ShoreTel Inc (Form: 10-K, Received: 09/10/2009 13:04:40)

Exhibit A

EXHIBIT B

TOP OF BUILDING SIGNAGE

Exhibit B, Page 1

Exhibit B, Page 2

EXHIBIT C

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

RECORDING REQUESTED BY

WHEN RECORDED RETURN TO

Bank of America N.A.

Attn: Servicing Manager

900 West Trade Street, Ste 650
Charlotte, NC 28255

APN: 205-22-023, 205-25-014

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

SHORETEL, INC.

Tenant

AND

LASALLE BANK, N.A., as Trustee in trust for

Holders of Deutsche Mortgage & Asset Receiving Corporation,

COMM 2006-FL12 Commercial Mortgage Pass-Through Certificates

Lender

	Premises:	960 Stewart Drive, Sunnyvale, California
	Dated:	as of ___________ ___, 2009

Exhibit C, Page 1

SUBORDINATION,

NON-DISTURBANCE AND ATTORNMENT AGREEMENT

THIS AGREEMENT made as of this ___ day of _________, 2009, between LASALLE BANK, N.A., as Trustee in Trust for Holders of Deutsche Mortgage & Asset Receiving Corporation, COMM 2006-FL12 Commercial Mortgage Pass-Through Certificates, having an address at c/o Bank of America N.A., Attn: Servicing Manager, 900 West Trade Street, Ste 650, Charlotte, NC 28255 (hereinafter called " Lender "), and SHORETEL, INC., a California corporation, having an address at 960 Stewart Drive, Sunnyvale, California 94085 (hereinafter called " Tenant ").

RECITALS:

WHEREAS, by a lease dated as of April 20, 2007 (the " Initial Lease "), between Carr NP Properties L.L.C., a Delaware limited liability company (hereinafter called " Landlord "), as landlord, and Tenant, as tenant (" Lease "), Landlord leased to Tenant certain premises located at 960 Stewart Drive, Sunnyvale, California (the " Premises ") on the property described in Schedule "A" annexed hereto and made a part hereof (the " Property "); and

WHEREAS, the Initial Lease has been amended by that certain First Amendment to Lease dated as of June 18, 2009 (the " First Amendment "; and, together with the Initial Lease, the " Lease ");

WHEREAS, Lender has made a loan to Landlord, which loan is secured by, among other things, a mortgage or deed of trust (which mortgage or deed of trust, and all amendments, renewals, increases, modifications, replacements, substitutions, extensions, spreaders and consolidations thereof and all re-advances thereunder and addictions thereto, is referred to as the " Security Instrument ") encumbering the Property and recorded in the Santa Clara County Official Records; and

WHEREAS, Lender and Tenant desire to confirm their understanding and agreement with respect to the Lease and the Security Instrument.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, Lender and Tenant hereby agree and covenant as follows:

1. The Lease, and all of the terms, covenants, provisions and conditions thereof (including, without limitation, any right of first refusal, right of first offer, option or any similar right with respect to the sale or purchase of the Property, or any portion thereof) is, shall be and shall at all times remain and continue to be subject and subordinate in all respects to the lien, terms, covenants, provisions and conditions of the Security Instrument and to all advances and re-advances made thereunder and all sums secured thereby. This provision shall be self-operative but Tenant shall execute and deliver any additional instruments which Lender may reasonably require to effect such subordination.

2. So long as (i) Tenant is not in default (beyond any period given in the Lease to Tenant to cure such default) in the payment of rent, percentage rent or additional rent or in the performance or observance of any of the other terms, covenants, provisions or conditions of the

