus in connection with your promotion to President and General Manager of ShoreTel’s Cloud Division in the amount of $76,250, (the “ CY13 Performance Bonus ”) and pursuant to the terms of the CY13 Performance Bonus the parties acknowledge that you are required to repay to the Company on a prorated basis the CY13 Performance Bonus in the event you voluntarily terminate your employment with the Company prior to February 1, 2014. Provided you remain employed through February 1, 2014 and the Company has not terminated your employment for Cause prior to such date, then, the Company and you acknowledge that your obligation to repay the CY13 Performance shall lapse on such date.

For the avoidance of doubt, the parties agree that other than the 1HFY14 Variable Bonus and the CY13 Performance Bonus, you will not be eligible for any other bonus from the Company, including, but not limited to any bonus that relates to the second half of the Company’s 2014 fiscal year.

Provided you remain employed through February 28, 2014 and the Company has not terminated your employment for Cause, then, the Company releases you from your obligation to repay the Conditional Bonus as provided for in the letter agreement between you and the Company dated September 20, 2013 (the “ Conditional Bonus Agreement ”).

Conclusion of Transition Period. As additional consideration for your continued transitional employment during the Transition Period and the compensation set forth above, you also agree to sign and not revoke a general release and waiver of claims in a form reasonably acceptable to the Company, which shall be in the form attached hereto (the “ Second Release ”) and satisfy all conditions stated in the Second Release to make such release effective within sixty (60) days following your Separation Date. If you refuse to do so, you hereby agree to re-pay to the Company fifty percent (50%) of the base salary payments that you received during the Transition Period no later than ninety (90) days following your Separation Date.

Final Payment of Wages and Vacation Pay. You will be provided a final paycheck for all salary, reimbursable expenses, accrued vacation and any similar payments due you from the Company as of the Separation Date, regardless of whether you accept this Agreement.

Waiver of Severance and Benefits in Retention Agreement. By accepting this offer and signing this Agreement you expressly acknowledge and waive any and all rights you may have in connection with a termination of employment or change of control as set forth in your retention incentive agreement between you and the Company dated February 1, 2013 (the “ Retention Agreement ”), including any rights you may have with respect to equity vesting acceleration, cash severance and the Company’ reimbursement of COBRA premiums. For the avoidance of doubt, your execution of this Agreement serves as your acknowledgement that you are not entitled to, and do waive, any of the severance, vesting acceleration and benefits that are set forth in your Retention Agreement, or any other agreement except as explicitly provided in this Agreement.

Transition Period Benefits. If the Company terminates your employment without Cause prior to February 28, 2014, then, although you otherwise would not have been entitled to receive any severance benefits from the Company, provided you have signed this Agreement and if you sign and do not revoke the Second Release and satisfy all conditions stated in the Second Release to make such release effective within sixty (60) days following your Separation Date, then no later than the 61 ^st day following your Separation Date: (i) the Company will pay you in a lump sum the remaining base salary you would have been paid had you remained employed through February 28, 2014; (ii) the Company will pay you in a lump sum your 1HFY14 Variable Bonus, to the extent your Separation Date occurs on or after the applicable measurement period and such bonus has not already been paid to you; and (iii) you will be entitled to accelerated vesting of your outstanding equity awards as though you had remained employed with the Company through February 28, 2014 (the benefits and payments in subsections (i) – (iii), the “ Transition Period Benefits ”).

For clarity, if you voluntarily resign your employment or the Company terminates your employment for Cause prior to February 28, 2014, you will not be entitled to any of the Transition Period Benefits set forth in this section.

The term “ Cause ” shall have the same definition as in the Retention Agreement. The “ Employment, Invention and Arbitration Agreement ” shall be defined as the Company’s Employment, Confidential Information, Invention Assignment Agreement, and Arbitration Agreement, dated January 30, 2012.

Confidential Information. During the Transition Period, you shall continue to maintain the confidentiality of all confidential and proprietary information of the Company. You shall continue to comply with the terms and conditions of the Employment, Invention and Arbitration Agreement. you shall return all of the Company’s property and confidential and proprietary information in your possession to the Company on the Separation Date.

Non-Solicitation. You agree that for a period of twelve (12) months immediately following the Separation Date, you shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees to leave their employment, or take away such employees, either for yourself or any other person or entity without the prior written consent of the Company. During such period of twelve (12) months immediately following the Separation Date, you further agree not to otherwise interfere with the relationship of the Company or any of its subsidiaries or affiliates with any person who, to your knowledge, is employed by or otherwise engaged to perform services for the Company or its subsidiaries or affiliates (including, but not limited to, any independent sales representatives or organizations) or who is, or was within the then-most recent prior twelve‑month period as of the Separation Date, a customer or client of the Company, or any of its subsidiaries. For the avoidance of doubt, general solicitations, such as advertising or websites, not specifically targeted at specific employees of the Company, shall not constitute a direct or indirect solicitation for the purposes of this paragraph.

Notwithstanding the foregoing, this paragraph shall not limit, but shall instead supplement, the Company’s employee policies, including without limitation the provisions set forth in the Employment, Invention and Arbitration Agreement.

Non-Competition. In consideration for your continued employment during the Transition Period and your eligibility for the Transition Period Benefits, you agree that for a period of twelve (12) months immediately following the Separation Date, you shall not as an employee, agent, consultant, advisor, independent contractor, general partner, officer, director, stockholder, investor, lender or guarantor of any corporation, partnership or other entity, or in any other capacity directly or indirectly participate or engage in, or render any services to any business engaged in, the design, development, manufacture, operation, production, marketing, sale or servicing of any product, or the provision of any service, that is directly competitive or substantially similar to ShoreTel’s business (“ Business ”) in the Restrictive Territory (as defined below).

Notwithstanding the foregoing, you may (i) own, directly or indirectly, solely as an investment, up to one percent (1%) of any class of “publicly traded securities” of any business that is competitive or substantially similar to the Business, and (ii) work for a division, entity or subgroup of any of such companies that engages in the Business so long as such division, entity or subgroup does not engage in the Business.

The term “ publicly traded securities ” shall mean securities that are traded on a national securities exchange.

The term “ Restrictive Territory ” shall mean each of the fifty states of the United States, Mexico and Canada.

Taxes. All amounts payable to you pursuant to this Agreement will be subject to applicable withholding taxes. For purposes of this Agreement, with respect to any payment that is subject to (and not exempt from) Section 409A of the Code, no payment shall be made on termination of your employment unless such termination is a “separation from service” within the meaning of Section 409A of the Internal Revenue Code, and Section 1.409A-1(h) of the regulations thereunder.

Choice of Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Texas (other than their choice-of-law provisions).

Arbitration. The parties agree that any controversy or any claim arising out of or relating to the interpretation, enforceability or breach of this Agreement, including all attachments, shall be settled by arbitration in accordance with the arbitration provision of the Employment, Invention and Arbitration Agreement. If for any reason the arbitration procedure set forth in the Employment, Invention and Arbitration Agreement is unavailable, you agree to arbitration under the employment arbitration rules of the American Arbitration Association or any successor hereto. The parties further agree that the arbitrator shall not be empowered to add to, subtract from, or modify, alter or amend the terms of the Agreement, including all attachments. Any applicable arbitration rules or policies shall be interpreted in a manner so as to ensure their enforceability under applicable state or federal law.

Public Filing. The parties understand and agree that this Agreement will need to be filed with the Securities and Exchange Commission and that its confidentiality cannot be protected.

Entire Agreement. This Agreement represents the entire agreement and understanding between the Company and you concerning the subject matter of this Agreement and your relationship with the Company, and supersedes and replaces any and all prior agreements and understandings between the parties concerning the subject matter of this Agreement and your relationship with the Company, including the existing Retention Agreement, and excluding (a) the Employment, Invention and Arbitration Agreement, (b) the agreements governing the stock options and restricted stock units (including the equity compensation plan under which such awards were granted) other than as may be amended in this Agreement, (c) the Conditional Bonus Agreement and the CY13 Performance Bonus to the extent not modified herein or (d) any agreements between the Company and you relating to any and all right that you may have to indemnification by the Company pursuant to the by-laws and certificate of incorporation of the Company or pursuant to any agreement between the Company and you.

