ShoreTel (SHOR) DEF 14A Definitive proxy

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

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SHORETEL, INC.

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Dear Stockholders,

Fiscal 2012 was a pivotal year for ShoreTel with our entry into the cloud-based unified communications market through the acquisition of M5 Networks. This move is an investment in ShoreTel’s future: it positions the company to capture business in the fast-growing cloud UC and telephony markets and complements our established premise-based and mobile solutions.

As we look forward to fiscal 2013, I am confident that the choices we offer customers for brilliantly simple premise or cloud-based solutions will continue to win in the marketplace and grow the company.

2012 Financial Highlights

In fiscal 2012, ShoreTel maintained strong revenue growth and continued to capture market share in the face of an unpredictable economy. This year we grew our revenue to $246.6 million, a 23% increase over last year and a 15.5% increase when excluding contributions from our new ShoreTel Sky VoIP services. As we undertook this significant investment and grew our base business, we did not lose sight of the importance of profitability and delivered non-GAAP operating profit for the year.

ShoreTel’s premise-based business grew over 15% amid a market that grew less than 1%. We achieved these gains while delivering profit in the premise division in our fourth quarter.

The market demonstrated significant demand for cloud solutions, and the cloud division recorded a 43% increase in bookings compared with M5 Networks’ performance in the June 2011 quarter. This tremendous growth reinforces our belief in the potential for cloud solutions.

In this year of significant investment, we maintained a strong financial position. We ended fiscal 2012 with $55 million in cash and short-term investments, and availability on our line of credit of another $30 million.  We also generated over $10.3 million in cash from operations during the year.

Proven Ability to Outperform the Market

Our significant growth in the premise business belies the market trends, but is not new for ShoreTel. In fact, we’ve shown that we can grow faster than the market for the last five years by capturing share from competitors. According to Synergy Research, for the quarter-ending June 30, 2012, ShoreTel grew its market share to 8.1% as measured by revenue in the U.S. enterprise IP telephony market, further extending our number three position in the marketplace.

Satisfied customers are the key to our market share gains. ShoreTel is driven by customer satisfaction and boasts a net promoter score of over 60 for fiscal year 2012, well above our nearest competitor and the industry average. We also received validation from leading industry experts. For example, ShoreTel earned Gartner’s highest Strong Positive rating in their most recent MarketScope for Unified Communications for the SMB Market, North America report(1).

Leveraging Premise to Grow the Cloud

As we look ahead to the coming year, we are refining our strategy to take advantage of the significant trends that are shaping the unified communications industry: a shift to the cloud and increasing demands for mobile tools.

The cloud-based UC market is expected to grow from 6% of the IP Telephony market today to 15% of the market by 2015, which represents a compound annual growth rate above 30%. The strong performance in our cloud division in the fourth quarter gives us confidence that we can quickly become a market leader in this space.

The shift to the cloud is moving more rapidly than we expected, and as a result we shall accelerate our investments in infrastructure and operationsto meet the demand and maintain ShoreTel’s track record of customer satisfaction. Our profitable and proven premise business will serve as the funding engine for this investment. We plan to maintain modest profits in the premise business for fiscal 2013, and we have adjusted our cost structure to increase its profitability.

The cloud is just one piece of the puzzle – mobility remains a core focus for ShoreTel as end users demand mobile tools from our IT customers. Our mobile technology already sets us apart from competitors, and we are working to further improve the ShoreTel Mobility experience to ensure it further extends our Brilliantly Simple promise.

Claiming Thought Leadership

Our premise solution offers a simple, feature-rich, and scalable system for both IT and the end user. We now offer cloud solutions through a dedicated division, and are delivering compelling mobile solutions for both premise and cloud configurations. We also intend to develop a hybrid solution to give users a seamless combination of on-premise and cloud applications. Together, our technology portfolio offers unrivaled choice and flexibility that position ShoreTel to claim a leadership position in this fast-moving industry.

As I reflect on this year of continued growth and change, I would like to thank the ShoreTel team for their dedication to help ShoreTel win in this competitive marketplace and you, our investors, for your belief in the company.

Sincerely,

Peter Blackmore

President and Chief Executive Officer

(1) See page 11 in the company’s 10-K, included in this distribution, for Gartner disclaimer language.

To Our Stockholders: October 4, 2012

You are cordially invited to attend the 2012 Annual meeting of Stockholders of ShoreTel, Inc. to be held at our headquarters located at 960 Stewart Drive, Sunnyvale, California, 94085, on November 2, 2012 at 1:00 p.m., Pacific Time.

The matters expected to be acted upon at the meeting are described in detail in the accompanying Notice of Annual meeting of Stockholders and Proxy Statement.

It is important that you use this opportunity to take part in the affairs of ShoreTel by voting on the business to come before this meeting. Whether or not you expect to attend the meeting, please complete, date, sign and promptly return the accompanying proxy in the enclosed postage-paid envelope so that your shares may be represented at the meeting. Returning the proxy does not deprive you of your right to attend the meeting and to vote your shares in person.

We look forward to seeing you at the meeting.

Sincerely,

Peter Blackmore

Chief Executive Officer

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR

THE STOCKHOLDER MEETING TO BE HELD ON NOVEMBER 15, 2011: THIS PROXY

STATEMENT AND THE ANNUAL REPORT ARE AVAILABLE AT

http://www.edocumentview.com/SHOR

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SHORETEL, INC.

960 Stewart Drive

Sunnyvale, California 94085

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Our Stockholders:

NOTICE IS HEREBY GIVEN that the 2012 annual meeting of stockholders of ShoreTel, Inc. will be held at our headquarters located at 960 Stewart Drive, Sunnyvale, California 94085, on November 2, 2012, at 1:00 p.m., Pacific Time, for the following purposes:

Agenda Item		Board of Directors’ Recommendation
1.	The election of Gary J. Daichendt, Michael P. Gregoire, and Charles D. Kissner to the Board of Directors to hold office for a three-year term;	FOR
2.	Ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of ShoreTel, Inc. for the fiscal year ending June 30, 2013; and	FOR
3.	Cast an advisory vote on the compensation of the named executive officers.	FOR

We will also transact such other business that may properly come before the annual meeting (including adjournments and postponements).

The foregoing items of business are more fully described in the proxy statement accompanying this notice. Only stockholders of record at the close of business on September 21, 2012 are entitled to notice of, and to vote at, the meeting or any adjournment or postponement thereof.

	By Order of the Board of Directors
	Peter Blackmore
	Chief Executive Officer
Sunnyvale, California
October 4, 2012

Whether or not you expect to attend the meeting, please complete, date, sign and promptly return the accompanying proxy in the enclosed postage-paid envelope so that your shares may be represented at the meeting.

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SHORETEL, INC.

960 Stewart Drive

Sunnyvale, California 94085

PROXY STATEMENT

October 4, 2012

The accompanying proxy is solicited on behalf of the board of directors of ShoreTel, Inc., a Delaware corporation (“ShoreTel”), for use at the 2012 annual meeting of stockholders to be held at our headquarters located at 960 Stewart Drive, Sunnyvale, California 94085, on November 2, 2012, at 1:00 p.m., Pacific Time. This proxy statement and the accompanying form of proxy were first mailed to stockholders on or about October 4, 2012. An annual report for the fiscal year ended June 30, 2012 is enclosed with this proxy statement.

Voting Rights, Quorum and Required Vote

Only holders of record of our common stock at the close of business on September 21, 2012, which is the record date, will be entitled to vote at the annual meeting. At the close of business on September 21, 2012, we had 58,327,045 shares of common stock outstanding and entitled to vote. Holders of ShoreTel common stock are entitled to one vote for each share held as of the above record date. A quorum is required for our stockholders to conduct business at the annual meeting. A majority of the shares of our common stock entitled to vote on the record date, present in person or represented by proxy, will constitute a quorum for the transaction of business.

For Proposal No. 1, directors will be elected by a plurality of the votes of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors, which means that the three nominees receiving the highest number of “for” votes will be elected. If stockholders abstain from voting, including brokers holding their clients’ shares of record who cause abstentions to be recorded, these shares will be considered present and entitled to vote at the annual meeting and will be counted towards determining whether or not a quorum is present. Abstentions will have no effect with regard to Proposal No. 1, since approval of a percentage of shares present or outstanding is not required for this proposal. Proposal 3 is an advisory vote and is non-binding, although the Board will give careful consideration to the voting results.

Brokers who hold shares for the accounts of their clients must vote such shares as directed by their clients. If a broker votes shares that are not voted by its clients for or against a proposal, those shares are considered present and entitled to vote at the annual meeting. Those shares will be counted towards determining whether or not a quorum is present. Those shares will also be taken into account in determining the outcome of all of the proposals. Where a proposal is not “routine,” as is the case with Proposal No. 1, a broker who has received no instructions from its client generally does not have discretion to vote its clients’ unvoted shares on that proposal. When a broker indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular proposal, the missing votes are referred to as “broker non-votes.” Those shares would be considered present for purposes of determining whether or not a quorum is present, but would not be considered entitled to vote on the proposal and therefore, would not be taken into account in determining the outcome of the non-routine proposal.

Voting of Proxies

The proxy accompanying this proxy statement is solicited on behalf of the board of directors of ShoreTel for use at the annual meeting. Stockholders are requested to complete, date and sign the accompanying proxy and promptly return it in the enclosed envelope. All signed, returned proxies that are not revoked will be voted in accordance with the instructions contained therein. However, returned signed proxies that give no instructions as to how they should be voted on a particular proposal at the annual meeting will be counted as votes “for” such proposal, or in the case of the election of the class III directors, as a vote “for” election to class III of the board of all nominees presented by the board. In the event that sufficient votes in favor of the proposals are not received by the date of the annual meeting, the persons named as proxies may propose one or more adjournments of the annual meeting to permit further solicitations of proxies. Any such adjournment would require the affirmative vote of the majority of the outstanding shares present in person or represented by proxy and entitled to vote at the annual meeting provided a quorum is present.