Exhibit C, Page 2

Lease on Tenant's part to be performed or observed, (ii) Tenant is not in default under this Agreement and (iii) the Lease is in full force and effect (except if terminated pursuant to the Landlord’s bankruptcy): (a) Tenant's possession of the Premises and Tenant's rights and privileges under the Lease, or any extensions or renewals thereof which may be effected in accordance with any option therefor which is contained in the Lease, shall not be diminished or interfered with by Lender, and Tenant's occupancy of the Premises shall not be disturbed by Lender for any reason whatsoever during the term of the Lease or any such extensions or renewals thereof and (b) Lender will not join Tenant as a party defendant in any action or proceeding to foreclose the Security Instrument or to enforce any rights or remedies of Lender under the Security Instrument which would cut-off, destroy, terminate or extinguish the Lease or Tenant's interest and estate under the Lease (except to the extent required so that Tenant's right to receive or set-off any monies or obligations owed or to be performed by any of Lender's predecessors-in-interest shall not, except as set for in Section 11.1 of the First Amendment, be enforceable thereafter against Lender or any of Lender's successors-in-interest). Notwithstanding the foregoing provisions of this paragraph, if it would be procedurally disadvantageous for Lender not to name or join Tenant as a party in a foreclosure proceeding with respect to the Security Instrument, Lender may so name or join Tenant without in any way diminishing or otherwise affecting the rights and privileges granted to, or inuring to the benefit of, Tenant under this Agreement.

3. (A) After notice is given by Lender that the Security Instrument is in default and that the rentals under the Lease should be paid to Lender, Tenant will attorn to Lender and pay to Lender, or pay in accordance with the directions of Lender, all rentals and other monies due and to become due to Landlord under the Lease or otherwise in respect of the Premises. Such payments shall be made regardless of any right of off-set, counterclaim or other defense which Tenant may have against Landlord, whether as the tenant under the Lease or otherwise, except as set forth in Section 11.1 of the First Amendment.

(B) In addition, if Lender (or its nominee or designee) shall succeed to the rights of Landlord under the Lease through possession or foreclosure action, delivery of a deed or otherwise, or another person purchases the Property or the portion thereof containing the Premises upon or following foreclosure of the Security Instrument or in connection with any bankruptcy case commenced by or against Landlord, then at the request of Lender (or its nominee or designee) or such purchaser (Lender, its nominees and designees, and such purchaser, and their respective successors and assigns, each being a " Successor-Landlord "), Tenant shall attorn to and recognize Successor-Landlord as Tenant's landlord under the Lease and shall promptly execute and deliver any instrument that Successor-Landlord may reasonably request to evidence such attornment. Upon such attornment, the Lease shall continue in full force and effect as, or as if it were, a direct lease between Successor-Landlord and Tenant upon all terms, conditions and covenants as are set forth in the Lease. If the Lease shall have terminated by operation of law or otherwise as a result of or in connection with a bankruptcy case commenced by or against Landlord or a foreclosure action or proceeding or delivery of a deed in lieu, upon request of Successor-Landlord, Tenant shall promptly execute and deliver a direct lease with Successor-Landlord which direct lease shall be on substantially the same terms and conditions as the Lease (subject, however, to the provisions of clauses (i)-(v) of this paragraph 3(B) and shall be effective as of the day the Lease shall have terminated as aforesaid. Notwithstanding the continuation of the Lease, the attornment of Tenant thereunder or the

Exhibit C, Page 3

execution of a direct lease between Successor-Landlord and Tenant as aforesaid, Successor-Landlord shall not:

(i) be liable for any previous act or omission of Landlord under the Lease;

(ii) be subject to any off-set, defense, or counterclaim which shall have theretofore accrued to Tenant against Landlord, except as expressly provided in Section 11.1 of the First Amendment;

(iii) be bound by any modification of the Lease or by any previous prepayment of rent or additional rent made more than one (1) month prior to the date same was due which Tenant might have paid to Landlord, unless such modification or prepayment shall have been expressly approved in writing by Lender or Successor Landlord and except as set forth in Section 3.1 of the First Amendment;

(iv) be liable for any security deposited under the Lease unless such security has been physically delivered to Lender or Successor Landlord; and

(v) be liable or obligated to comply with or fulfill any of the obligations of the Landlord under the Lease or any agreement relating thereto with respect to the construction of, or payment for, improvements on or above the Premises (or any portion thereof), leasehold improvements, tenant work letters and/or similar items.