[Remainder Blank]

Execution. This Agreement may be executed in counterparts, each of which will be considered an original, but all of which together will constitute one agreement. Execution of a facsimile copy will have the same force and effect as execution of an original, and a facsimile signature will be deemed an original and valid signature.

Please indicate your agreement with the above terms by signing below.

Sincerely,

/s/ Don Joos

Don Joos

President and Chief Executive Officer

I agree to the terms of this Agreement, and I am voluntarily signing this release of all claims. I acknowledge that I have read and understand this Agreement, and I understand that I cannot pursue any of the claims and rights that I have waived in this Agreement at any time in the future


/s/ Keith Nealon		11/22/13
Keith Nealon		Date

First Release

Release Agreement

In consideration of the continued employment during the Transition Period and the related continued compensation (the “ Transitional Employment Benefits ”) offered to me by ShoreTel, Inc. (the “ Employer ”) pursuant to my letter agreement regarding transitional employment with Employer dated November [__], 2013 (the “ Agreement ”), I agree to the following general release (the “ Release ”).

1. On behalf of myself, my heirs, executors, administrators, successors, and assigns, I hereby full y and forever generally release and discharge Employer, its current, former and future parents, subsidiaries, affiliated companies, related entities, employee benefit plans, and their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees and assigns (collectively, the “ Company ”) from any and all claims, causes of action, and liabilities up through the date of my execution of the Release. The claims subject to this release include, but are not limited to, those relating to my employment with Employer and/or any predecessor or successor to Employer. All such claims (including related attorneys’ fees and costs) are barred without regard to whether those claims are based on any alleged breach of a duty arising in statute, contract, or tort. This expressly includes waiver and release of any rights and claims arising under any and all laws, rules, regulations, and ordinances, including, but not limited to: Title VII of the Civil Rights Act of 1964; the Americans With Disabilities Act; the Fair Labor Standards Act; the National Labor Relations Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”); the Workers Adjustment and Retraining Notification Act; the California Fair Employment and Housing Act (if applicable); the provisions of the California Labor Code (if applicable); the Equal Pay Act of 1963; and any similar law of any other state or governmental entity. The parties agree to apply California law in interpreting the Release. Accordingly, I further waive any rights under Section 1542 of the Civil Code of the State of California or any similar state statute. Section 1542 states: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which, if known to him, must have materially affected his settlement with the debtor.”

2. This Release does not extend to, and has no effect upon, any benefits that have accrued, and to which I have become vested, under any employee benefit plan within the meaning of ERISA sponsored by the Company.

3. I hereby irrevocably covenant to refrain from asserting any claim or demand, or commencing, instituting or causing to be commenced, any proceeding of any kind against the Company based upon any claim released pursuant to Section 1. If I or any assignee of mine brings any claim, suit, action or manner of action against the Company in administrative proceedings, in arbitration, at law, in equity, or mixed, with respect to any claim released pursuant to Section 1 or otherwise of a type to be released pursuant to Section 1, then I shall compensate and reimburse the Company in the amount or value of any final judgment or settlement (monetary or other) and any related cost (including reasonable legal fees) entered against, paid or incurred by the Company.

4. In understanding the terms of the Release and my rights, I have been advised to consult with an attorney of my choice prior to executing the Release. I understand that nothing in this Release is intended to constitute an unlawful release or waiver of any of my rights under any laws and/or to prevent, impede, or interfere with my ability and/or rights, if any: (a) under applicable workers’ compensation laws; (b) to seek unemployment benefits; (c) to file a charge or complaint with a government agency such as but not limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, or any applicable state agency; (d) provide truthful testimony if under subpoena to do so, (e) file a claim with any state or federal agency or to participate or cooperate in such a matter , and/or (f) to challenge the validity of this release. Furthermore, notwithstanding any provisions and covenants herein, the Release shall not waive (a) any rights to indemnification I may have as an officer of Employer or otherwise in connection with my employment with Employer, under Employer’s bylaws or other governing instruments or any agreement addressing such subject matter between Employer and me (including any fiduciary insurance policy maintained by Employer under which I am covered) or under any merger or acquisition agreement addressing such subject matter, (b) any obligations owed to me pursuant to the Agreement, (c) my rights of insurance under any liability policy covering Employer’s officers (in addition to the rights under subsection (a) above), or (d) any accrued but unpaid wages; any reimbursement for business expenses pursuant to Employer’s policies for such reimbursements, any outstanding claims for benefits or payments under any benefit plans of Employer or subsidiaries, any accrued but unused vacation, any ongoing agreements evidencing outstanding equity awards granted to me, any obligations owed to me pursuant to the terms of outstanding written agreements between myself and Employer and any claims I may not release as a matter of law, including indemnification claims under applicable law. To the fullest extent permitted by law, any dispute regarding the scope of this general release shall be resolved through binding arbitration pursuant to Section 11 below, and the arbitration provision set forth in the Agreement.

5. I understand and agree that Employer will not provide me with the Transitional Employment Benefits unless I execute the Release. I also understand that I will receive, regardless of the execution of the Release, all wages owed to me together with any accrued but unused vacation pay, less applicable withholdings and deductions, earned through my termination date.

6. As part of my existing and continuing obligations to Employer, prior to my Separation Date, I agree to return to Employer all documents (and all copies thereof) and other property belonging to Employer that I have had in my possession at any time, including but not limited to files, notes, drawings, records, business plans and forecasts, financial information, specification, computer-recorded information, tangible property (including, but not limited to, computers, laptops, pagers, etc.), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of Employer (and all reproductions thereof). I understand that, even if I do not sign the Release, I am still bound by any and all confidential/proprietary/trade secret information, non-disclosure and inventions assignment agreement(s) signed by me in connection with my employment with Employer, or with a predecessor or successor of Employer, pursuant to the terms of such agreement(s), including, but not limited to the Employment, Confidential Information, Invention Assignment Agreement, and Arbitration Agreement, dated January 30, 2012 (the “ Employment, Invention and Arbitration Agreement ”).

7. I represent and warrant that I am the sole owner of all claims relating to my employment with Employer and/or with any predecessor of Employer, and that I have not assigned or transferred any claims relating to my employment to any other person or entity.

8. I agree to keep the Transitional Employment Benefits and the provisions of this Release confidential and not to reveal their contents to anyone except my lawyer, my spouse or other immediate family member, and/or my financial consultant, or as required by legal process or applicable law; until such time as the such information is publicly filed with the Securities and Exchange Commission.

9. I understand and agree that the Release shall not be construed at any time as an admission of liability or wrongdoing by either the Company or me.

10. I agree that I will not make any negative or disparaging statements or comments, either as fact or as opinion, about the Company, its employees, officers, directors, shareholders, vendors, products or services, business, technologies, market position or performance. Nothing in this paragraph shall prohibit me from providing truthful information in response to a subpoena or other legal process.

11. Any controversy or any claim arising out of or relating to the interpretation, enforceability or breach of the Release shall be settled by arbitration in accordance with the arbitration provision of the Employment, Invention and Arbitration Agreement. If for any reason the arbitration procedure set forth in the Employment, Invention and Arbitration Agreement is unavailable, I agree to arbitration under the employment arbitration rules of the American Arbitration Association or any successor hereto. The parties further agree that the arbitrator shall not be empowered to add to, subtract from, or modify, alter or amend the terms of the Release. Any applicable arbitration rules or policies shall be interpreted in a manner so as to ensure their enforceability under applicable state or federal law.

12. I agree that I have had sufficient time in which to consider whether to execute the Release, no one hurried me into executing the Release during that period, and no one coerced me into executing the Release. I understand that this Release is effective and enforceable upon its execution the “ Effective Date ”) and may not be revoked.

13. In executing the Release, I acknowledge that I have not relied upon any statement made by Employer, or any of its representatives or employees, with regard to the Release unless the representation is specifically included herein. Furthermore, the Release and the Agreement contain our entire understanding regarding eligibility for and the payment of severance benefits and supersedes any or all prior representations and agreements regarding the subject matter. Once effective and enforceable, this agreement can only be changed by another written agreement signed by me and an authorized representative of Employer.