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Expenses of Solicitation

The expenses of soliciting proxies to be voted at the annual meeting will be paid by ShoreTel. Following the original mailing of the proxies and other soliciting materials, ShoreTel and/or its agents may also solicit proxies by mail, telephone, telegraph or in person. Following the original mailing of the proxies and other soliciting materials, ShoreTel will request that brokers, custodians, nominees and other record holders of its common stock forward copies of the proxy and other soliciting materials to persons for whom they hold shares of common stock and request authority for the exercise of proxies.

Revocability of Proxies

Any person signing a proxy in the form accompanying this proxy statement has the power to revoke it prior to the annual meeting or at the annual meeting prior to the vote pursuant to the proxy. A proxy may be revoked by a writing delivered to ShoreTel stating that the proxy is revoked, by a subsequent proxy that is signed by the person who signed the earlier proxy and is delivered before or at the annual meeting, or by attendance at the annual meeting and voting in person. Please note, however, that if a stockholder’s shares are held of record by a broker, bank or other nominee and that stockholder wishes to vote at the annual meeting, the stockholder must bring to the annual meeting a letter from the broker, bank or other nominee confirming that stockholder’s beneficial ownership of the shares.

Telephone or Internet Voting

For stockholders with shares registered in the name of a brokerage firm or bank, a number of brokerage firms and banks are participating in a program for shares held in “street name” that offers telephone and Internet voting options. Stockholders with shares registered directly in their names with Computershare, ShoreTel’s transfer agent, will also be able to vote using the telephone and Internet. If your shares are held in an account at a brokerage firm or bank participating in this program or registered directly in your name with Computershare, you may vote those shares by calling the telephone number specified on your proxy or accessing the internet website address specified on your proxy instead of completing and signing the proxy itself. The giving of such a telephonic or internet proxy will not affect your right to vote in person should you decide to attend the annual meeting.

The telephone and internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly. Stockholders voting via the telephone or internet should understand that there may be costs associated with telephonic or electronic access, such as usage charges from telephone companies and internet access providers, which must be borne by the stockholder.

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PROPOSAL NO. 1 — ELECTION OF DIRECTORS

ShoreTel’s board of directors is presently comprised of seven members, who are divided into three classes, designated as class I, class II and class III. One class of directors is elected by the stockholders at each annual meeting to serve until the third succeeding annual meeting. Mark F. Bregman and Edward F. Thompson have been designated as class I directors, Peter Blackmore and Kenneth D. Denman have been designated as class II directors, and Gary D. Daichendt, Michael P. Gregoire and Charles D. Kissner have been designated as class III directors. Mr. Daichendt serves as chairman of the board.

The class III directors will stand for reelection or election at this annual meeting, the class I directors will stand for reelection or election at the 2013 annual meeting of stockholders and the class II directors will stand for reelection or election at the 2014 annual meeting of stockholders. Unless otherwise provided by law, any vacancy on the board, including a vacancy created by an increase in the authorized number of directors, may only be filled by the affirmative vote of a majority of the directors then in office or by a sole remaining director. Any director so elected to fill a vacancy shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such director’s successor is elected and qualified, or until his or her earlier death, resignation or removal.

Each of the nominees for election to class III is currently a director of ShoreTel. If elected at the annual meeting, each of the nominees would serve until the 2015 annual meeting of stockholders and until his successor is elected and qualified, or until such director’s earlier death, resignation or removal. Directors will be elected by a plurality of the votes of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors. Shares represented by an executed proxy will be voted “for” the election of the three nominees recommended by the board unless the proxy is marked in such a manner as to withhold authority so to vote. In the event that any nominee for any reason is unable to serve, or for good cause will not serve, the proxies will be voted for such substitute nominee as the present board may determine. ShoreTel is not aware of any nominee who will be unable to serve, or for good cause will not serve, as a director.

The names of the nominees for election as class III directors at the annual meeting and of the incumbent class I and class II directors, and certain information about them, including their ages as of September 30, 2012, are included below.

			Director
Name	Age	Principal Occupation	Since
Nominee for election as class III director with term expiring in 2015:
Gary J. Daichendt(2)(3)	61	Chairman of the Board	2007
		Managing member of TheoryR Properties LLC
Michael Gregoire(2)	46	Former Chairman and Chief Executive Officer of Taleo Corporation	2008
Charles D. Kissner(1)(3)	65	Chairman of Aviat Networks, Inc.	2006
Incumbent class II director with term expiring in 2014:
Peter Blackmore	65	Chief Executive Officer	2010
Kenneth D. Denman(1)(2)	53	Chief Executive Officer, Machine Perception Technologies	2007
Incumbent class I director with term expiring in 2013:
Mark F. Bregman(3)	55	Chief Technology Officer of NeuStar, Inc.	2007
Edward F. Thompson(1)	74	Audit Committee Chairman of ShoreTel, Inc. and Aviat Networks, Inc.	2006
(1)	Member of our audit committee.
(2)	Member of our compensation committee.
(3)	Member of our corporate governance and nominating committee.

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Gary J. Daichendt has served as a director of ShoreTel since April 2007 and as chairman of the board since July 2010. Mr. Daichendt has been principally occupied as a private investor since June 2005 and has been a managing member of TheoryR Properties LLC, a commercial real estate firm, since October 2002. He served as president and chief operating officer of Nortel Networks Corporation, a supplier of communication equipment, from March 2005 to June 2005. Prior to joining Nortel Networks, from 1994 until his retirement in December 2000, Mr. Daichendt served in a number of positions at Cisco Systems, Inc., a manufacturer of communications and information technology networking products, including most recently as executive vice president, worldwide operations from August 1998 to December 2000, and as senior vice president, worldwide operations from September 1996 to August 1998. Mr. Daichendt is a member of the board of directors of NCR Corporation. Mr. Daichendt holds a B.A. in mathematics from Youngstown State University and M.S. in mathematics from The Ohio State University.

Qualifications to serve as director: In addition to his extensive executive management experience at Fortune 500 companies, Mr. Daichendt is independent and brings significant expertise in sales, marketing and channel development, as well as in the telecommunications and technology industries, particularly in the specific markets and industries in which we operate. Mr. Daichendt brings to the board insights and perspectives that are directly relevant to the specific challenges and opportunities we face.

Michael Gregoire has served as a director of ShoreTel since November 2008. Mr. Gregoire served as chairman and chief executive officer of Taleo Corporation, a talent management software company, from March 2005 until its acquisition by Oracle Corp. in April 2012. Prior to Taleo, Mr. Gregoire served at PeopleSoft, an enterprise software company, from May 2000 to January 2005, most recently as executive vice president, global services. Prior to PeopleSoft, Mr. Gregoire served as managing director for global financial markets at Electronic Data Systems, Inc., a technology services provider, from 1996 to April 2000, and in various other roles from 1988 to 1996. Mr. Gregoire has a master’s degree from California Coast University, and holds a bachelor’s degree in physics and computing from Wilfred Laurier University in Ontario, Canada.

Qualifications to serve as director: Mr. Gregoire is independent and brings to the board extensive executive experience with rapidly growing public companies in the software and services sectors. Having served as chief executive officer of a software-as-a-service (SaaS) company, Mr. Gregoire’s operational and strategic experiences apply directly to issues and opportunities managed by ShoreTel on a regular basis, particularly following its acquisition of M5 Networks, which we operate similar to a SaaS business. He also brings experience serving in the highest levels of management of both a large public company and a high growth, smaller public company. Mr. Gregoire’s board experience, including the role of chairman of the board of directors of a public company, also exposed him to best practices and approaches that are beneficial to ShoreTel and the company’s stockholders. In addition, with his experience at Taleo, Mr. Gregoire brings expertise in evaluating strategic compensation, as well as strategic human resources issues and policies, particularly for technology companies.

Charles D. Kissner has served as a director of ShoreTel since April 2006, and served as our lead independent director from April 2007 to July 2010. Mr. Kissner is Chairman of Aviat Networks, Inc., formerly Harris Stratex Networks, Inc., a provider of wireless transmission systems. He was Chairman and CEO of Aviat Networks from June 2010 until July 2011. He previously served as Chairman of Stratex Networks from July 1995 to January 2007, and as its President and Chief Executive Officer from July 1995 to May 2000, as well as from October 2001 to May 2006. Prior to joining Stratex Networks, Mr. Kissner served as Vice President and General Manager of M/A-Com, Inc., a manufacturer of radio and microwave communications products, as Executive Vice President of Fujitsu Network Switching of America, Inc., a telecommunications switching manufacturer, and as President and Chief Executive Officer of Aristacom International, Inc., a provider of computer/telephony integration solutions. Mr. Kissner also previously held several executive positions at AT&T (now Alcatel-Lucent) for over thirteen years. Mr. Kissner currently serves on the boards of Meru Networks, a technology leader in the enterprise wireless systems market, and Rambus Inc., a technology development and licensing company. He is also on the board of non-profit KQED Public Media, the largest public broadcaster in the U.S. He holds a B.S. from California State Polytechnic University and an M.B.A. from Santa Clara University.

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Qualifications to serve as director: Mr. Kissner is independent and possesses over 30 years of management, operating, and corporate governance experience in the technology and telecom sectors. As a chief executive officer of a public communications company, Mr. Kissner’s operational and strategic experiences are directly relevant to issues faced by ShoreTel on a regular basis. He also possesses extensive experience with the strategic and operational challenges of leading a global company. We believe that Mr. Kissner’s board experience on the boards of directors of other public technology companies has exposed him to best practices and approaches that are beneficial to ShoreTel and the company’s stockholders. Mr. Kissner has served on our board, governance and nominating committee, and audit committee since our initial public offering and is familiar with our corporate governance, business model, critical accounting policies, and specific accounting policies.