4. Tenant agrees that, without the prior written consent of Lender, it shall not (a) amend, modify, terminate or cancel the Lease or any extensions or renewals thereof, (b) tender a surrender of the Lease, (c) make a prepayment of any rent or additional rent more than one (1) month in advance of the due date thereof, and except as set forth in Section 3.1 of the First Amendment, or (d) subordinate or permit the subordination of the Lease to any lien subordinate to the Security Instrument. Any such purported action without such consent shall be void as against the holder of the Security Instrument.

5. (A) Tenant shall promptly notify Lender of any default by Landlord under the Lease and of any act or omission of Landlord which would give Tenant the right to cancel or terminate the Lease or to claim a partial or total eviction.

(B) In the event of a default by Landlord under the Lease which would give Tenant the right, immediately or after the lapse of a period of time, to cancel or terminate the Lease or to claim a partial or total eviction, or in the event of any other act or omission of Landlord which would give Tenant the right to cancel or terminate the Lease, Tenant shall not exercise such right (i) until Tenant has given written notice of such default, act or omission to Lender and (ii) unless Lender has failed, within sixty (60) days after Lender receives such notice, to cure or remedy the default, act or omission, or, if such default, act or omission shall be one which is not reasonably capable of being remedied by Lender within such sixty (60) day period, until a reasonable period for remedying such default, act or omission shall have elapsed following the giving of such notice and following the time when Lender shall have become entitled under the Security Instrument to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under the Lease or otherwise,

Exhibit C, Page 4

after similar notice, to effect such remedy), provided that Lender shall with due diligence give Tenant written notice of its intention to and shall commence and continue to, remedy such default, act or omission. If Lender cannot reasonably remedy a default, act or omission of Landlord until after Lender obtains possession of the Premises, Tenant may not terminate or cancel the Lease or claim a partial or total eviction by reason of such default, act or omission until the expiration of a reasonable period necessary for the remedy after Lender secures possession of the Premises through appointment of a receiver or foreclosure. To the extent Lender incurs any expenses or other costs in curing or remedying such default, act or omission, including, without limitation, attorneys' fees and disbursements, Lender shall be subrogated to Tenant's rights against Landlord.

6. To the extent that the Lease shall entitle Tenant to notice of the existence of any mortgage and the identity of any mortgagee or any ground lessor, this Agreement shall constitute such notice to Tenant with respect to the Security Instrument and Lender.

7. Upon and after the occurrence of a default under the Security Instrument, which is not cured after any applicable notice and/or cure periods, Lender shall be entitled, but not obligated, to exercise the claims, rights, powers, privileges and remedies of Landlord under the Lease and shall be further entitled to the benefits of, and to receive and enforce performance of, all of the covenants to be performed by Tenant under the Lease as though Lender were named therein as Landlord.

8. Anything herein or in the Lease to the contrary notwithstanding, in the event that a Successor-Landlord shall acquire title to the Property or the portion thereof containing the Premises, Successor-Landlord shall have no obligation, nor incur any liability, beyond Successor-Landlord's then interest, if any, in the Property, and Tenant shall look exclusively to such interest, if any, of Successor-Landlord in the Property for the payment and discharge of any obligations imposed upon Successor-Landlord hereunder or under the Lease, and Successor-Landlord is hereby released or relieved of any other liability hereunder and under the Lease. Tenant agrees that, with respect to any money judgement which may be obtained or secured by Tenant against Successor-Landlord, Tenant shall look solely to the estate or interest owned by Successor-Landlord in the Property, and Tenant will not collect or attempt to collect any such judgement out of any other assets of Successor-Landlord.

9. Notwithstanding anything to the contrary in the Lease, Tenant agrees for the benefit of Landlord and Lender that, except as permitted by, and fully in accordance with, applicable law, Tenant shall not generate, store, handle, discharge or maintain in, on or about any portion of the Property, any asbestos, polychlorinated biphenyls, or any other hazardous or toxic materials, wastes and substances which are defined, determined or identified as such (including, but not limited to, pesticides and petroleum products if they are defined, determined or identified as such) in any federal, state or local laws, rules or regulations (whether now existing or hereafter enacted or promulgated) or any judicial or administrative interpretation of any thereof, including any judicial or administrative interpretation of any thereof, including any judicial or administrative orders or judgments.