14. Should any provision of the Release be determined by an arbitrator, court of competent jurisdiction, or government agency to be wholly or partially invalid or unenforceable, the legality, validity and enforceability of the remaining parts, terms, or provisions are intended to remain in full force and effect. Specifically, should a court, arbitrator, or agency conclude that a particular claim may not be released as a matter of law, it is the intention of the parties that the general release and the waiver of unknown claims above shall otherwise remain effective to release any and all other claims. I acknowledge that I have obtained sufficient information to intelligently exercise my own judgment regarding the terms of the Release before executing the Release.

[Signature Page to First Release Follows]

EXECUTIVE’S ACCEPTANCE OF FIRST RELEASE

BEFORE SIGNING MY NAME TO THE RELEASE, I STATE THE FOLLOWING: I HAVE READ THE RELEASE, I UNDERSTAND IT AND I KNOW THAT I AM GIVING UP IMPORTANT RIGHTS. I HAVE OBTAINED SUFFICIENT INFORMATION TO INTELLIGENTLY EXERCISE MY OWN JUDGMENT. I HAVE BEEN ADVISED THAT I SHOULD CONSULT WITH AN ATTORNEY BEFORE SIGNING IT, AND I HAVE SIGNED THE RELEASE KNOWINGLY AND VOLUNTARILY.

	Date delivered to employee ___________, ______.

	Executed this ___________ day of ___________, ______.


	Signature

	Keith Nealon
	Name

[Signature Page to First Release]

Second Release

Release Agreement

In consideration of the Transition Period Benefits (the “ Transition Period Benefits ”) offered to me by ShoreTel, Inc. (the “ Employer ”) pursuant to my letter agreement regarding transitional employment with Employer dated November [__], 2013 (the “ Agreement ”), and in connection with the termination of my employment, I agree to the following general release (the “ Release ”).

1. On behalf of myself, my heirs, executors, administrators, successors, and assigns, I hereby fully and forever generally release and discharge Employer, its current, former and future parents, subsidiaries, affiliated companies, related entities, employee benefit plans, and their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees and assigns (collectively, the “ Company ”) from any and all claims, causes of action, and liabilities up through the date of my execution of the Release. The claims subject to this release include, but are not limited to, those relating to my employment with Employer and/or any predecessor or successor to Employer and the termination of such employment. All such claims (including related attorneys’ fees and costs) are barred without regard to whether those claims are based on any alleged breach of a duty arising in statute, contract, or tort. This expressly includes waiver and release of any rights and claims arising under any and all laws, rules, regulations, and ordinances, including, but not limited to: Title VII of the Civil Rights Act of 1964; the Older Workers Benefit Protection Act; the Americans With Disabilities Act; the Age Discrimination in Employment Act; the Fair Labor Standards Act; the National Labor Relations Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”); the Workers Adjustment and Retraining Notification Act; the California Fair Employment and Housing Act (if applicable); the provisions of the California Labor Code (if applicable); the Equal Pay Act of 1963; and any similar law of any other state or governmental entity. The parties agree to apply California law in interpreting the Release. Accordingly, I further waive any rights under Section 1542 of the Civil Code of the State of California or any similar state statute. Section 1542 states: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which, if known to him, must have materially affected his settlement with the debtor.”

4. In understanding the terms of the Release and my rights, I have been advised to consult with an attorney of my choice prior to executing the Release. I understand that nothing in this Release is intended to constitute an unlawful release or waiver of any of my rights under any laws and/or to prevent, impede, or interfere with my ability and/or rights, if any: (a) under applicable workers’ compensation laws; (b) to seek unemployment benefits; (c) to file a charge or complaint with a government agency such as but not limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, or any applicable state agency; (d) provide truthful testimony if under subpoena to do so, (e) file a claim with any state or federal agency or to participate or cooperate in such a matter, and/or (f) to challenge the validity of this release. Furthermore, notwithstanding any provisions and covenants herein, the Release shall not waive (a) any rights to indemnification I may have as an officer of Employer or otherwise in connection with my employment with Employer, under Employer’s bylaws or other governing instruments or any agreement addressing such subject matter between Employer and me (including any fiduciary insurance policy maintained by Employer under which I am covered) or under any merger or acquisition agreement addressing such subject matter, (b) any obligations owed to me pursuant to the Agreement, (c) my rights of insurance under any liability policy covering Employer’s officers (in addition to the rights under subsection (a) above), or (d) any accrued but unpaid wages; any reimbursement for business expenses pursuant to Employer’s policies for such reimbursements, any outstanding claims for benefits or payments under any benefit plans of Employer or subsidiaries, any accrued but unused vacation, any ongoing agreements evidencing outstanding equity awards granted to me, any obligations owed to me pursuant to the terms of outstanding written agreements between myself and Employer and any claims I may not release as a matter of law, including indemnification claims under applicable law. To the fullest extent permitted by law, any dispute regarding the scope of this general release shall be resolved through binding arbitration pursuant to Section 11 below, and the arbitration provision set forth in the Agreement.

5. I understand and agree that Employer will not provide me with the Transition Period Benefits unless I execute the Release. I also understand that I have received or will receive, regardless of the execution of the Release, all wages owed to me together with any accrued but unused vacation pay, less applicable withholdings and deductions, earned through my termination date.

6. As part of my existing and continuing obligations to Employer, I have returned to Employer all documents (and all copies thereof) and other property belonging to Employer that I have had in my possession at any time, including but not limited to files, notes, drawings, records, business plans and forecasts, financial information, specification, computer-recorded information, tangible property (including, but not limited to, computers, laptops, pagers, etc.), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of Employer (and all reproductions thereof). I understand that, even if I do not sign the Release, I am still bound by any and all confidential/proprietary/trade secret information, non-disclosure and inventions assignment agreement(s) signed by me in connection with my employment with Employer, or with a predecessor or successor of Employer, including, but not limited to the Employment, Confidential Information, Invention Assignment Agreement, and Arbitration Agreement, dated January 30, 2012 (the “ Employment, Invention and Arbitration Agreement ”).

8. I agree to keep the Transition Period Benefits and the provisions of this Release confidential and not to reveal their contents to anyone except my lawyer, my spouse or other immediate family member, and/or my financial consultant, or as required by legal process or applicable law; until such time as the such information is publicly filed with the Securities and Exchange Commission.

9. I understand and agree that the Release shall not be construed at any time as an admission of liability or wrongdoing by either the Company or me.

12. I agree that I have had at least twenty-one (21) calendar days in which to consider whether to execute the Release, no one hurried me into executing the Release during that period, and no one coerced me into executing the Release. I understand that the offer of the Transition Period Benefits and the Release shall expire on the twenty-second (22 ^nd ) calendar day after my employment termination date if I have not accepted it by that time. I further understand that Employer’s obligations under the Release shall not become effective or enforceable until the eighth (8 ^th ) calendar day after the date I sign the Release provided that I have timely delivered it to Employer (the “ Effective Date ”) and that in the seven (7) day period following the date I deliver a signed copy of the Release to Employer I understand that I may revoke my acceptance of the Release. I understand that the Transition Period Benefits will become available to me after the Effective Date.

[Signature Page to Second Release Agreement Follows]

EXECUTIVE’S ACCEPTANCE OF SECOND RELEASE

	Date delivered to employee ___________, ______.

	Executed this ___________ day of ___________, ______.


	Signature

	Keith Nealon
	Name

[Signature Page to Second Release]

SECOND AMENDMENT

THIS SECOND AMENDMENT (this “ Amendment ”) is made and entered into as of the last date set forth in the signature blocks below, by and between WILSON OAKMEAD WEST, LLC, a Delaware limited liability company (“ Landlord ”), and SHORETEL, INC., a Delaware corporation (“ Tenant ”).

RECITALS

Landlord (as successor in interest to Carr NP Properties, L.L.C., a Delaware limited liability company) and Tenant (as successor in interest to ShoreTel, Inc., a California corporation) are parties to that certain lease dated April 20, 2007 (the “ Original Lease ”), which Original Lease has been previously amended by that certain undated Notice of Lease Terms agreement, that certain First Amendment to Lease (“ First Amendment ”) dated June 18, 2009, and a Subordination, Non-Disturbance and Attornment Agreement, dated _______, 2009 [ sic ] (collectively, the “ Lease ”). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 63,781 rentable square feet (the “ Premises ”) described as the building located at 960 Stewart Drive, Sunnyvale, California (the “ Building ”).