Peter Blackmore has served as our chief executive officer and a board member since December 2010. Prior to joining ShoreTel, Mr. Blackmore was president, chief executive officer and a member of the board of directors of UTStarcom, Inc., an internet protocol company, from July 2008 to September 2010. From July 2007 to July 2008, Mr. Blackmore was president and chief operating officer for UTStarcom. Before this position, Mr. Blackmore was executive vice president of Unisys Corporation, from February 2005 to July 2007. From 1991 to August 2004, Mr. Blackmore served in various roles at Compaq Computer Corporation and Hewlett-Packard Company (HP), most recently as executive vice president of the Customer Solutions Group at HP from May 2004 through August 2004, and as executive vice president of the Enterprise Systems Group at HP from 2002 through May 2004. Prior to the merger of Compaq and HP, Mr. Blackmore served as executive vice president of worldwide sales and service of Compaq from 2000 through 2002 and senior vice president of worldwide sales and marketing of Compaq from 1998 through 2000. Mr. Blackmore has also served as a member of the board of directors of MEMC Electronic Materials, Inc. since 2006.

Qualifications to serve as director: As chief executive officer of ShoreTel, Mr. Blackmore has the ultimate operational and management responsibilities for our business. As a result, Mr. Blackmore is highly knowledgeable about the state of our business, the risks we face, and management’s plans for executing our growth strategy. Mr. Blackmore brings a range of experience in a variety of hardware, software and services companies. He brings Internet protocol-based telecommunications industry knowledge from his service as chief executive officer of UTStarcom. Mr. Blackmore also brings to the Board significant past professional experience in technology sales and marketing, international business, global channel development, and mergers and acquisitions, which we believe benefit our growth strategy. In addition, he has experience serving in the highest levels of executive management of both large public companies and a high growth, smaller public company. Mr. Blackmore’s board experience also exposes him to best practices and approaches that are beneficial to ShoreTel and the company’s stockholders.

Kenneth D. Denman has served as a director of ShoreTel since May 2007. In October 2012, Mr. Denman was appointed chief executive officer of Machine Perception Technologies, a facial expression analysis company. Mr. Denman has also served as Edward V. Fritzky Endowed Visiting Chair in Leadership at the University of Washington’s Michael G. Foster School of Business since September 2012. Mr. Denman served as chief executive officer and a director of Openwave Systems, Inc. from November 2008 to September 2011. Prior to Openwave, Mr. Denman served as chairman and chief executive officer of iPass, Inc. a platform-based enterprise mobility services company, from October 2001 until November 2008. From January 2000 to March 2001, Mr. Denman served as founder, president and chief executive officer of AuraServ Communications Inc., a managed service provider of broadband voice and data applications. From August 1998 to May 2000, Mr. Denman served as senior vice president, national markets group of MediaOne, Inc., a broadband cable and communications company. From June 1996 to August 1998, Mr. Denman served as chief operating officer, Wireless, at MediaOne International, a broadband and wireless company. Mr. Denman holds a B.S. in accounting from Central Washington University and an M.B.A. in finance and international business from the University of Washington. Mr. Denman is a member of the advisory board at the University of Washington’s Michael G. Foster School of Business and a member of the board of directors of MobileCause, a mobile internet payment and CRM platform company.

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Qualifications to serve as director: Mr. Denman is independent and possesses extensive executive experience in the technology and telecom sectors. As a chief executive officer of a technology company and a former chief executive officer of a telecommunications software company, Mr. Denman’s operational and strategic experiences are directly relevant to ShoreTel’s operations and strategic opportunities. Mr. Denman has served on our audit committee since 2007 and therefore is familiar with our business model, our critical accounting policies and our specific accounting policies. Mr. Denman’s experience serving on the boards of other public technology companies has exposed him to best practices and approaches that are beneficial to ShoreTel and the company’s stockholders.

Mark F. Bregman has served as a director of ShoreTel since May 2007. Dr. Bregman has served as Chief Technology Officer of NeuStar, Inc., a provider of network addressing, routing and policy management, since July 2011. Dr. Bregman previously served as executive vice president and chief technology officer of Symantec Corporation, an infrastructure software company, since it acquired VERITAS Software Corporation, a provider of software and services to enable storage and backup, from July 2005 to July 2011. Prior to the acquisition of VERITAS Software, Dr. Bregman served as that company’s executive vice president, chief technology officer and acting manager of the application and service management group from September 2004 to July 2005, and as its executive vice president, product operations from February 2002 to September 2004. From August 2000 to October 2001, Dr. Bregman served as the chief executive officer of AirMedia, Inc., a wireless internet company. Prior to joining AirMedia, Dr. Bregman served a 16-year career with International Business Machines Corporation, most recently as general manager of IBM’s RS/6000 and pervasive computing divisions from 1995 to August 2000. Dr. Bregman holds a B.S. in physics from Harvard College and a Ph.D. in physics from Columbia University.

Qualifications to serve as director: Dr. Bregman is independent and his more than 25 years of operational and strategic experience in the technology industry apply directly to ShoreTel’s operations and strategic opportunities. His experience as the chief technology officer of a high-growth, publicly traded software company gives him valuable and firsthand insights into issues regarding the strategic development of products and services that ShoreTel offers. In addition, Dr. Bregman possesses experience with the development and protection of intellectual property assets. With his three years of prior service on the ShoreTel board, he is very familiar with our business and the specific challenges and opportunities the company faces.

Edward F. Thompson has served as a director of ShoreTel since January 2006. Mr. Thompson served as a senior advisor to Fujitsu Limited and as a director of several Fujitsu subsidiaries or portfolio companies from 1995 to 2011. From 1976 to 1994, Mr. Thompson held a series of management positions with Amdahl Corporation including chief financial officer and secretary from August 1983 to June 1994, and chief executive officer of Amdahl Capital Corporation from October 1985 to June 1994. Mr. Thompson is a member of the board of directors of Aviat Networks, Inc. (formerly Harris Stratex Networks) and InnoPath Software Inc., and also serves as chairman of the audit committees of those companies. Mr. Thompson also serves on the board of XBridge Systems, Inc. He is also a member of the advisory board of Santa Clara University’s Leavey School of Business. Mr. Thompson holds a B.S. in aeronautical engineering from the University of Illinois, and an M.B.A. with an emphasis in operations research from Santa Clara University.

Qualifications to serve as director: Mr. Thompson is independent and brings over 40 years of financial expertise, corporate governance and risk management experience to ShoreTel. He also possesses extensive experience with the strategic and operational challenges of leading a global information technology company. Mr. Thompson serves as chairman of our audit committee. He qualifies as an audit committee financial expert (as defined in the applicable rules of the SEC) and is financially sophisticated within the meaning of the NASDAQ Stock Market Rules. Mr. Thompson has served on the audit committees of a number of high technology companies, including companies in the networking industry. We believe that Mr. Thompson’s board experience at other public technology companies has exposed him to best practices and approaches that are beneficial to ShoreTel and the company’s stockholders. Mr. Thompson has served on our board and audit committee since our initial public offering and is familiar with our business model, our critical accounting policies, and our specific accounting policies.

The Board recommends a vote FOR the election of each nominated director.

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Membership and Meetings of Board of Directors and Board Committees

Board of Directors

The rules of the NASDAQ Stock Market require that a majority of the members of our board of directors be independent. Our board of directors has adopted the definitions, standards and exceptions to the standards for evaluating director independence provided in the NASDAQ Stock Market rules, and determined that Mark F. Bregman, Gary J. Daichendt, Kenneth D. Denman, Michael Gregoire, Charles D. Kissner and Edward F. Thompson are “independent directors” as defined under the rules of the NASDAQ Stock Market.

During fiscal year 2012, the board met formally fifteen times and took action by written consent once. None of the directors attended fewer than 75% of the aggregate of the total number of meetings of the board and the total number of meetings held by all committees of the board on which such director served. In addition, the independent outside directors met formally six times during fiscal year 2012.

Board Committees

Our board of directors has an audit committee, a compensation committee and a corporate governance and nominating committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board. Each of these committees has adopted a written charter. Current copies of these charters are available under the heading “Corporate Governance” in the investor relations section of our website at www.shoretel.com.

Audit Committee

Our audit committee oversees our corporate accounting and financial reporting process. Among other matters, the audit committee:

· evaluates the qualifications, independence and performance of our independent registered public accounting firm;

· determines the engagement of our independent registered public accounting firm and reviews and approves the scope of the annual audit and the audit fee;

· discusses with management and our independent registered public accounting firm the results of the annual audit and the review of our quarterly financial statements;

· approves the retention of our independent registered public accounting firm to perform any proposed permissible non-audit services;

· monitors the rotation of partners of our independent registered public accounting firm on our engagement team as required by law;

· reviews our critical accounting policies and estimates; and

· annually reviews the audit committee charter and the committee’s performance.

Our audit committee consists of Edward F. Thompson, who is the chair of the committee, and Kenneth D. Denman and Charles D. Kissner. Each of these individuals meets the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ Stock Market. Each of Messrs. Denman, Kissner and Thompson is an independent director as defined under the applicable regulations of the SEC and under the applicable rules of the NASDAQ Stock Market. Our board has determined that each of Messrs. Denman, Kissner and Thompson is an audit committee financial expert as defined under the applicable rules of the SEC and therefore has the requisite financial sophistication required under the applicable rules and regulations of the NASDAQ Stock Market. The audit committee operates under a written charter that satisfies the applicable standards of the SEC and the NASDAQ Stock Market. During fiscal year 2012, the audit committee met nine times.