Exhibit C, Page 5

10. If the Lease provides that Tenant is entitled to expansion space, Successor-Landlord shall have no obligation nor any liability for failure to provide such expansion space if a prior landlord (including, without limitation, Landlord), by reason of a lease or leases entered into by such prior landlord with other tenants of the Property, has precluded the availability of such expansion space.

11. Except as specifically provided in this Agreement, Lender shall not, by virtue of this Agreement, the Security Instrument or any other instrument to which Lender may be a party, be or become subject to any liability or obligation to Tenant under the Lease or otherwise.

12. (A) Tenant acknowledges and agrees that this Agreement satisfies and complies in all respects with the provisions of Article 18 of the Lease and that this Agreement supersedes (but only to the extent inconsistent with) the provisions of such Article and any other provision of the Lease relating to the priority or subordination of the Lease and the interests or estates created thereby to the Security Instrument.

(B) Tenant agrees to enter into a subordination, non-disturbance and attornment agreement with any lender which shall succeed Lender as lender with respect to the Property, or any portion thereof, provided such agreement is substantially similar to this Agreement. Tenant does herewith irrevocably appoint and constitute Lender as its true and lawful attorney-in-fact in its name, place and stead to execute such subordination, non-disturbance and attornment agreement, without any obligation on the part of Lender to do so. This power, being coupled with an interest, shall be irrevocable as long as the Indebtedness secured by the Security Instrument remains unpaid. Lender agrees not to exercise its rights under the preceding two sentences if Tenant promptly enters into the subordination, non-disturbance and attornment agreement as required pursuant to the first sentence of this subparagraph (B).

13. (A) Any notice required or permitted to be given by Tenant to Landlord shall be simultaneously given also to Lender, and any right to Tenant dependent upon notice shall take effect only after notice is so given. Performance by Lender shall satisfy any conditions of the Lease requiring performance by Landlord, and Lender shall have a reasonable time to complete such performance as provided in Paragraph 5 hereof.

(B) All notices or other communications required or permitted to be given to Tenant or to Lender pursuant to the provisions of this Agreement shall be in writing and shall be deemed given only if mailed by United States registered mail, postage prepaid, or if sent by nationally recognized overnight delivery service (such as Federal Express or United States Postal Service Express Mail), addressed as follows: to Tenant, at the address first set forth above, Attention: Director of Facilities and Chief Financial Officer, with a copy to Lender, at the address first set forth above; or to such other address or number as such party may hereafter designate by notice delivered in accordance herewith. All such notices shall be deemed given three (3) business days after delivery to the United States Post office registry clerk if given by registered mail, or on the next business day after delivery to an overnight delivery courier.

14. This Agreement may be modified only by an agreement in writing signed by the parties hereto, or their respective successors-in-interest. This Agreement shall inure to the

Exhibit C, Page 6

benefit of and be binding upon the parties hereto, and their respective successors and assigns. The term "Lender" shall mean the then holder of the Security Instrument. The term "Landlord" shall mean the then holder of the landlord's interest in the Lease. The term "person" shall mean an individual, joint venture, corporation, partnership, trust, limited liability company, unincorporated association or other entity. All references herein to the Lease shall mean the Lease as modified by this Agreement and to any amendments or modifications to the Lease which are consented to in writing by Lender. Any inconsistency between the Lease and the provisions of this Agreement shall be resolved, to the extent of such inconsistency, in favor of this Agreement.

15.

Tenant hereby represents to Lender as follows:

(a)

The Lease is in full force and effect and has not been further amended.

(b) There has been no assignment of the Lease or subletting of any portion of the premises demised under the Lease.

(c) There are no oral or written agreements or understandings between Landlord and Tenant relating to the premises demised under the Lease or the Lease transaction except as set forth in the Lease.