B.	The Lease by its terms shall expire on September 30, 2014 (“ Prior Lease Expiration Date ”), and the parties desire to extend the Term of the Lease, all on the following terms and conditions.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

Second Extension. The Lease Term is hereby extended for a period of sixty (60) months and shall expire on September 30, 2019 (“ Second Extended Lease Expiration Date ”), unless sooner terminated in accordance with the terms of the Lease. That portion of the Lease Term commencing the day immediately following the Prior Lease Expiration Date (“ Second Extension Date ”) and ending on the Second Extended Lease Expiration Date shall be referred to herein as the “ Second Extended Lease Term ”.

2.	Base Rent. As of the Second Extension Date, the schedule of Base Rent payable with respect to the Premises during the Second Extended Lease Term is the following:

Period	Rentable Square Footage	Monthly Rate Per Square Foot	Annual Base Rent	Monthly Installment of Base Rent
10/1/14 – 9/30/15	63,781	$1.95	$1,492,475.40	$124,372.95
10/1/15 – 9/30/16	63,781	$2.01	$1,538,397.72	$128,199.81
10/1/16 – 9/30/17	63,781	$2.07	$1,584,320.04	$132,026.67
10/1/17 – 9/30/18	63,781	$2.13	$1,630,242.36	$135,853.53
10/1/18 – 9/30/19	63,781	$2.19	$1,676,164.68	$139,680.39

All such monthly installment of Base Rent and annual Base Rent shall be payable by Tenant in accordance with the terms of the Lease, as amended hereby.

Notwithstanding anything in the Lease to the contrary, so long as Tenant is not in default under the Lease, as amended hereby, Tenant shall be entitled to an abatement of monthly installment of Base Rent with respect to the Premises in the amount of $124,372.95 per month for the first four (4) full calendar months of the Second Extended Lease Term (the “ Abated Rent Period ”). The maximum total amount of monthly installment of Base Rent abated with respect to the Premises in accordance with the foregoing shall equal $497,491.80 (the “ Abated Base Rent ”). If Tenant defaults under the Lease, as amended hereby, at any time during the Abated Rent Period and fails to cure such default within any applicable cure period under the Lease, then all Abated Base Rent shall immediately become due and payable. Only monthly installment of Base Rent shall be abated pursuant to this paragraph, as more particularly described herein, and Tenant’s Share of Direct Expenses and all other rent and other costs and charges specified in the Lease, as amended hereby, shall remain as due and payable pursuant to the provisions of the Lease, as amended hereby.

3.	Additional Security Deposit. No additional Security Deposit shall be required in connection with this Amendment.

4.	Additional Rent. For the period commencing on the Second Extension Date and ending on the Second Extended Lease Expiration Date, Tenant shall pay all Additional Rent payable under the Lease, including Tenant’s Share of Direct Expenses in accordance with the terms of the Lease, as amended hereby.

5.	Improvements to Premises.

5.1

Condition of Premises. Tenant is in possession of the Premises and accepts the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may be expressly provided otherwise in this Amendment.

5.2

Responsibility for Improvements to Premises. Landlord shall perform improvements to the exterior of the Building in accordance with Section 6.6 below. Furthermore, Tenant may perform improvements to the Premises in accordance with Exhibit A and Tenant shall be entitled to an improvement allowance in connection with such work as more fully described in Exhibit A .

6.	Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment (unless different effective date(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects:

6.1

Options to Renew. Section 5 of the First Amendment (Extension Options) is hereby deleted in its entirety and is of no further force or effect. Notwithstanding the foregoing, Tenant, provided the Lease, as amended hereby, is in full force and effect and Tenant is not in default under any of the other terms and conditions of the Lease, as amended hereby, at the time of notification or commencement, shall have two (2) options to renew (each, a “ Renewal Option ”) the Lease, each for a term of sixty (60) months (each, a “ Renewal Term ”), for the portion of the Premises being leased by Tenant as of the date the applicable Renewal Term is to commence, on the same terms and conditions set forth in the Lease, as amended hereby, except as modified by the terms, covenants and conditions as set forth below:

6.1.1

If Tenant elects to exercise the applicable Renewal Option, then Tenant shall provide Landlord with written notice no earlier than the date which is four hundred fifty (450) days prior to the expiration of the then current Lease Term, as amended hereby, but no later than the date which is three hundred sixty five (365) days prior to the expiration of the then current Lease Term, as amended hereby. If Tenant fails to provide such notice, Tenant shall have no further or additional right to extend or renew the Lease Term.

6.1.2

The annual Base Rent and monthly installment of Base Rent in effect at the expiration of the then current Lease Term, as amended hereby, shall be increased or decreased to reflect the Prevailing Market (defined below) rate as of the date the applicable Renewal Term is to commence, taking into account the specific provisions of the Lease, as amended hereby, which will remain constant. Landlord shall advise Tenant of the new annual Base Rent and monthly installment of Base Rent for the Premises no later than thirty (30) days after receipt of Tenant's written request therefor. Said request shall be made no earlier than thirty (30) days prior to the first date on which Tenant may exercise the applicable Renewal Option under this Section 6.1. Said notification of the new Base Rent may include a provision for its escalation to provide for a change in the Prevailing Market rate between the time of notification and the commencement of the applicable Renewal Term. .

6.1.3

If Tenant and Landlord are unable to agree on a mutually acceptable annual Base Rent and monthly installment of Base Rent for the Renewal Term not later than sixty (60) days prior to the expiration of the then current Lease Term, then Landlord and Tenant, within five (5) days after such date, shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Market rate for the Premises during the applicable Renewal Term (collectively referred to as the “ Estimates ”). If the higher of such Estimates is not more than one hundred three percent (103%) of the lower of such Estimates, then the Prevailing Market rate shall be the average of the two Estimates. If the Prevailing Market rate is not established by the exchange of Estimates, then, within seven (7) days after the exchange of Estimates, Landlord and Tenant shall each select an appraiser to determine which of the two Estimates most closely reflects the Prevailing Market rate for the Premises during the applicable Renewal Term. Each appraiser so selected shall be certified as an MAI appraiser or as an ASA appraiser and shall have had at least five (5) years experience within the previous ten (10) years as a real estate appraiser working in Sunnyvale, California, with working knowledge of current rental rates and practices. For purposes hereof, an “MAI” appraiser means an individual who holds an MAI designation conferred by, and is an independent member of, the American Institute of Real Estate Appraisers (or its successor organization, or in the event there is no successor organization, the organization and designation most similar), and an “ASA” appraiser means an individual who holds the Senior Member designation conferred by, and is an independent member of, the American Society of Appraisers (or its successor organization, or, in the event there is no successor organization, the organization and designation most similar).

6.1.4

Upon selection, Landlord’s and Tenant's appraisers shall work together in good faith to agree upon which of the two Estimates most closely reflects the Prevailing Market rate for the Premises. The Estimates chosen by such appraisers shall be binding on both Landlord and Tenant. If either Landlord or Tenant fails to appoint an appraiser within the seven (7) day period referred to above, the appraiser appointed by the other party shall be the sole appraiser for the purposes hereof. If the two appraisers cannot agree upon which of the two Estimates most closely reflects the Prevailing Market rate within twenty (20) days after their appointment, then, within ten (10) days after the expiration of such twenty (20) day period, the two appraisers shall select a third appraiser meeting the aforementioned criteria. Once the third appraiser (i.e., the arbitrator) has been selected as provided for above, then, as soon thereafter as practicable but in any case within fourteen (14) days, the arbitrator shall make his or her determination of which of the two Estimates most closely reflects the Prevailing Market rate and such Estimate shall be binding on both Landlord and Tenant as the Prevailing Market rate for the Premises. If the arbitrator believes that expert advice would materially assist him or her, he or she may retain one or more qualified persons to provide such expert advice. The parties shall share equally in the costs of the arbitrator and of any experts retained by the arbitrator. Any fees of any appraiser, counsel or experts engaged directly by Landlord or Tenant, however, shall be borne by the party retaining such appraiser, counsel or expert.