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Compensation Committee

Our compensation committee reviews and recommends policy relating to compensation and benefits of our officers and employees. The compensation committee reviews and approves corporate goals and objectives relevant to compensation of our chief executive officer and other executive officers, evaluates the performance of these officers in light of those goals and objectives and sets the compensation of these officers based on such evaluations. The compensation committee also administers the issuance of equity under our equity award plans. The compensation committee reviews and evaluates, at least annually, the performance of the compensation committee and its members, including compliance of the compensation committee with its charter. Our compensation committee consists of Michael Gregoire, who is the chairman of the committee, Kenneth D. Denman and Gary J. Daichendt. Each of Messrs. Gregoire, Denman and Daichendt is an independent director as defined under the applicable rules and regulations of the NASDAQ Stock Market and is an outside director under the applicable rules and regulations of the Internal Revenue Service. During fiscal year 2012, the compensation committee met four times.

Corporate Governance and Nominating Committee

Our corporate governance and nominating committee makes recommendations to the board of directors regarding candidates for directorships and the size and composition of the board of directors and its committees. In addition, the corporate governance and nominating committee oversees our corporate governance guidelines and reporting and makes recommendations to the board of directors concerning governance matters. Our corporate governance and nominating committee consists of Charles D. Kissner, who is the chairman of the committee, Mark F. Bregman and Gary J. Daichendt. Each of Messrs. Bregman, Daichendt and Kissner is an independent director as defined under the applicable rules of the NASDAQ Stock Market. During fiscal year 2012, the corporate governance and nominating committee met four times.

Policy regarding Stockholder Nominations. The corporate governance and nominating committee considers stockholder recommendations for director candidates. The corporate governance and nominating committee has established the following procedure for stockholders to submit director nominee recommendations:

· If a stockholder would like to recommend a director candidate for the next annual meeting, he or she must submit the recommendations by mail to ShoreTel’s corporate secretary at ShoreTel’s principal executive offices, no later than the 120th calendar day before the date that ShoreTel last mailed its proxy statement to stockholders in connection with the previous year’s annual meeting.

· Recommendations for candidates must be accompanied by personal information of the candidate, including a list of the candidate’s references, the candidate’s resume or curriculum vitae and such other information as determined by ShoreTel’s corporate secretary and as necessary to satisfy Securities Exchange Commission rules and ShoreTel’s bylaws, together with a letter signed by the proposed candidate consenting to serve on the board if nominated and elected.

· The corporate governance and nominating committee considers nominees based on ShoreTel’s need to fill vacancies or to expand the board, and also considers ShoreTel’s need to fill particular roles on the board or committees thereof (e.g. independent director, audit committee financial expert, etc.).

· The corporate governance and nominating committee evaluates candidates in accordance with its charter and policies regarding director qualifications, qualities and skills.

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Board Structure

Our board has determined that having an independent director serve as chairman of the board is in our best interests and those of our stockholders. Mr. Daichendt, a non-executive director, serves as our chairman of the board and presides over meetings of the board and our stockholders, and holds such other powers and carries out such other duties as are customarily carried out by the chairman of the board. This structure ensures a greater role for the independent directors in the oversight of our company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our board. Generally, every regular meeting of our board includes a meeting of our independent non-executive directors without management present.

Risk Management

Our board recognizes the importance of effective risk oversight in running a successful business and in fulfilling its fiduciary responsibilities to ShoreTel and its stockholders. While the chief executive officer and other members of the executive team are responsible for the day-to-day management of risk, our board is responsible for ensuring that an appropriate culture of risk management exists within the company and for setting the right “tone at the top,” overseeing our aggregate risk profile, and assisting management in addressing specific risks.

Our board exercises its oversight responsibility for risk both directly and through its committees. Throughout the year, our board and each committee spend a portion of their time reviewing and discussing specific risk topics. The full board is kept informed of the committee’s risk oversight and related activities through regular reports from the committee chairs. Strategic, operational and competitive risks also are presented and discussed at our board’s quarterly meetings. On at least an annual basis, our board conducts a review of our long-term strategic plans and members of our executive team report on our top risks and the steps management has taken or will take to mitigate these risks. On a regular basis between board meetings, our chief executive officer provides updates to the board on the critical issues we face and recent developments in our principal markets.

Our audit committee meets regularly with our chief financial officer, our independent auditor, our general counsel, and other members of senior management to discuss our major financial risk exposures, financial reporting, internal controls, compliance risk, and key operational risks. Our audit committee meets regularly in separate executive session with the independent auditor, as well as with committee members only, to facilitate a full and candid discussion of risk and other issues.

Our compensation committee is responsible for overseeing human capital and compensation risks, including evaluating and assessing risks arising from our compensation policies and practices for all employees and ensuring executive compensation is aligned with performance. Our compensation committee also is charged with monitoring our incentive and equity-based compensation plans, including employee benefit plans. For additional information regarding the compensation committee’s review of compensation-related risk, please see the section of this proxy statement entitled “Executive Compensation – Risk Assessment of Compensation Programs.”

Our nominating and corporate governance committee is responsible for reviewing our risk management framework and programs, as well as the framework by which management discusses our risk profile and risk exposures with the full board and its committees. Our nominating and corporate governance committee also oversees risks related to our overall corporate governance, including board and committee composition, board size and structure, director independence, and our corporate governance profile and ratings. This committee is also actively engaged in overseeing risks associated with succession planning for our board and management.

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Compensation Committee Interlocks and Insider Participation

None of the members of the compensation committee has at any time during the last fiscal year ever been an officer or employee of our company or any of its subsidiaries, and none have had any relationships with our company of the type that is required to be disclosed under Item 404 of Regulation S-K. None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during our 2012 fiscal year.

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PROPOSAL NO. 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

The audit committee of the board of directors has selected Deloitte & Touche LLP to be our independent registered public accounting firm for the year ending June 30, 2013, and recommends that the stockholders vote for ratification of such appointment. Representatives of Deloitte & Touche LLP are expected to be present at the annual meeting, will have the opportunity to make a statement at the annual meeting if they desire to do so, and will be available to respond to appropriate questions.

The following table presents information regarding the fees estimated and billed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”) for the fiscal years ended June 30, 2012 and 2011.

	For the Fiscal Year Ended June 30,
Nature of Services	2011		2012
Audit Fees	$	1,048,000	$	1,154,000
Audit-Related Fees		—		337,000
Tax Fees		92,000		120,000
All Other Fees		—		—
Total Fees	$	1,140,000	$	1,611,000

Audit Fees. Audit fees consist of fees for professional services for (i) the audit of our annual consolidated financial statements, (ii) the reviews of our quarterly financial statements, (iii) Form S-8 filings, and (iv) consents and other matters related to Securities and Exchange Commission matters.

Audit-Related Fees. Audit-related fees consist of accounting due diligence related to the acquisition of M5 Networks, Inc.

Tax Fees. Tax fees consist of fees for professional services for tax compliance, tax advice and tax planning services. Tax-related services rendered consisted primarily of the analysis of limitations on the utilization net operating losses due to ownership changes under Section 382 of the Internal Revenue Code, international tax planning strategies and expatriate tax planning services.

All Other Fees. There were no other fees incurred for the fiscal years ended June 30, 2011 and 2012.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The audit committee’s policy is to pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management are required to report periodically to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The audit committee may also pre-approve particular services on a case-by-case basis.

The Board recommends a vote FOR the approval of the foregoing resolution.

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PROPOSAL NO. 3 — ADVISORY VOTE REGARDING THE COMPENSATION OF THE NAMED

EXECUTIVE OFFICERS

In accordance with the SEC’s proxy rules, we are seeking an advisory, non-binding stockholder vote with respect to the compensation of our named executive officers (“NEOs”) for fiscal year 2012, as disclosed in this proxy statement. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this proxy statement.

The compensation of our NEOs is described in detail in the “Compensation Discussion and Analysis” section of this proxy statement beginning on page 20, which we encourage you to read for additional details on our executive compensation programs and the fiscal year 2012 compensation of our NEOs.

Our executive compensation programs are based on three core principles that are designed to motivate our NEOs to achieve annual financial and strategic objectives and create long-term stockholder value. The fiscal 2012 compensation of our NEOs reflected these core principles:

· A significant portion of each NEO’s cash compensation was based on our financial and operational performance and therefore “at risk”;

· A significant portion of each NEO’s total compensation was provided in the form of long-term equity to further align the interest of NEOs and stockholders; and

· The target total direct compensation package for each was consistent with market practices for executive talent and each NEO’s individual experience, responsibilities and performance.

We believe our compensation programs and policies for fiscal 2012 were consistent with our core compensation principles, aligned with stockholders’ interests, supported by strong compensation governance practices and worthy of continued stockholder support. Accordingly, we ask for our stockholders to indicate their support for the compensation paid to our NEOs, by voting “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers for 2012, including the Compensation Discussion and Analysis, the compensation tables and the related narrative disclosures in the proxy statement.”

Advisory Vote and Board of Directors’ Recommendation

Our board of directors and compensation committee value the opinions of our stockholders and will consider the outcome of the vote, along with other relevant factors, in evaluating its compensation program for our named executive officers.

The Board recommends a vote FOR the approval of the foregoing resolution.

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DIRECTOR COMPENSATION

The following table provides information for our fiscal year ended June 30, 2012 regarding all plan and non-plan compensation awarded to, earned by or paid to each person who served as a non-employee director for some portion or all of fiscal 2012. Other than as set forth in the table and the narrative that follows it, during the 2012 fiscal year we did not pay any fees, make any equity or non-equity awards, or pay any other compensation to our non-employee directors.