(d) The execution of the Lease was duly authorized and the Lease is in full force and effect and to the best of Tenant's knowledge there exists no default (beyond any applicable grace period) on the part of either Tenant or Landlord under the Lease.

(e) There has not been filed by or against nor to the best of the knowledge and belief of Tenant is there threatened against Tenant, any petition under the bankruptcy laws of the United States.

(f) To the best of Tenant's knowledge, there is no present assignment, hypothecation or pledge of the Lease or rents accruing under the Lease by Landlord, other than pursuant to the Security Instrument.

16. Whenever, from time to time, reasonably requested by Lender (but not more than three (3) times during any calendar year), Tenant shall execute and deliver to or at the direction of Lender, and without charge to Lender, one or more written certifications, in a form acceptable to Tenant, of all of the matters set forth in Paragraph 15 above, and any other information the Lender may reasonably require to confirm the current status of the Lease.

17. BOTH TENANT AND LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

18. This Agreement shall be governed by and construed in accordance with the laws of the State in which the Property is located.

Exhibit C, Page 7

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

LENDER

LASALLE BANK, N.A., as Trustee in trust for Holders of Deutsche Mortgage & Asset Receiving Corporation, COMM 2006-FL12 Commercial Mortgage Pass-Through Certificates


	By:	Bank of America N.A., as Sub-Servicer

		By:

		Name:

		Title:

		TENANT

		SHORETEL, INC., a California corporation

		By:

		Name:

		Title:

AGREED AND CONSENTED TO:

CARR NP PROPERTIES, L.L.C.

By:

Name:

Title:

Exhibit C, Page 8

STATE OF _______________________	)
	) ss.

COUNTY OF ______________________

)

On ___________________, before me, _____________________________, personally appeared _____________________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

_______________________________________________

Signature of Notary Public (Seal)

STATE OF _______________________

)

) ss.

COUNTY OF ______________________

)

WITNESS my hand and official seal.

_______________________________________________

Signature of Notary Public (Seal)

Exhibit C, Page 9

STATE OF _______________________

)

) ss.

COUNTY OF ______________________

)

WITNESS my hand and official seal.

_______________________________________________

Signature of Notary Public (Seal)

STATE OF _______________________

)

) ss.

COUNTY OF ______________________

)

WITNESS my hand and official seal.

_______________________________________________

Signature of Notary Public (Seal)

Exhibit C, Page 10

SCHEDULE A

Legal Description of Property

All that real property situated in the City of Sunnyvale, County of Santa Clara, State of California, more particularly described as follows:

Exhibit C, Page 11


þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the year ended June 30, 2009

or

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


Commission file number: 001-33506

SHORETEL, INC.
(Exact name of Registrant as specified in its charter)

Delaware	3661	77-0443568
(State or other jurisdiction of	(Primary standard	(I.R.S. employer
incorporation or organization)	industrial code number)	identification no.)

960 Stewart Drive Sunnyvale, CA 94085-3913 (408) 331-3300
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None.

Securities registered pursuant to Section 12(g) of the Act: Shares of Common Stock, $0.001 par value


	Large accelerated filer o	Accelerated Filer þ
	Non-accelerated filer o	Smaller reporting company o
	(do not check if a smaller reporting company)


		Page

	PART I
Item 1	Business	4
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	22
Item 2	Properties	22
Item 3	Legal Proceedings	22
Item 4	Submission of Matters to a Vote of Security Holders	22

	PART II
Item 5	Market for Our Common Stock and Related Stockholder Matters	23
Item 6	Selected Consolidated Financial Data	25
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8	Financial Statements and Supplementary Data	40
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	64
Item 9A	Controls and Procedures	64
Item 9B	Other Information	66

	PART III
Item 10	Directors and Executive Officers of the Registrant and Corporate Governance	66
Item 11	Executive Compensation	66
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
Item 13	Certain Relationships and Related Transactions, Director Independence	66
Item 14	Principal Accountant Fees and Services	66

	PART IV
Item 15	Exhibits and Financial Statement Schedules	66
Signatures		67


	•	Personal Call Manager. ShoreWare® Call Manager is an application suite for end users that includes ShoreWare Personal Call Manager, ShoreWare Professional Call Manager, ShoreWare Operator Call Manager and ShoreWare Mobile Call Manager Each application enables users to easily manage communications from their computer, and seamlessly move between video, voice (wired or wireless) or IM. By streamlining business communications, Call Manager improves communication accuracy, boosts productivity, and helps ensure effective collaboration. Call Manager provides easy licensing, easy set up, flexible features, telephony and IM control, integrated advanced call management, quality desktop video and softphone and a highly customizable interface.