6.1.5

If the Prevailing Market rate has not been determined by the commencement date of the applicable Renewal Term, Tenant shall pay monthly installments of Base Rent upon the terms and conditions in effect during the last month of the then current Lease Term until such time as the Prevailing Market rate has been determined. Upon such determination, the annual Base Rent and monthly installments of Base Rent for the Premises shall be retroactively adjusted to the commencement of such Renewal Term for the Premises.

6.1.6

The Renewal Options are not transferable; the parties hereto acknowledge and agree that they intend that the aforesaid options to renew this Lease shall be “personal” to Tenant as set forth above and to a Permitted Assignee and that in no event will any assignee or sublessee have any rights to exercise the Renewal Options.

6.1.7

If Tenant fails to validly exercise the first Renewal Option, Tenant shall have no further right extend the Lease Term. In addition, if both Renewal Options are validly exercised or if Tenant fails to validly exercise the second Renewal Option, Tenant shall have no further right to extend the Lease Term.

6.1.8

For purposes of this Section 6.1, “ Prevailing Market ” shall mean the arms length fair market annual rental rate per rentable square foot under new and renewal leases and amendments entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Building and buildings comparable to the Building in the Sunnyvale, California but excluding Moffett Towers and Technology Corners as of the date the applicable Renewal Term is to commence, taking into account the specific provisions of the Lease, as amended hereby, which will remain constant, and may, if applicable, include parking charges. The determination of Prevailing Market shall take into account any material economic differences between the terms of the Lease, as amended hereby, and any comparison lease or amendment, such as rent abatements, tenant improvement allowances, construction costs and other concessions and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses, insurance costs and taxes.

6.2

Building Access. Tenant shall have access to the Building and the Premises for Tenant and its employees 24 hours per day/7 days per week, subject to the terms of the Lease, as amended hereby.

6.3

Financial Statements and Credit Reports. At Landlord’s request, Tenant shall deliver to Landlord a copy, certified by an officer of Tenant as being a true and correct copy, of Tenant’s most recent audited financial statement, or, if unaudited, certified by Tenant’s chief financial officer as being true, complete and correct in all material respects. Tenant hereby authorizes Landlord to obtain one or more credit reports on Tenant at any time, and shall execute such further authorizations as Landlord may reasonably require in order to obtain a credit report. Notwithstanding the foregoing, Landlord shall not request financial statements more than once in each consecutive one (1) year period during the Term unless (i) Tenant is in default, (ii) Landlord reasonably believes that there has been an adverse change in Tenant’s financial position since the last financial statement provided to Landlord, or (iii) requested (a) in connection with a proposed sale or transfer of the Building by Landlord, or (b) by an investor of Landlord, any Landlord related entity or any lender or proposed lender of Landlord or any Landlord related entity. At Tenant’s request, Landlord shall enter into a confidentiality agreement with Tenant, which agreement is reasonably acceptable to Landlord and covers confidential financial information provided by Tenant to Landlord. Notwithstanding the foregoing, so long as Tenant is a publicly traded company on an “over-the-counter” market or any recognized national or international securities exchange, the foregoing shall not apply so long as Tenant’s current public annual report (in compliance with applicable securities laws) for such applicable year is available to Landlord in the public domain.

6.4

Landlord’s Notice Addresses. Landlord’s addresses for notices set forth in Section 29.18 of the Original Lease are hereby deleted in their entireties and replaced by the following:

“Wilson Oakmead West, LLC

c/o Jones Lang LaSalle Americas, Inc.

1200 Park Place, Suite 100

San Mateo, California 94403

Attn: General Manager

With a copy to:

RREEF Management LLC

101 California Street, 26th Floor

San Francisco, California 94111

Attn: Asset Manager”

6.5

Deletion. Section 3.6 (Alterations Allowance) of the First Amendment is hereby deleted in its entirety and is of no further force or effect.

6.6

Disclosures. Pursuant to California Civil Code Section 1938, Landlord hereby notifies Tenant that as of the date of this Amendment, the Premises has not undergone inspection by a “Certified Access Specialist” to determine whether the Premises meet all applicable construction-related accessibility standards under California Civil Code Section 55.53. If Tenant (or any party claiming by, through or under Tenant) pays directly to the provider for any energy consumed at the Premises, Tenant, promptly upon request, shall deliver to Landlord (or, at Landlord’s option, execute and deliver to Landlord an instrument enabling Landlord to obtain from such provider) any data about such consumption that Landlord, in its reasonable judgment, is required to disclose to a prospective buyer, tenant or mortgage lender under California Public Resources Code § 25402.10 or any similar law.

6.7

Exterior Common Area Improvements. Landlord has agreed to complete certain renovations and improvements to the exterior common areas using Building standard methods, materials and finishes and as otherwise reasonably determined by Landlord (the “ Common Area Improvements ”). The cost and expense incurred by Landlord for the installation of the Common Area Improvements are hereby expressly excluded from Operating Expenses. The Common Area Improvements shall mean the following:

Install new hanging metal address numbers over the front lobby of the Building;

Paint the two (2) entry columns to the Building with Building standard paint;

Install new exterior lighting fixtures outside of the Building to replace the currently existing white, cone shaped lighting fixtures, as reasonably determined by Landlord; and,

Subject to Landlord’s receipt of all required permits and approvals, and to the extent the total costs and expenses of the same are not unreasonable, Landlord will construct a common area outdoor collaborative area on the right side of the Building, which may include the installation of a seating area, bocce ball court and/or barbecue area within such area, as determined by Landlord in its sole discretion but after reasonable and good faith consultation with Tenant (“ Outdoor Collaborative Space ”).

The Common Area Improvements shall be designed and constructed as determined by Landlord, in Landlord’s sole discretion but after reasonable and good faith consultation with Tenant, and Tenant shall have no final approval rights as to the planning, material, specifications configuration, or actual type of work performed, provided, that with respect to the Outdoor Collaborative Space, Landlord shall discuss and consider Tenant’s reasonable recommendations therefor. Tenant acknowledges that the Common Area Improvements may be performed during normal business hours at a time at Landlord’s sole election, subsequent to the full and final execution and delivery of the Amendment. Further, Tenant acknowledges and agrees that the Common Area Improvements shall be performed by Landlord in accordance with a construction schedule developed by Landlord in its sole discretion, which construction schedule shall consider the timing of the availability of materials and labor and potential weather implications for the performance of such work. Notwithstanding anything herein to the contrary, any delay in the completion of the Common Area Improvements or inconvenience suffered by Tenant during the performance of the Common Area Improvements shall not delay the Second Extension Date nor shall it subject Landlord to any liability for any loss or damage resulting therefrom or entitle Tenant to any credit, abatement or adjustment of Rent or other sums payable under the Lease, as amended hereby. Landlord shall use commercially reasonable efforts to complete before October 1, 2014.

7.	Miscellaneous.

7.1

This Amendment, including Exhibit A (Alterations) attached hereto, sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment.

7.2

Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control. The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.

7.3

Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant.

7.4

Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment, other than Jones Lang LaSalle Brokerage Inc., (“ JLL ”) and Landlord shall be responsible for paying any leasing commission due in connection with this Amendment pursuant to the separate agreement with JLL dated December 10, 2013, (“ JLL Agreement ”). Tenant agrees to indemnify and hold Landlord and its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any other brokers claiming to have represented Tenant in connection with this Amendment.

7.5

Each signatory of this Amendment represents hereby that he or she has the authority to execute and deliver the same on behalf of the party hereto for which such signatory is acting. Tenant hereby represents and warrants that neither Tenant, nor any persons or entities holding any legal or beneficial interest whatsoever in Tenant, are (i) the target of any sanctions program that is established by Executive Order of the President or published by the Office of Foreign Assets Control, U.S. Department of the Treasury (“ OFAC ”); (ii) designated by the President or OFAC pursuant to the Trading with the Enemy Act, 50 U.S.C. App. § 5, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06, the Patriot Act, Public Law 107-56, Executive Order 13224 (September 23, 2001) or any Executive Order of the President issued pursuant to such statutes; or (iii) named on the following list that is published by OFAC: “List of Specially Designated Nationals and Blocked Persons.” If the foregoing representation is untrue at any time during the current Lease Term and/or Second Extended Lease Term, an event of default under the Lease will be deemed to have occurred, without the necessity of notice to Tenant.