Name	Fees Earned or Paid in Cash(1)		Stock Awards(9)			Non-Equity Incentive Plan Compensation		All Other Compensation		Total
Mark F. Bregman	$	52,804	$	91,332	(2)(8)		—		—	$	82,038
Gary J. Daichendt		94,803		133,331	(3)(9)		—		—		111,613
Kenneth Denman		64,206		102,734	(4)(11)		—		—		90,737
Michael Gregoire		72,002		110, 530	(14)(11)		—		—		92,836
Charles D. Kissner		67,798		106,326	(5)(12)		—		—		94,164
Edward Thompson		72,002		110,530	(6)(13)		—		—		95,839

(1) Commencing in the first quarter, all non-employee directors elected to receive common stock in lieu of a cash retainer. These directors received shares having a value of 120% of the cash retainer payable for the year instead of cash. See “— Cash Compensation” below.

(2) As of June 30, 2012, Dr. Bregman held a restricted stock unit for 5,600 shares of our common stock that was granted in fiscal 2012, which shares vest at the one year anniversary in November 2012. The grant date fair value was $38,528. The grant was an automatic annual grant made pursuant to our nonemployee director compensation policy on the date of the first annual stockholders meeting occurring after a director’s first anniversary as a board member and on the date of each annual stockholders meeting thereafter.

(3) As of June 30, 2012, Mr. Daichendt held a restricted stock unit for 5,600 shares of our common stock, that was granted in fiscal 2012, which shares vest at the one year anniversary in November 2012. The grant date fair value was $38,528. The grant was an automatic annual grant made pursuant to our nonemployee director compensation policy on the date of the first annual stockholders meeting occurring after a director’s first anniversary as a board member and on the date of each annual stockholders meeting thereafter.

(4) As of June 30, 2012, Mr. Denman held a restricted stock unit for 5,600 shares of our common stock that was granted in fiscal 2012, which shares vest at the one year anniversary in November 2012. The grant date fair value was $38,528. The grant was an automatic annual grant made pursuant to our nonemployee director compensation policy on the date of the first annual stockholders meeting occurring after a director’s first anniversary as a board member and on the date of each annual stockholders meeting thereafter.

(5) As of June 30, 2012, Mr. Kissner held a restricted stock unit for 5,600 shares of our common stock that was granted during fiscal 2012, which shares vest at the one year anniversary in November 2012. The grant date fair value was $38,528. The grant was an automatic annual grant made pursuant to our nonemployee director compensation policy on the date of the first annual stockholders meeting occurring after a director’s first anniversary as a board member and on the date of each annual stockholders meeting thereafter.

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(6) As of June 30, 2012, Mr. Thompson held a restricted stock unit for 5,600 shares of our common stock that was granted during fiscal 2012, which shares vest at the one year anniversary in November 2012. The grant date fair value was $38,528. The grant was an automatic annual grant made pursuant to our nonemployee director compensation policy on the date of the first annual stockholders meeting occurring after a director’s first anniversary as a board member and on the date of each annual stockholders meeting thereafter.

(7) All of our non-employee directors have elected to receive a fully-vested award of our common stock in lieu of the current annual cash retainer (an “Award Bonus”), pursuant to the Plan. Those electing non-employee directors will receive shares having a value of 120% of the cash retainer for the year. For those non-employee directors that elect to receive an Award Bonus in lieu of the cash retainer, they must so elect at the beginning of the particular year, which election will be binding for the full amount of the retainer for that year. The Award Bonus shall be paid on a quarterly basis, on the last trading day of each fiscal quarter.

(8) The cash amount payable was $52,804, which was paid in shares of common stock, in lieu of cash retainer for all fiscal quarters of 2012, total of 10,058 shares issued.

(9) The cash amount payable was $94,803, which was paid in shares of common stock, in lieu of cash retainer for all fiscal quarters of 2012, total of 18,058 shares issued.

(10) The cash amount payable was $64,206, which was paid in shares of common stock, in lieu of cash retainer for all fiscal quarters of 2012, total of 12,230 shares issued

(11) The cash amount payable was $72,002, which was paid in shares of common stock, in lieu of cash retainer for all fiscal quarters of 2012, total of 13,715 shares issued.

(12) The cash amount payable was $67,798, which was paid in shares of common stock, in lieu of cash retainer for all fiscal quarters of 2012, total of 12,914 shares issued.

(13) The cash amount payable was $72,002, which was paid in shares of common stock, in lieu of cash retainer for all fiscal quarters of 2012, total of 13,715 shares issued.

(14) As of June 30, 2012, Mr. Gregoire held restricted stock unit for 5,600 shares of our common stock that was granted during fiscal 2012, which shares vest at the one year anniversary in November 2012. The grant date fair value was $38,528. The grant was an automatic annual grant made pursuant to our nonemployee director compensation policy on the date of the first annual stockholders meeting occurring after a director’s first anniversary as a board member and on the date of each annual stockholders meeting thereafter.

We compensate independent directors with a combination of cash and equity.

Cash Compensation. Effective January 1, 2011, we implemented the following cash compensation program for our independent directors. Each independent director receives an annual retainer of $40,000. In addition, each independent director who is not a committee chair receives an annual retainer for each standing committee of our board of directors on which he serves equal to $4,000 for nominating and governance committee service, $5,000 for compensation committee service, or $8,500 for audit committee service. Our chairman of the board (or lead independent director, if the chairman is not independent) will receive an additional annual retainer of $30,000 per year for his service in that capacity, and each chair of a standing committee of our board of directors will receive an annual retainer of $8,000 for nominating and governance committee chairmanship, $20,000 for compensation committee chairmanship, or $20,000 for audit committee chairmanship, for his service in that capacity. Annual cash retainers are paid in quarterly installments at the end of each fiscal quarter.

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In February 2008, the board of directors approved non-employee director compensation guidelines whereby non-employee directors may elect to receive a fully-vested award of common stock in lieu of the current annual cash retainer. Non-employee directors making this election receive shares having a value of 120% of the cash retainer. For those non-employee directors that elect to receive common stock in lieu of the cash retainer, they must so elect at the beginning of the particular year, which election will be binding for the full amount of the retainer for that year. The common stock is paid on a quarterly basis, on the last trading day of each fiscal quarter. All non-employee directors made this election, and it has been effective since the third quarter of fiscal 2008. For fiscal 2012, Messrs. Bregman, Daichendt, Denman, Gregoire, Kissner and Thompson earned $52,803, $94,803, $64,206, $72,002, $67,798, and $72,002 in cash retainers, respectively, and were issued 10,058, 18,058, 12,230, 13,715, 12,914, and 13,715 shares of common stock, respectively, in lieu of the cash retainers.

In general, we do not pay fees to independent directors for attendance at meetings of our board of directors and its committees. In extraordinary and limited circumstances, we may pay a fee of $500 for each telephonic meeting and $1,000 for each in-person meeting so long as two-thirds of the directors in attendance and not abstaining approve the payment thereof, assuming a quorum is present at the meeting. Independent directors are reimbursed for reasonable travel expenses incurred in connection with their attendance at a board or committee meeting. In addition, we allow our board members to use our ShoreTel phone systems in their homes at no cost.

Option Grants. Each independent director who becomes a member of our board of directors will be granted an initial option to purchase 40,000 shares of our common stock upon appointment or election to our board of directors. Each option granted to an independent director will have a ten-year term and terminate three months following the date the director ceases to be one of our directors, or 12 months afterwards if termination is due to death or disability. Each option grant vests and becomes exercisable as to 1/48th of the shares each month after the grant date over four years. The vesting of stock options granted to our independent directors will accelerate in full in connection with a change of control of ShoreTel. In addition, a new independent director shall receive 5,600 restricted stock units on the date of the first annual stockholders meeting occurring after such new director’s first anniversary as a board member and on the date of each annual stockholders meeting thereafter. Existing independent directors shall receive 5,600 restricted stock units on the date of the annual stockholders meeting occurring after such director’s second anniversary as a board member and on the date of each annual stockholders meeting thereafter. Independent directors are also eligible to receive discretionary awards under the 2007 Plan.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table presents information as to the beneficial ownership of our common stock as of September 1, 2012 by:

· each of the named executive officers listed in the summary compensation table;

· each of our directors;

· all of our directors and executive officers as a group; and

· each stockholder known by us to be the beneficial owner of more than 5% of our common stock.

We have determined beneficial ownership in accordance with the rules of the SEC. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to applicable community property laws. Shares owned as of September 1, 2012 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

The number of shares beneficially owned and percentage of our common stock outstanding is based on 58,315,627 shares of our common stock outstanding on September 1, 2012. Except as otherwise noted below, the address for each person or entity listed in the table is c/o ShoreTel, Inc., 960 Stewart Drive, Sunnyvale, CA 94085.

Name of Beneficial Owner	Number of Shares Beneficially Owned		Percent of Class
Directors and Named Executive Officers
Peter Blackmore(1)		528,567		*
Michael E. Healy(2)		398,759		*
Pedro Rump(3)		502,366		*
Ava M. Hahn(4)		72,416		*
Edwin J. Basart(5)		753,057		1.3
Daniel Hoffman(6)		703,166		1.2
Mark F. Bregman(7)		113,584		*
Gary J. Daichendt(8)		487,711		*
Kenneth D. Denman(9)		160,444		*
Michael P. Gregoire(10)		99,133		*
Charles D. Kissner(11)		38,438		*
Edward F. Thompson(12)		122,602		*
All directors and executive officers as a group (12 persons)(13)		3,980,243		6.8
5% Stockholders
Entities affiliated with Lehman Brothers Holdings Inc.(14)		5,017,507		8.6
T. Rowe Price Associates, Inc.(15)		3,664,600		6.3
Wellington Capital Management (16)		3,090,997		5.3
Franklin Resources, Inc. (17)		4,033,824		6.9

* Less than 1%

(1) Consists of 70,235 shares held by Mr. Blackmore and options to purchase 458,332 shares.

(2) Consists of 7,720 shares held by Mr. Healy and options to purchase 391,039 shares.