	•	Office Anywhere. The Office Anywhere feature enables end users outside the office to manage calls with Personal Call Manager and to enjoy the same call handling productivity benefits as their office-based colleagues. Calls directed to the end user’s office phone are forwarded to the end user’s location, and the end user’s outbound calls appear to the called party as if they originated in the end user’s office. Using Office Anywhere, end users have the same call management and unified messaging features and functionality at remote locations as they have in their offices.

	•	Unified Messaging. Unified Messaging integrates our voicemail application with Microsoft Outlook. This enables end users to receive, send, be notified of and play voice mail messages through their Microsoft Outlook email.

	•	Automated Attendant. Automated Attendant provides end users with a 24-hour automated call answering and routing capability that enables the enterprise to direct callers to appropriate individuals, workgroups or messages.

	•	ShoreTel Contact Center. ShoreWare Contact Center applications provide a range of features to satisfy the needs of all organizations, from basic call center capabilities to sophisticated distributed multimedia contact center capabilities. The virtual contact center is now a reality as ShoreWare Contact Center enables organizations to route incoming contacts to the most appropriate agent in a multisite contact center, regardless of location.

	•	Converged Conferencing. ShoreTel Converged Conferencing enables enterprises to conduct large audio conferences and provides collaboration tools for application sharing, desktop sharing, instant messaging and end user presence information.

	•	Microsoft Integration . For customers seeking to leverage their investment in Microsoft’s Unified Communications portfolio, ShoreTel offers a range of integration options. Users can leverage their Microsoft Exchange messaging platform and Microsoft Office Communications Server installation with the ShoreTel solution as well as control their ShoreTel IP telephony using the Microsoft Office Communicator.

	•	ShoreWare system management. Our browser-based system management applications consist of ShoreWare Director and ShoreWare System Monitor.

	•	ShoreWare Director. ShoreWare Director provides enterprises with a single point of system management, enabling IT administrators to view and manage the entire system of the enterprise from any location using a single application. A new end user’s extension, mailbox and automated attendant profile can be added from a single management screen, avoiding the additional work required with most PBXs, voice mail systems and automated attendants.

	•	Business integration. We offer businesses the option to enhance their communication, enable their business applications pre-built solutions that integration with several customer relationship management (CRM) solutions (Salesforce.com, Microsoft Dynamics, Netsuite and RightNow) as well as cost recovery applications (Equitrak and Copitrak, and Lexis/Nexis Time Matters). These integrations are designed to improve the productivity of end users that use these application by seamlessly integrating communications capabilities into their data-driven workflow. Customers or partners can create additional business integrations using the open interfaces of the system available for developers through ShoreTel’s Developer Network.


	•	Post-contractual support services include web-based access support services and tools, access to technical support engineers, hardware replacement and software updates. These services are typically offered under support contracts with terms of up to five years.

	•	Training services include certification programs for channel partners, training programs at enterprise customer or channel partner locations and self-paced, desktop training programs.

	•	System design and installation services include the assessment of the unified communications requirements of a particular enterprise, the configuration of a system to maximize its efficiency, the management of the installation, and the subsequent testing and implementation of our systems.

	•	Professional services include software development to improve system performance, enable integration of our systems with third party applications or legacy systems, streamline business processes and address enterprise customer-specific business opportunities.