7.6

This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same Amendment. In order to expedite the transaction contemplated herein, telecopied signatures or signatures transmitted by electronic mail in so-called "pdf" format may be used in place of original signatures on this Lease. Landlord and Tenant intend to be bound by the signatures on the telecopied or e-mailed document, are aware that the other party will rely on the telecopied or e-mailed signatures, and hereby waive any defenses to the enforcement of the terms of this Amendment based on such telecopied or e-mailed signatures. Promptly following transmission of the telecopied or e-mailed signatures, Tenant shall promptly deliver to Landlord with original signatures on this Amendment.

7.7

Redress for any claim against Landlord under the Lease and this Amendment shall be limited to and enforceable only against and to the extent of Landlord’s interest in the Building. The obligations of Landlord under the Lease are not intended to and shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, its investment manager, the general partners thereof, or any beneficiaries, stockholders, employees, or agents of Landlord or the investment manager, and in no case shall Landlord be liable to Tenant hereunder for any lost profits, damage to business, or any form of special, indirect or consequential damage.

IN WITNESS WHEREOF, Landlord and Tenant have entered into and executed this Amendment as of the date first written above.

LANDLORD:	TENANT:

WILSON OAKMEAD WEST, LLC, a Delaware limited liability company	SHORETEL, INC., a Delaware corporation

By: ________________________________	By: ______________________________
Name: Lisa Vogel	Name: ___________________________
Title: Vice President	Title: ____________________________
Dated: ________________________, 2013	Dated: ______________________, 2013

EXHIBIT A –ALTERATIONS

attached to and made a part of the Second Amendment between WILSON OAKMEAD WEST, LLC, a Delaware limited liability company, as Landlord

and SHORETEL, INC., a Delaware corporation, as Tenant

1. Tenant, following the full and final execution and delivery of the Amendment to which this Exhibit A is attached and all insurance certificates required under the Lease, as amended, shall have the right to perform alterations and improvements in the Premises (the “ Tenant Work ”). Notwithstanding the foregoing, Tenant and its contractors shall not have the right to perform the Tenant Work in the Premises unless and until Tenant has complied with all of the terms and conditions of Article 8 of the Original Lease, as amended, including, without limitation, approval by Landlord of the final plans for the Tenant Work and the contractors to be retained by Tenant to perform such Tenant Work. Tenant shall be responsible for all elements of the design of Tenant’s plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the Premises and the placement of Tenant’s furniture, appliances and equipment), and Landlord’s approval of Tenant’s plans shall in no event relieve Tenant of the responsibility for such design. In addition to the foregoing, Tenant shall be solely liable for all costs and expenses associated with or otherwise caused by Tenant’s performance and installment of the Tenant Work (including, without limitation, any legal compliance requirements arising outside of the Premises; provided, however, that to the extent such exterior legal compliance requirements arise in connection with any portion of the Tenant Work comprising normal and customary standard office improvements, Tenant shall not be directly liable for the cost thereof but instead such amounts may be included in Direct Expenses to the extent not limited by the terms and conditions of the Lease, as amended). Landlord’s approval of the contractors to perform the Tenant Work shall not be unreasonably withheld. The parties agree that Landlord’s approval of the general contractor to perform the Tenant Work shall not be considered to be unreasonably withheld if any such general contractor (a) does not have trade references reasonably acceptable to Landlord, (b) does not maintain insurance as required pursuant to the terms of the Lease, (c) does not have the ability to be bonded for the work in an amount of no less than one hundred fifty percent (150%) of the total estimated cost of the Tenant Work, (d) does not provide current financial statements reasonably acceptable to Landlord, (e) does not execute the Responsible Contractor Policy Statement provided by Landlord, or (f) is not licensed as a contractor in the state/municipality in which the Premises is located. Tenant acknowledges the foregoing is not intended to be an exclusive list of the reasons why Landlord may reasonably withhold its consent to a general contractor.

Notwithstanding the foregoing, it is agreed that other than voce and data cabling (which shall be removed by Tenant at the expiration or earlier termination of the Lease), Tenant shall have no obligation to remove that portion of the Tenant Work that comprises standard office improvements such as gypsum board, partitions, ceiling grids and tiles, fluorescent lighting panels, Building standard doors and non-glued down carpeting.

2. Provided Tenant is not in default, Landlord agrees to contribute the sum of up to $956,715.00 (that is, $15.00 per rentable square foot of the Premises) (the “ Allowance ”) toward the cost of performing the Tenant Work in the Premises. The Allowance may only be used for the cost of preparing design, engineering and construction documents, permits, fees (including fees for Tenant’s project management firm) and mechanical and electrical plans for the Tenant Work and for hard costs in connection with the Tenant Work. Commencing as of January 1, 2014, the Allowance, less a ten percent (10%) retainage (which retainage shall be payable as part of the final draw), shall be paid to Tenant or, at Landlord’s option, to the order of the general contractor that performs the Tenant Work, in periodic disbursements within thirty (30) days after receipt of the following documentation: (a) an application for payment and sworn statement of contractor substantially in the form of AIA Document G-702 covering all work for which disbursement is to be made to a date specified therein; (b) a certification from an AIA architect substantially in the form of the Architect’s Certificate for Payment which is located on AIA Document G702, Application and Certificate of Payment; (c) contractor’s, subcontractor’s and material supplier’s waivers of liens which shall cover all Tenant Work for which disbursement is being requested and all other statements and forms required for compliance with the mechanics’ lien laws of the state in which the Premises is located, together with all such invoices, contracts, or other supporting data as Landlord or Landlord’s mortgagee may reasonably require; (d) a cost breakdown for each trade or subcontractor performing the Tenant Work; (e) plans and specifications for the Tenant Work, together with a certificate from an AIA architect that such plans and specifications comply in all material respects with all laws affecting the Building, Project and Premises; (f) copies of all construction contracts for the Tenant Work, together with copies of all change orders, if any; and (g) a request to disburse from Tenant containing an approval by Tenant of the work done and a good faith estimate of the cost to complete the Tenant Work. Upon completion of the Tenant Work, and prior to final disbursement of the Allowance, Tenant shall furnish Landlord with: (i) general contractor and architect’s completion affidavits; (ii) full and final waivers of lien; (iii) receipted bills covering all labor and materials expended and used; (iv) as-built plans of the Tenant Work; and (v) the certification of Tenant and its architect that the Tenant Work have been installed in a good and workmanlike manner in accordance with the approved plans, and in accordance with applicable laws, codes and ordinances. In no event shall Landlord be required to disburse the Allowance more than one time per month. If the Tenant Work exceed the Allowance, Tenant shall be entitled to the Allowance in accordance with the terms hereof, but each individual disbursement of the Allowance shall be disbursed in the proportion that the Allowance bears to the total cost for the Tenant Work, less the ten percent (10%) retainage referenced above. Notwithstanding anything herein to the contrary, Landlord shall not be obligated to disburse any portion of the Allowance during the continuance of an uncured default under the Lease, as amended hereby, and Landlord’s obligation to disburse shall only resume when and if such default is cured.

3. Notwithstanding anything to the contrary set forth herein, at any time after January 1, 2014, Tenant shall be entitled to apply up to Five and no/100 Dollars ($5.00) per rentable square foot of the Premises (that is, up to $318,905.00) of Allowance to the cost of purchasing and installing furniture, fixtures and equipment (collectively, the “ FF&E ”), which FF&E shall be located at all times at the Premises and for use by Tenant in the Premises. If Tenant does not submit a request for payment of the entire Allowance to Landlord in accordance with the provisions contained in this Exhibit A by June 30, 2015, any unused amount shall accrue to the sole benefit of Landlord, it being understood that Tenant shall not be entitled to any credit, abatement or other concession in connection therewith. Tenant shall be responsible for all applicable state sales or use taxes, if any, payable in connection with the Tenant Work and/or Allowance. Landlord shall be entitled to deduct from the Allowance a supervisory fee for Landlord’s oversight of the Tenant Work in an amount equal to one percent (1%) of the total cost of the Allowance.