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(3) Includes options to purchase 474,331 shares.

(4) Includes options to purchase 72,416 shares

(5) Includes options to purchase 235,828 shares.

(6) Includes 181,771 shares held in escrow.

(7) Includes options to purchase 70,000 shares.

(8) Includes options to purchase 70,000 shares.

(9) Includes options to purchase 70,000 shares.

(10) Includes options to purchase 58,958 shares.

(11) Includes options to purchase 11,667 shares.

(12) Includes options to purchase 20,000 shares.

(13) Includes options to purchase 1,932,571 shares.

(14) Based solely on a Schedule 13G/A filed February 13, 2012. The address of Lehman Brothers Holdings Inc. is 1271 Avenue of the Americas, New York, NY 10020.

(15) Based solely on a Schedule 13G filed February 13, 2012. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.

(16) Based solely on a Schedule 13G filed February 14, 2012. The address of Wellington Capital Management is 280 Congress Street Boston, MA 02210.

(17) Based solely on a Schedule 13G filed February 10, 2012. The address of Franklin Resources, Inc. is One Franklin Parkway, San Mateo, CA 94403-1906.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Securities and Exchange Commission regulations also require these persons to furnish us with a copy of all Section 16(a) forms they file. Based solely on our review of the copies of the forms furnished to us and written representations from our executive officers and directors, we believe that all Section 16(a) filing requirements for our executive officers and directors were met during fiscal 2012.

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COMPENSATION DISCUSSION AND ANALYSIS

Compensation Discussion and Analysis

Our compensation committee oversees ShoreTel’s compensation plans and policies, approves compensation of our executive officers and administers our stock compensation plans. This Compensation Discussion and Analysis (“CD&A”) contains a discussion and analysis of compensation approved by the compensation committee and paid for fiscal 2012 to the named executive officers (“NEOs”) named below and included in the “Summary Compensation Table”:

· Peter Blackmore, President and Chief Executive Officer

· Michael E. Healy, Senior Vice President and Chief Financial Officer

· Ava Hahn, Vice President Corporate Development, General Counsel & Secretary

· Pedro Rump, Senior Vice President of Engineering and Operations

· Daniel Hoffman, President & General Manager, ShoreTel Cloud Division

Executive Summary

Fiscal 2012 Financial Highlights. ShoreTel continued its growth in fiscal 2012 despite an environment of continued global economic uncertainty. Highlights of these results are as follows:

· Annual revenue increased to a record $246 million for fiscal 2012, representing year over year growth of 23%, in contrast to the worldwide IP telephony market’s -1% decline, according to Synergy Research.

· We expanded into hosted unified communications through the acquisition of M5 Networks, a market leader in cloud-based phone systems.

· We increased worldwide market share by 12.8% and U.S. share by 11.4%.

· We maintained world class net promoter scores.

Despite these positive results, ShoreTel did not meet its internal financial objectives for revenue growth and profitability. As a result, in keeping with its pay for performance philosophy, the compensation committee limited cash bonuses, equity grants and, in some cases, salary increases, as further discussed in this CD&A.

Pay-for-Performance Assessment. Given our compensation philosophy and framework, and our incentive plan designs where a substantial portion of compensation for our executives is both performance-based and “at-risk” of forfeiture each year contingent on the management team meeting and exceeding its annual and long-term financial plan objectives, we believe our compensation programs create commonality of interest between our executive team and stockholders for long-term value creation. Our commitment to pay-for-performance includes:

· We continuously monitor and take actions to adopt best practices, and eliminate or prohibit poor pay practices that are inappropriate for ShoreTel or in conflict with our pay-for-performance culture (see table below).

· A substantial portion of our compensation is performance-based. For fiscal 2012, approximately 50% of NEO total compensation was performance based, with the majority of compensation delivered in the form of short-term cash incentives and stock option awards. Our CEO did not receive an equity award in 2012 due to his recently being hired. He is eligible for an additional equity award in 2013, and at least 50% of his annual total compensation will be performance based.

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· A substantial portion of our total executive cash compensation (approximately 50% for our CEO and approximately 31% on average for our NEOs) remains “at risk” of forfeiture each year contingent on the management team meeting and exceeding their annual financial plan objectives. The average executive bonus payout for the last three fiscal years is 67%. In fiscal 2012, bonus payments were approximately 51% of target as a result of below-target performance.

· While we strive to offer fully-competitive “target” pay opportunities for each executive to recognize the experience, industry expertise and leadership each of them brings to ShoreTel, the actual pay received or “realized” by each executive is highly dependent on the ability of the management team to achieve above-plan financial results and meet key operational milestones over an extended period of time. Their actual compensation received can be substantially above or below market.

Review of Competitive and Appropriate Pay Practices. The committee regularly evaluates our compensation programs to ensure they are consistent with the company’s short-term and long-term goals given the dynamic nature of our business and the market in which we compete for talent. Following is a summary of our current pay practices and also the eliminated/prohibited pay practices:

	Current Pay Practices		Eliminated/Prohibited Pay Practices
● ● ●	Pay-for-performance program designs in which a significant portion of compensation is at-risk based on corporate performance and equity-based to create alignment between executives and stockholders. Salaries set within competitive market range. Equity grants with multi-year vesting and value tied to shareholder value creation.	● ● ●	Prohibited hedging, pledging and margining stock. Prohibited tax gross-ups on any perquisites other than standard relocation benefits. No “single-trigger” accelerated vesting of equity upon a change of control.

Overview of Executive Compensation Philosophy and Objectives

The compensation committee compensates our executives based on overall company performance and individual employee performance. Our overall compensation packages are designed to help ShoreTel acquire, retain and motivate talented executives with proven experience. Because many of our named executive officers lead our largest functions, they have the ability to directly influence overall company performance and, as a result, have a greater portion of their pay tied to short and long-term incentive programs than most other employees. We have designed our compensation programs to encourage the achievement of overall financial results, particularly revenue growth, profitability and customer service. We seek to align the interests of our named executive officers with the interests of our stockholders in order to promote the short-term and long-term growth of our business, and thereby increase stockholder value.

Role of the Compensation Committee

Our compensation committee currently consists of Michael Gregoire (chairman), Gary J. Daichendt and Kenneth D. Denman. Each member of our compensation committee is (i) an “independent” director under the requirements of The Nasdaq Stock Market, (ii) an “outside” director as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, and (iii) a “non-employee” director within the meaning of Rule 16b-3 of the Exchange Act. The compensation committee has adopted a written charter approved by the board of directors, which is available on our website at www.shoretel.com under “Investor Relations” — “Corporate Governance.”

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The compensation committee is responsible for overseeing our compensation policies, plans and benefit programs and administering our equity compensation plans. In addition, the compensation committee reviews and approves the specific elements of our named executive officers’ compensation, as well as agreements or arrangements with our named executive officers relating to employment, severance or changes of control. In doing so, our compensation committee is responsible for ensuring that the compensation of our named executive officers is consistent with our compensation philosophy and programs.

Role of Executives and Compensation Consultants in Compensation Determinations

The compensation committee receives support from ShoreTel’s human resources department in analyzing and establishing our compensation programs. The vice president of human resources attended all regular meetings of the compensation committee during fiscal 2012. In addition, ShoreTel’s general counsel also attended all regular meetings of the compensation committee in order to provide guidance regarding the legal implications of compensation decisions. ShoreTel’s CEO and CFO also regularly participated in compensation committee meetings, providing management input on organizational structure, executive development and financial analysis. The CEO provided recommendations to the compensation committee regarding the cash and equity compensation for the executive staff and how to use incentive compensation to drive ShoreTel’s growth. All executives leave the meetings when matters of executive compensation specific to them are discussed.

The compensation committee has delegated to a subcommittee consisting of our CEO, with assistance of our CFO, the authority to grant equity to non-executive employees within certain guidelines. For more information see “Equity Grant Policy” below.

In making compensation decisions, the compensation committee also has the authority to engage the services of outside advisers, experts and others and has engaged Compensia, Inc. Compensia attended all meetings of the compensation committee, responded to committee members’ inquiries and refined its analysis based on these questions.

Compensia does not provide any services to ShoreTel other than the services provided to the compensation committee. The nature and scope of services rendered by Compensia were:

· To assist in identifying members of our peer group for comparison purposes;

· To help determine compensation levels at the peer group companies;

· To provide advice regarding executive, board of directors and employee compensation best practices and market trends;

· Assist with the redesign of any short-term or long-term incentive compensation program;

· Prepare an independent compensation risk assessment; and

· Provide ad hoc advice throughout the year.

The compensation committee and Compensia selected companies that they believed are comparable to ShoreTel with respect to operations, revenue level, industry segment and market conditions, and consisted of the following companies:

Acme Packet	Globecomm Systems,Inc.	Neutral Tandem
Aruba Networks	Infinera	Novatel Wireless
Broadsoft	Interactive Intelligence	Oplink Communications
Calix	Internap Network Services	Symmetricom
Communications Systems Inc.	iPass	VASCO Data Security
Extreme Networks	Limelight Networks	Zhone Technologies

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The members of the peer group were U.S.-based companies involved in the networking or telecommunications industries, and therefore we believed were representative of companies with which we compete for talented employees. In addition, these companies had similar levels of revenues and market capitalization (generally, 0.5x to 2x ShoreTel’s revenue and market capitalization). This peer group was similar to the peer group used during the prior fiscal year, except for companies that were acquired or had a significant change in revenue such that they fell outside the targeted revenue range. Peer group comparison data were collected from Radford Surveys + Consulting (“Radford”), and from publicly-available information contained in the peer group members’ SEC filings. The Radford survey provides market data and other benchmark information related to trends and competitive practices in executive compensation.