	•	software that allows a geographically-distributed system to operate and be managed as a single system;

	•	software that enables calling between switches and allows calls to be distributed among switches instead of using a single centralized switch;

	•	software that enables ShoreGear switches to obtain call routing information;

	•	software that monitors the bandwidth consumed on each WAN segment and prevents the system from exceeding bandwidth limitations;

	•	software that monitors all call activity on ShoreGear switches, and enables integration of ShoreTel and third-party applications;

	•	software that coordinates the functions of all servers on the system, allowing them to perform as a single, virtual server;

	•	software that enables remote ShoreTel and third-party applications to access and modify our systems;

	•	software that enables the switch to communicate with the application server, and receive system configuration information;

	•	software that allows each switch to maintain a comprehensive view of the system; and

	•	software that provides a graphical user interface for our phones.


	•	avoid costly capital expenditures for the establishment of manufacturing operations;

	•	focus on the design, development, sales and support of our hardware products; and

	•	leverage the scale, expertise and purchasing power of specialized contract manufacturers.


	• Providers of IP systems, including Cisco Systems

	• Providers of hybrid IP/TDM communication systems, including Aastra, Avaya, Alcatel-Lucent, Mitel Networks, NEC, Nortel Networks and Siemens

	• Providers of Unified Communications software applications providers, including Microsoft


		•	Product scalability without significant upgrades from 10 to 10,000 users in a single image configuration

		•	Customer satisfaction measured by independent third parties

		•	World class customer service and support from technicians and support centers located around the world

		•	Ease of management for system administrators

		•	Productivity tools for users with integrated unified communications capabilities

		•	Lowest total cost of ownership compared to competitor’s IP and hybrid system


		•	Highest system availability and reliability with our distributed architecture

		•	Lower selling costs for resellers and distributors with ease of implementation


Name	Age	Position

John W. Combs	62	Chairman, President and Chief Executive Officer
Edwin J. Basart	60	Founder, Chief Technology Officer and Director
Michael E. Healy	48	Chief Financial Officer
Donald J. Girskis	49	Senior Vice President, Worldwide Sales
Pedro E. Rump	53	Vice President, Engineering and Operations
Walter Weisner	53	Vice President, Global Services
Ava M. Hahn	36	Vice President, General Counsel and Secretary


	•	the purchasing and budgeting cycles of enterprise customers;

	•	the timing and volume of shipments of our products during a quarter, particularly as we have recently begun to experience an increased level of sales occurring towards the end of a quarter;

	•	delays in purchasing decisions by our customers from one quarter to the next, or later;

	•	adverse conditions specific to the IP telecommunications market, including decreased demand due to overall economic conditions or reduced discretionary spending by enterprises, rates of adoption of IP telecommunications systems and introduction of new standards;

	•	the amount and timing of operating costs related to the maintenance and expansion of our business, operations and infrastructure;

	•	the timing of recognition of revenue from sales to our customers;

	•	the timing and success of new product introductions by us or our competitors;

	•	changes in our or our competitors’ pricing policies or sales terms;

	•	changes in the mix of our products and services sold during a particular period;

	•	our ability to control costs, including third-party manufacturing costs and costs of components;

	•	our ability to obtain sufficient supplies of components;


	•	our ability to maintain sufficient production volumes for our products from our contract manufacturers;

	•	volatility in our stock price, which may lead to higher stock compensation expenses pursuant to Statement of Financial Accounting Standards No. 123(R), Share-Based Payment;

	•	volatility and fluctuation in foreign currency exchange rates;

	•	the timing of costs related to the development or acquisition of technologies or businesses;

	•	changes in domestic and international regulatory environments affecting the internet and telecommunications industries;

	•	our ability to successfully expand our international operations;

	•	seasonality in our target markets;

	•	general economic conditions or economic recession;

	•	decline in interest rates on our investments; and

	•	publicly-announced litigation, and the impact of such litigation on our operating results.


	*The market in which we operate is intensely competitive, and many of our competitors are larger, more established and better capitalized than we are.*


ITEM 1.	*BUSINESS*


I TEM 1A.	*RISK FACTORS*


	*If we fail to manage our growth effectively, our business could be harmed.*


	•	supplier capacity constraints;

	•	price increases;

	•	purchasing lead times;

	•	timely delivery; and

	•	component quality.