4. To the extent any Allowance is applied to any FF&E, Landlord shall own all the FF&E until the expiration of the Lease Term, as amended hereby, (provided that Tenant, not Landlord, shall be responsible for all costs associated with such FF&E, including, without limitation, the cost of insuring the same, all maintenance and repair costs and taxes), at which time the FF&E shall become the property of Tenant as if by bill of sale hereunder. Tenant shall maintain and repair the FF&E in good and working order and shall insure the FF&E to the same extent Tenant is required to insure Tenant’s personal property pursuant to the terms of the Lease, as amended hereby. In the event that the Lease is terminated prior to the Second Extended Lease Expiration Date due to Tenant’s breach or default of the Lease, in connection with a bankruptcy petition filing or otherwise by operation of law, Tenant, at Landlord’s election, shall pay to Landlord the unamortized portion of the costs of the FF&E (no later than the expiration date of the Lease, as amended hereby), or, at Landlord’s election, the FF&E shall remain the property of Landlord and Tenant shall and, in such event, hereby does, waive all of its rights thereto.

5. Provided Tenant is not in default, within sixty (60) days after full execution and delivery of this Second Amendment, Landlord shall provide Tenant with an allowance (the “ Test Fit Allowance ”) in an amount not to exceed $9,567.15 (i.e. $0.15 per rentable square foot of the Premises) to be applied toward preparation of the test fit plan and preliminary pricing for the Tenant Work in the Premises. Subject to the terms of this Exhibit A, Tenant shall enter into a contract with Tenant’s interior design firm for such services and Landlord shall disburse the Test Fit Allowance pursuant to the terms and conditions of this Section 5, and Tenant shall be responsible for the payment of any costs which exceed the Test Fit Allowance.

6. Tenant agrees to accept the Premises in its “as-is” condition and configuration, it being agreed that Landlord shall not be required to perform any work or, except as provided above with respect to the Allowance, incur any costs in connection with the construction or demolition of any improvements in the Premises.

7. This Exhibit A shall not be deemed applicable to any additional space added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the original Premises or any additions to the Premises in the event of a renewal or extension of the Lease Term, as amended hereby, whether by any options under the Lease or otherwise, unless expressly so provided in the Lease or any amendment or supplement to the Lease, as amended hereby.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Delaware		77-0443568
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

960 Stewart Drive, Sunnyvale, California		94085-3913
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Page
PART I: Financial Information

Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets as of December 31, 2013 and June 30, 2013	3
	Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2013 and 2012	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended December 31, 2013 and 2012	5
	Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2013 and 2012	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4	Controls and Procedures	31

PART II: Other information

Item 1	Legal Proceedings	31
Item 1A	Risk Factors	31
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3	Defaults Upon Senior Securities	31
Item 4	Mine Safety Disclosures	31
Item 5	Other Information	31
Item 6	Exhibits	31
	Signatures	32
	Exhibit Index	33

	December 31, 2013			June 30, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	52,226		$	43,775
Short-term investments		5,080			7,501
Accounts receivable, net of allowances of $653 as of December 31, 2013and $639 as of June 30, 2013		30,838			37,118
Inventories		19,282			18,891
Indemnification asset		6,151			6,277
Prepaid expenses and other current assets		5,897			6,417
Total current assets		119,474			119,979
Property and equipment - net		19,333			15,625
Goodwill		122,750			122,750
Intangible assets - net		33,069			38,138
Other assets		3,088			3,295
Total assets	$	297,714		$	299,787
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,337		$	9,790
Accrued liabilities and other		15,161			17,766
Accrued employee compensation		15,321			13,159
Accrued taxes and surcharges		11,100			11,312
Purchase consideration		3,684			3,577
Deferred revenue		43,889			39,692
Total current liabilities		103,492			95,296

Line of credit, net of debt issuance costs		9,048			29,004
Long-term deferred revenue		16,790			15,294
Other long-term liabilities		3,693			4,053
Total liabilities		133,023			143,647
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, par value $.001 per share, authorized 5,000 shares; no shares issued and outstanding		—			—
Common stock and additional paid-in capital, par value $.001 per share, authorized 500,000; issued and outstanding, 61,199 and 59,168 shares as of December 31, 2013 and June 30, 2013, respectively		332,780			322,260
Accumulated other comprehensive income (loss)		4			(2	)
Accumulated deficit		(168,093	)		(166,118	)
Total stockholders’ equity		164,691			156,140
Total liabilities and stockholders’ equity	$	297,714		$	299,787

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2013			2012			2013			2012
Revenue:
Product	$	46,557		$	43,769		$	94,239		$	89,603
Hosted and related services		21,719			17,087			42,458			32,749
Support and services		16,209			13,780			32,075			27,268
Total revenue		84,485			74,636			168,772			149,620
Cost of revenue:
Product (1)		16,341			15,069			32,637			30,856
Hosted and related services (1)		14,078			11,400			26,611			20,542
Support and services (1)		4,207			4,279			8,489			8,468
Total cost of revenue		34,626			30,748			67,737			59,866
Gross profit		49,859			43,888			101,035			89,754
Operating expenses:
Research and development (1)		12,281			12,195			25,561			26,148
Sales and marketing (1)		27,355			31,739			55,021			62,495
General and administrative (1)		10,398			9,292			21,027			17,887
Total operating expenses		50,034			53,226			101,609			106,530
Loss from operations		(175	)		(9,338	)		(574	)		(16,776	)
Other income (expense):
Interest expense		(205	)		(676	)		(492	)		(1,089	)
Interest income and other (expense), net		(334	)		(250	)		(474	)		(239	)
Total other expense		(539	)		(926	)		(966	)		(1,328	)
Loss before provision for income tax		(714	)		(10,264	)		(1,540	)		(18,104	)
Provision for income tax		226			90			435			287
Net loss	$	(940	)	$	(10,354	)	$	(1,975	)	$	(18,391	)
Net loss per share - basic and diluted	$	(0.02	)	$	(0.18	)	$	(0.03	)	$	(0.32	)
Shares used in computing net loss per share - basic and diluted		60,809			58,566			60,177			58,376

(1) Includes stock-based compensation expense as follows:
Cost of product revenue	$	16		$	34		$	45		$	84
Cost of hosted and related services revenue		183			40			232			78
Cost of support and services revenue		126			239			373			446
Research and development		402			919			966			1,978
Sales and marketing		510			1,073			1,054			1,935
General and administrative		846			1,194			1,527			2,331
Total stock-based compensation expense	$	2,083		$	3,499		$	4,197		$	6,852

	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012

Net loss	$	(940	)	$	(10,354	)	$	(1,975	)	$	(18,391	)
Other comprehensive income (loss), net of tax:
Unrealized gains(loss) on short-term investments		(1	)		(6	)	$	6		$	1
Other comprehensive income (loss)		(1	)		(6	)		6			1

Comprehensive loss	$	(941	)	$	(10,360	)	$	(1,969	)	$	(18,390	)

	December 31,			June 30,
	2013			2013
	(Amounts in thousands)
Inventories:
Raw materials	$	128		$	128
Distributor inventory		1,715			1,687
Finished goods		17,439			17,076
Total inventories	$	19,282		$	18,891

Property and equipment:
Computer equipment and tooling	$	30,463		$	23,172
Software		3,119			3,080
Furniture and fixtures		3,327			3,072
Leasehold improvements & others		6,094			6,330
Total property and equipment		43,003			35,654
Less accumulated depreciation and amortization		(23,670	)		(20,029	)
Property and equipment – net	$	19,333		$	15,625

Deferred revenue:
Product	$	5,046		$	4,893
Support and services		51,389			47,074
Hosted and related services		4,244			3,019
Total deferred revenue	$	60,679		$	54,986