We seek to set executive officers’ total overall target cash compensation based on performance, job scope and market data. We consider the total cash compensation paid to executives with similar roles at peer group companies as a factor in determining our executive compensation. Due to below-plan levels of performance, the compensation committee did not increase base salary and bonus levels for fiscal 2012 for the NEOs, with the exception of Ms. Hahn, who received a salary increase due to expanding her responsibilities to include Corporate Development in addition to General Counsel. Actual fiscal 2012 compensation for all our executives was at or below the market 50th percentile.

Consistent with our philosophy of emphasizing pay for performance, the executive bonus plan constitutes a significant percentage of an executive’s overall compensation. The bonus plan is designed to pay above target when ShoreTel exceeds its goals and below target when ShoreTel does not achieve its goals. The maximum payment for overachievement in all performance goals is capped at 150%. Our CEO was on a full year plan consisting of 70% weighting of corporate financial objectives and 30% weighting of strategic objectives. For the rest of the NEOs, the objectives for the first half of fiscal 2012 consisted of predefined revenues and non-GAAP operating profit targets. In addition, the amounts payable to NEOs were subject to a multiplier for the company’s customer satisfaction ratings. For the second half of fiscal 2012, the NEO’s objectives mirrored the CEO’s to align financial and strategic operational components.

Approval of Executive Compensation. The compensation committee reviews and approves all decisions regarding the compensation of the executive officers other than our CEO. With respect to the CEO’s compensation, the compensation committee recommends to the independent directors of the board of directors the form and amount of the CEO’s compensation. The independent directors then approve the form and amount of the CEO’s compensation.

Elements of Compensation. Our executive officers are compensated through the following compensation elements, each designed to achieve one or more of our overall objectives in fashioning compensation:

Compensation Element	How Determined	Objective	Philosophy
Base Salary	Market data and scope of executive’s responsibilities.	Attract and retain experienced executives.	Reflect scope of duties and performance.
Non-Equity Incentive Plan	Based on achieving corporate objectives.	Motivate executives to achieve company objectives.	Reflect scope of duties and performance.
	Executive bonus amount is adjusted based on individual performance during the bonus period.	Tie a substantial portion of executive compensation to achieving company objectives and individual performance.	Substantial portion of executive cash compensation based on short-term company performance.
Long-Term Equity Incentive Awards	Market data, scope of executive’s responsibility and value of existing equity awards.	Attract and retain experienced executives. Align interests of executives with stockholders.	Long term incentives emphasized over base salaries. Significant portion of executive compensation tied to shareholder value creation.

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Base Salary. In May 2012, the compensation committee reviewed the base salary of each of the executive officers named in the Summary Compensation Table and compared the base salaries to peer group data presented by Compensia. Base salaries for the NEOs, except for Mr. Rump, fell below our target of 50th to 60th percentile. Due to corporate performance, base salaries for the NEOs were not adjusted for fiscal 2012, except for Ms. Hahn, who received an increase in connection with her expanded responsibilities:

Name	Base Salary			% Increase
Peter Blackmore	$	400,000			-
Michael E. Healy		290,000			-
Pedro Rump		265,000			-
Ava M. Hahn		270,000	*		12.5	%
Daniel Hoffman		260,000			-

*Promotional salary adjustment effective April 1, 2012.

Non-Equity Incentive Plan Award. We utilize cash bonuses to reward the achievement of company objectives and to recognize individual performance. Messrs. Blackmore, Healy, Rump and Ms. Hahn were eligible to receive cash awards following December 31 and June 30 each year under our bonus plan. For fiscal 2012, 70% of the CEO’s bonus was based upon the attainment of the following financial objectives: 35% revenue, 17.5% non-GAAP gross margin percentage, and 17.5% non-GAAP operating margin. The remaining 30% of CEO bonus was based on attainment of annual strategic objectives. For the first half of fiscal 2012, the NEOs (other than the CEO) bonus objectives consisted of 75% revenue, 25% non-GAAP operating profit, and a net promoter score multiplier. For the second half, the NEOs (other than the CEO) objectives were reset to match the CEO’s objectives described above. For fiscal 2012, the bonuses paid were based upon the attainment of company’s full year performance objectives and each executive’s individual performance, as determined by the CEO.

The bonus pool is equal to the product of (a) a percentage determined under the bonus plan, based on the extent to which all performance objectives are achieved, multiplied by (b) a dollar amount equal to 100% for Mr. Blackmore, and 45% for other executives, multiplied by each executive’s base salary for the bonus period.

Current bonus targets reflect peer company median pay practice. We may increase these bonus targets as the company’s financial performance continues to improve.

Each executive’s individual performance is evaluated by the compensation committee and the executive’s bonus amount is adjusted accordingly. The CEO provides the compensation committee an assessment of each executive’s performance during each six month period. The maximum cash award any participant may receive under the bonus plan was 150% of that participant’s target bonus, although total payments under the bonus plan cannot exceed the bonus pool. Actual individual payout is adjusted lower or higher based on individual performance.

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The targets chosen by the compensation committee for all executive objectives reflected the compensation committee’s belief that, as a “growth company,” executives should be rewarded for revenue growth, but only if that revenue growth is achieved in accordance with the company’s plan for profitability and achievement of key strategic components. The committee considered the chosen metrics to be the best indicators of financial success and stockholder value creation. In fiscal 2012, we did not have a formal policy regarding adjustment or recovery of awards or payments if the relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of the award or payment. However, we plan to adopt an adjustment or recovery policy for fiscal 2013.

Percentages of Base Salary

For the 2012 fiscal year, the annual target incentive awards were the following percentages of executive officer base salary:

	Percent of Base Salary (Annual Incentive Award)
Name	Threshold(1)			Target			Max Above Target
Peter Blackmore		50.0	%		100	%		150.0	%
Michael E. Healy		22.5			45			67.5
Pedro Rump		22.5			45			67.5
Ava M. Hahn		22.5			45			67.5
Daniel Hoffman		22.5			45			67.5	(2)

(1) The minimum threshold for payout of each element of the incentive award was 50% of the target. The bonus incentive plan rewards performance for achievement against board-approved plans in specific areas: (1) revenue achievement, (2) non-GAAP gross margin percentage (3) non-GAAP operating profit, (4) net promoter score, and (5) certain strategic elements. For the first half of fiscal 2012, for all NEOs except the CEO, revenue achievement was weighted at 75%, while non-GAAP operating profit achievement was weighted at 25% with a net promoter score multiplier. For the second half of fiscal 2012, for all NEOs including the CEO, revenue achievement was weighted at 35%, non-GAAP gross margin percent was 17.5%, non-GAAP operating profit was at 17.5% and four strategic elements were 30%. The minimum threshold revenue target for the first half of fiscal 2012 was $107.4 million and the maximum revenue target was $145.3 million. For the second half of fiscal 2012, the bonus objectives matched the CEO incentive bonus plan for the full year. Thus, the minimum threshold revenue target for the full 2012 fiscal year was $229.8 million and the maximum revenue target was $310.9 million. Achievement of the threshold revenue level yields a 50% payment of the revenue element, and achievement of the maximum revenue level yields a 150% payment of the revenue element. The table below shows levels of revenue achievement and resultant bonus payments as a percentage of the target bonus payment. Actual results are compared to the plan amounts to determine attainment on each of the three measurement areas.

Revenue Achievement as a % of Target	Associated Bonus Payment as a % of Target
85%	50%
90	67
95	83
105	117
110	134
115	150

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For the first half of fiscal 2012, revenue achievement was 89% of plan, which yielded a 46.5% payment on the revenue element based on the 75% weighting factor. For the second half of fiscal 2012, revenue achievement was 86% of plan, which yielded a 52% payment of the revenue element based on the 30% weighting factor.

(2) Mr. Hoffman’s first eligible bonus period will be the first half of fiscal 2013.

Fiscal 2012 Bonus Plan Objective Achievement Versus Targets for Mr. Blackmore (dollars in millions)

Bonus Objective	Target			Achievement			Payout %
Revenue	$	270.4		$	231.1			51.6	%
Non-GAAP Gross Margin %(1)		66.8	%		66.9	%		100.3	%
Non-GAAP Operating Margin $(2)		7.4			1.2			0	%
Strategic Objectives		4			2			50	%
Total								51	%

(1) Non-GAAP gross margin % is non-GAAP gross profit divided by revenue. Non-GAAP gross profit excludes certain stock-based compensation expense, amortization of acquisition-based intangibles and other non-recurring adjustments.

(2) Non-GAAP operating margin is operating income, less stock-based compensation expense, amortization of acquisition-based intangibles, litigation settlements and other non-recurring adjustments including the related tax adjustments. In fiscal 2012, we did not reach the minimum threshold of 50% achievement. Therefore, this component was not earned.

Fiscal 2012 Bonus Plan Objective Achievement Versus Targets for Messrs. Healy, Rump and Ms. Hahn

(dollars in millions)

	First Half Fiscal 2012
Bonus Objective	Target		Achievement		Payout %
Revenue	$	126.4	$	111.9		46.5	%
Non-GAAP Operating Profit(1)		3.3		1.0		0
Net Promoter Score(2)		60		57		--
Total						46.5

(1) Non-GAAP operating profit is operating income, less stock-based compensation expense, amortization of acquisition-based intangibles, litigation settlements and other non-recurring adjustments including the related tax adjustments. In the first half of 2012, we did not reach the minimum threshold of 50% achievement. Therefore, this component was not earned.

(2) The net promoter score is determined by our customer surveys.

For the second half of fiscal 2012, the objectives and achievement for Messrs. Healy, Rump and Ms. Hahn were the same as Mr. Blackmore’s full-year objectives and achievement set forth above. Due to the 51% achievement in the full-year plan, and the 46.5% payment in the first half, Messrs. Healy, Rump and Ms. Hahn earned a 55% payment in the second half.