	•	greater market presence, name recognition and brand reputation;

	•	larger distribution channels;

	•	a larger installed base of telecommunications and networking systems with enterprise customers;

	•	larger and more geographically distributed services and support organizations and capabilities;

	•	a broader offering of telecommunications and networking products, applications and services;

	•	a more established international presence to address the needs of global enterprises;

	•	larger patent and intellectual property portfolios;

	•	longer operating histories;

	•	a longer history of implementing large-scale telecommunications or networking systems;

	•	more established relationships with industry participants, customers, suppliers, distributors and other technology companies; and

	•	the ability to acquire technologies or consolidate with other companies in the industry to compete more effectively.


	As voice and data networks converge, we are likely to face increased competition from Microsoft and other companies in the information technology, personal and business applications and software industries.


	*If the emerging market for enterprise IP telecommunications systems does not continue to grow and if we do not increase our market share, our future business would be harmed.*


	•	initial costs of implementation for a new system;

	•	quality of infrastructure;

	•	security concerns;

	•	equipment, software or other technology failures;

	•	regulatory encroachments;

	•	inconsistent quality of service;

	•	perceived unreliability or poor voice quality over IP networks as compared to circuit-switched networks; and

	•	lack of availability of cost-effective, high-speed network capacity.


	*Our sales cycle can be lengthy and unpredictable, which makes it difficult to forecast the amount of our sales and operating expenses in any particular period.*


	•	the timing of enterprise customers’ budget cycles and approval processes;

	•	a technical evaluation or trial by potential enterprise customers;

	•	our ability to introduce new products, features or functionality in a manner that suits the needs of a particular enterprise customer;

	•	the announcement or introduction of competing products; and

	•	the strength of existing relationships between our competitors and potential enterprise customers.


	If we fail to develop and introduce new products and features in a timely manner, or if we fail to manage product transitions, we could experience decreased revenue or decreased selling prices in the future.


	•	the ability of our products to compete with the products and solutions offered by our competitors;

	•	the cost of our products;

	•	the reliability of our products;

	•	the timeliness of the introduction and delivery of our products; and

	•	the market acceptance of our products.


	Our products incorporate some sole sourced components and the inability of these sole source suppliers to provide adequate supplies of these components may prevent us from selling our products for a significant period of time or limit our ability to deliver sufficient amounts of our products.


	*If we fail to offer high quality customer support and services, our business would suffer.*


	*If we fail to forecast demand for our products accurately, we may have excess or insufficient inventory, which may increase our operating costs, decrease our revenues and harm our business.*


	*Our products are highly complex and may contain undetected software or hardware errors, which could harm our reputation and future product sales.*


	*If we fail to respond to technological changes and evolving industry standards, our products could become obsolete or less competitive in the future.*


	*Our future success depends on our ability to attract, integrate and retain key personnel, and our failure to do so could harm our ability to grow our business.*


	*We intend to expand our international operations, which could expose us to significant risks.*


	•	our ability to comply with differing technical and environmental standards and certification requirements outside the United States;

	•	difficulties and costs associated with staffing and managing foreign operations;


	•	greater difficulty collecting accounts receivable and longer payment cycles;

	•	the need to adapt our products for specific countries;

	•	availability of reliable broadband connectivity and wide area networks in targeted areas for expansion;

	•	unexpected changes in regulatory requirements;

	•	difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions;

	•	tariffs, export controls and other non-tariff barriers such as quotas and local content rules;

	•	more limited protection for intellectual property rights in some countries;

	•	adverse tax consequences;

	•	fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk;

	•	restrictions on the transfer of funds; and

	•	new and different sources of competition.


	*We are subject to environmental and other health and safety regulations that may increase our costs of operations or limit our activities.*


	Some of our competitors could design their products to prevent or impair the interoperability of our products with enterprise customers’ networks, which could cause installations to be delayed or cancelled.


	*Our products require reliable broadband connections, and we may be unable to sell our products in markets where broadband connections are not yet widely available.*