	December 31, 2013							June 30, 2013
	Gross Carrying ‎ Amount		Accumulated‎ Amortization			Net Carrying‎ Amount		Gross Carrying ‎ Amount		Accumulated‎ Amortization			Net Carrying‎ Amount
Patents	$	3,810	$	(2,839	)	$	971	$	3,810	$	(2,446	)	$	1,364
Technology		26,644		(11,730	)		14,914		22,948		(8,832	)		14,116
Customer relationships		23,300		(6,150	)		17,150		23,300		(4,448	)		18,852
Non-compete agreements		300		(266	)		34		300		(191	)		109
Intangible assets in process and other		-		-			-		3,697		-			3,697
Intangible assets	$	54,054	$	(20,985	)	$	33,069	$	54,055	$	(15,917	)	$	38,138

Years Ending June 30,
2014 (remaining six months)	$	4,754
2015		8,085
2016		7,404
2017		5,914
2018		3,919
Thereafter		2,993
Total	$	33,069

	Amortized		Gross Unrealized		Gross Unrealized
	Cost		Gains		Losses			Fair Value
As of December 31, 2013
Corporate notes and commercial paper	$	4,494	$	4	$	-		$	4,498
U.S. Government agency securities		582		-		-			582
Total short-term investments	$	5,076	$	4	$	-		$	5,080

As of June 30, 2013
Corporate notes and commercial paper	$	6,107	$	1	$	(3	)	$	6,105
U.S. Government agency securities		1,396		-		-			1,396
Total short-term investments	$	7,503	$	1	$	(3	)	$	7,501

	Amortized Cost		Fair Value
As of December 31, 2013
Less than 1 year	$	4,573	$	4,576
Due in 1 to 3 years		503		504
Total	$	5,076	$	5,080

	December 31, 2013
	Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents:
Money market funds	$	8,719	$	8,719	$	-	$	-
Short-term investments:
Corporate notes and commercial paper		4,498		-		4,498		-
U.S. Government agency securities		582		-		582		-
Total assets measured and recorded at fair value	$	13,799	$	8,719	$	5,080	$	-
Liabilities:
Acquisition-related consideration	$	3,684	$	-	$	3,684	$	-

Reserved under stock option plans			15,981
Reserved under employee stock purchase plan			316
Total			16,297

	Options Outstanding
	Shares Subject to Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance at July 1, 2013		8,898		$	5.45
Options granted (weighted average fair value $2.72 per share)		1,545			4.73
Options exercised		(1,566	)		3.97
Options cancelled/forfeited		(404	)		5.89
Balance at December 31, 2013		8,473		$	5.57		6.57	$	32,404
Vested and expected to vest at December 31, 2013		7,566		$	5.67		6.22	$	28,237
Options exercisable at December 31, 2013		4,844		$	5.90		4.89	$	17,183

	Number of Shares (thousands)		Weighted Average Remaining Contractual Lives		Aggregate Intrinsic Value (thousands)
Shares outstanding		1,592		1.60	$	14,776
Shares vested and expected to vest		1,148		1.50	$	10,652

	Six Months Ended
	December 31,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,975	)	$	(18,391	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		8,866			7,562
Stock-based compensation expense		4,197			6,852
Amortization of premium on investments		74			88
Loss on disposal of property and equipment		278			87
Provision for doubtful accounts receivable		125			-
Change in fair value of purchase consideration		107			653
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable		6,155			2,364
Inventories		(8	)		(57	)
Indemnification asset		126			(442	)
Prepaid expenses and other current assets		520			(203	)
Other assets		207			170
Accounts payable		3,841			2,181
Accrued liabilities and other		(2,389	)		(2,975	)
Accrued employee compensation		2,162			937
Accrued taxes and surcharges		(212	)		3,174
Deferred revenue		5,693			2,364
Net cash provided by operating activities		27,767			4,364

CASH FLOWS FROM INVESTING ACTIVITES:
Purchases of property and equipment		(7,206	)		(5,808	)
Purchases of investments		-			(4,318	)
Proceeds from sale/maturities of investments		2,353			14,389
Purchases of patents, technology and other intangible assets		-			(1,555	)
Net cash provided by (used in) investing activities		(4,853	)		2,708

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		6,867			964
Taxes paid on vested and released stock awards		(544	)		(695	)
Borrowings from line of credit		-			4,974
Payments made under line of credit		(20,000	)		(5,000	)
Payments made under capital leases		(786	)		(596	)
Net cash used in financing activities		(14,463	)		(353	)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2013			2012			2013			2012

Expected life from grant date of option (in years)		5.31			5.42			5.43			5.32 - 5.42
Expected life from grant date of ESPP (in years)		0.50			0.50			0.50			0.50
Risk free interest rate for options		1.44	%		0.69	%		1.51	%		0.67% - 0.69	%
Risk free interest rate for ESPP		0.10	%		0.13% - 0.15	%		0.07% - 0.10	%		0.13% - 0.15	%
Expected volatility for options		65	%		69	%		66	%		69	%
Expected volatility for ESPP		48	%		44% - 57	%		42% - 48	%		44% - 57	%
Expected dividend yield		0	%		0	%		0	%		0	%

	Six Months Ended
	December 31,
	2013			2012
Beginning outstanding		1,310			1,641
Awarded		781			526
Released		(384	)		(488	)
Forfeited		(115	)		(122	)
Ending outstanding		1,592			1,557

	December 31, 2013
	Local Currency Amount		Notional Contract Amount (USD)
Australian dollar	$	2,820		2,484
British pound	£	1,310		2,171
Euro	€	480		658
Total			$	5,313

Years Ending June 30,	Operating Leases		Capital Leases
2014 (remaining six months)	$	2,157	$	698
2015		4,539		427
2016		4,715		41
2017		4,586		7
2018		3,897		-
Therafter		6,314		-
Total minimum lease payments	$	26,208		1,173

Less: amount representing interest				(47	)
Present value of total minimum lease payments				1,126
Less: current portion liability				(1,007	)
Capital lease obligation, net of current portion			$	119

	Three Months Ended				Six Months Ended
	December 31				December 31
	2013		2012		2013		2012
Total revenues:
Premise	$	62,766	$	57,549	$	126,314	$	116,871
Hosted		21,719		17,087		42,458		32,749
Total	$	84,485	$	74,636	$	168,772	$	149,620

Gross profit:
Premise	$	42,218	$	38,201	$	85,188	$	77,547
Hosted		7,641		5,687		15,847		12,207
Total	$	49,859	$	43,888	$	101,035	$	89,754

	Premise Segment		Hosted Segment		Total
As of June 30, 2013	$	7,415	$	115,335	$	122,750

As of December 31, 2013	$	7,415	$	115,335	$	122,750

	December 31,		June 30,		Increase/
	2013		2013		(Decrease)
Cash and cash equivalents	$	52,226	$	43,775	$	8,451
Short-term investments		5,080		7,501		(2,421	)
Total	$	57,306	$	51,276	$	6,030

	Payments Due by Period
	Total		Less Than		1-3 Years		3-5 Years		Thereafter
(In thousands)			1 Year
Operating lease obligations	$	26,208	$	4,374	$	9,404	$	9,610	$	2,820
Capital lease obligations		1,173		945		228		-		-
Line of credit		9,332		-		-		9,332		-
Non-cancellable purchase commitments (inventory and software licenses)		31,445		30,960		485		-		-
Purchase consideration		3,684		3,684		-		-		-
Total	$	71,842	$	39,963	$	10,117	$	18,942	$	2,820

	ShoreTel, Inc.

	By:	/s/ M ICHAEL E. H EALY
		Michael E. Healy
		Chief Financial Officer

Exhibit Number	Exhibit Title
10.1+	Transitional Offer letter dated November 22, 2013, by the Company and Keith Nealon.

10.2	Second Amendment to Lease with Wilson Oakmead West, LLC, the Landlord for the Company’s headquarters office space located at 960 Stewart Drive, Sunnyvale, California .

31.1(1)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2(1)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1(1)	Section 1350 Certification of Chief Executive Officer.

32.2(1)	Section 1350 Certification of Chief Financial Officer.

		/s/ Don H. Joos
		Don H. Joos
		Chief Executive Officer
		(Principal Executive Officer)

		/s/ Michael E. Healy
		Michael E. Healy
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

	By:	/s/ Don H. Joos
	Name:	Don H. Joos
	Title:	Chief Executive Officer
		(Principal Executive Officer)