In fiscal 2012, Messrs. Blackmore, Healy, Rump and Ms. Hahn earned incentive awards equal to $202,911, $66,193, $60,487 and $56,945, respectively. Mr. Hoffman’s first eligible bonus period will be the first half of fiscal 2013.

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Long-Term Equity Incentive Awards. We utilize equity awards in the form of stock options and restricted stock units (“RSUs”) to ensure that our executive officers have a continuing stake in our long-term success. We believe a mix of options and RSUs best meet our overall goals of alignment with long term performance and shareholder value creation, and retention of our key executives. For fiscal 2012, NEO awards emphasized stock options, as approximately 70% of long term incentive grant value was delivered in the form of stock options. Individual awards were determined based on market median practice and individual performance. Because our executive officers are awarded stock options with an exercise price equal to the fair market value of our common stock on the date of grant, these options will have value to our executive officers only if the market price of our common stock increases after the date of grant. The value of restricted stock units granted to executives will vary based on the market price of our stock, but will only gain in value if the market price of our common stock increases. Typically, stock options for newly-hired executives vest over 48 months with 25% of the shares vesting on the first anniversary of the grant date, and the remainder vesting in equal installments over the next 36 months. Typically, RSUs granted to newly-hired executives vest over 48 months, with 25% of the shares vesting on the first anniversary of the grant date, and 25% vesting on the second, third and fourth anniversary dates, respectively. Follow-on executive stock option grants typically vest over 48 months with 25% of the shares vesting on the first anniversary of the grant date, and the remainder vesting in equal installments over the next 36 months. Follow-on executive RSUs grants vest over 48 months, with 25% of the shares vesting on the first anniversary of the grant date, and 25% vesting on the, second, third and fourth anniversary dates, respectively. The committee has moved to performance-based equity for fiscal 2013 equity awards in furtherance of its pay for performance philosophy.

Authority to make equity award grants to executive officers, with the exception of the CEO, has been delegated to our compensation committee. In determining the size of grants to executive officers, our compensation committee considers our performance against the strategic plan, individual performance against the individual’s objectives, comparative share ownership data from compensation surveys of high technology companies in our area, the extent to which shares subject to previously granted awards are vested and the recommendations of our CEO and other members of management.

In August 2011, we granted each of Messrs. Healy, and Rump an option to purchase 55,000, 42,000 shares of common stock and 10,000, 8,000 RSUs. At that time, we also granted Ms. Hahn an option to purchase 55,000 shares of common stock and 10,000 RSUs. In March 2012, upon the commencement of employment, we granted Mr. Hoffman options to purchase 269,000 shares of common stock pursuant to his employment agreement.

Agreement with Mr. Blackmore

ShoreTel entered into an executive employment agreement with Mr. Blackmore that provides for his general employment terms, including certain compensation provisions described below, and specified termination benefits in the event of a termination upon ShoreTel’s change of control or his termination in the absence of a change of control.

Salary and Bonus. Mr. Blackmore receives an annual base salary of $400,000, less applicable withholding taxes, which will be reviewed annually by the compensation committee. Mr. Blackmore is eligible to receive an annual incentive bonus based on criteria established by the board equal to his then-current base salary. Such target bonus may be increased at the discretion of the board to a maximum of 150% of his then-current base salary.

Additional Benefits. ShoreTel pays for one annual physical for Mr. Blackmore and will reimburse him for the cost of his existing health insurance policy.

Equity Grants. At time of hire Mr. Blackmore was granted an option to purchase (i) 750,000 shares of ShoreTel’s common stock with an exercise price equal to $7.63, which was the fair market value on the date of grant, and (ii) 250,000 shares of common stock at an exercise price equal to $11.00 per share. His option vests as to 25% of the shares on the first anniversary of the grant date, with 1/48th of the shares subject to the options vesting on a monthly basis thereafter. The vesting of the options shall accelerate as described below. No additional grants were provided in fiscal 2012.

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Termination in Absence of a Change of Control. In the event of a termination in absence of change of control and upon the execution of a binding release agreement, Mr. Blackmore will be entitled to receive: (1) a lump sum payment in an amount equal to eighteen (18) months of his base salary, less applicable withholding taxes; (2) reimbursement of premiums paid for continuation coverage for eighteen (18) months pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), (3) an amount equal to his then-current target bonus, less any previously-paid advances on such bonus, prorated for the number of days of his service to the company for such year, payable in one lump sum, provided that if such termination were to occur in the second (2nd) half of the fiscal year, the first (1st) half incentive plan funded percentage would be used and a performance rating factor of 1.0 in calculating the amount owed would be used, and (4) accelerated vesting of his options as if he had provided a full year of service (but in no event less than six months of accelerated vesting) equal to one year, if such termination occurs during the first year of employment, or six months if such termination occurs after the one-year anniversary of employment.

Termination Upon a Change of Control. In the event of a termination upon a change of control and upon the execution of a binding release agreement, Mr. Blackmore will be entitled to receive: (1) a lump sum payment in an amount equal to eighteen (18) months of his base salary, less applicable withholding taxes; (2) reimbursement of premiums paid for continuation coverage for eighteen (18) months pursuant to COBRA; (3) a lump sum payment in an amount equal to one hundred and fifty percent (150%) of his then-current target bonus, less applicable withholding taxes and (4) full acceleration of his options. Mr. Blackmore is required to provide reasonable transition services to ShoreTel (or any successor) following a termination upon a change of control for a three-month period in order to receive these benefits.

Term of Agreement. The agreement has a three-year initial term. Either Mr. Blackmore or ShoreTel may give at least nine months’ prior notice to the other that the agreement shall terminate at the end of the initial term. If such written notice is not timely provided, the term of the agreement renews and extends for another three years.

The compensation committee believes that in establishing the cash and equity incentive compensation programs for the company’s executive officers, the potential deductibility of the compensation payable under those programs should be only one of a number of relevant factors taken into consideration, and not the sole governing factor. For that reason the compensation committee may deem it appropriate to provide one or more executive officers with the opportunity to earn incentive compensation, whether through cash incentive award programs tied to the company’s financial performance or equity incentive grants tied to the executive officer’s continued service, which may be in excess of the amount deductible by reason of Section 162(m) or other provisions of the IRC. The compensation committee believes it is important to maintain cash and equity incentive compensation at the requisite level to attract and retain the executive officers essential to the company’s financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.

Also, the compensation committee takes into account whether components of our compensation will be adversely impacted by the penalty tax associated with Section 409A of the IRC, and aims to structure the elements of compensation to be compliant with or exempt from Section 409A to avoid such potential adverse tax consequences.

Equity Award Policies. Equity awards for newly hired executives are typically made on the date the executive starts employment. Performance grants and annual re-fresh grants are typically made to executives during an open trading window as defined in the company’s insider trading policy. We do not currently have equity security ownership guidelines or requirements for our executive officers.

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Risk Assessment of Compensation Programs

The compensation committee considers potential risks when reviewing and approving compensation programs. We have designed our compensation programs, including our incentive compensation plans, with specific features to address potential risks while rewarding employees for achieving financial and strategic objectives through prudent business judgment and appropriate risk taking. The following elements have been incorporated in our programs available for our executive officers:

· A Balanced Mix of Compensation Components – The target compensation mix for our executive officers is composed of salary, annual cash incentives and long-term equity incentives, representing a mix that is not overly weighted toward short-term cash incentives.

· Multiple Performance Factors – Our incentive compensation plans use multiple company-wide metrics and individual performance, which encourage focus on the achievement of objectives for the overall benefit of the company.

· The executive incentive plan is dependent on multiple performance metrics including revenue, non-GAAP profit and strategic components. The plan does not pay out unless certain financial metrics are met.

· The long-term incentives are equity-based, with four year vesting to complement our annual cash based incentives.

· Capped Incentive Awards – Awards under the executive incentive plan are capped at 150% of target.

Additionally, the compensation committee considered an assessment of compensation-related risks for all of our employees. Based on this assessment and the factors noted above, the compensation committee concluded that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on ShoreTel. In making this evaluation, the compensation committee reviewed the key design elements of our compensation programs in relation to industry “best practices” as presented by Compensia, as well as the means by which any potential risks may be mitigated, such as through our internal controls and oversight by management and the board of directors.

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COMPENSATION COMMITTEE REPORT

This report of the compensation committee is required by the Securities and Exchange Commission and, in accordance with the Commission’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that ShoreTel specifically incorporates this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act of 1933 or the Securities Exchange Act of 1934.

The compensation committee of the company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and based on such review and discussions, the compensation committee recommended to the board that the Compensation Discussion and Analysis be included in this Proxy Statement.

THE COMPENSATION COMMITTEE
	Michael P. Gregoire, Chair
	Gary J. Daichendt
	Kenneth D. Denman

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EXECUTIVE COMPENSATION

Executive compensation tables

The following table presents compensation information for our fiscal year ended June 30, 2012 paid to or accrued for our chief executive officers, our chief financial officer, each of our three other most highly compensated executive officers whose aggregate salary and bonus was more than $100,000. We refer to these executive officers as our “named executive officers” elsewhere in this proxy statement.

Summary Compensation

Name and Principal Position	Fiscal Year	Salary(1)			Bonus		Stock Awards(2)		Option Awards(2)		Non-Equity Incentive Plan Compensation(3)		All Other Compensation		Total
Peter Blackmore	2012	$	400,000			—		—		—	$	202,911		—	$	602,911
Chief Executive Officer	2011		221,200			—		—		3,940,025		241,080		—		4,402,305
Daniel Hoffman	2012		65,000	(4)		—		—		901,823		—		—		966,823
President & General Manager, ShoreTel Cloud Division
Michael E. Healy	2012		290,000			—		80,200		261,003		66,193		—		697,396
Chief Financial Officer	2011		270,000			—		27,300		124,440		114,470		—		536,210
	2010		250,000			—		—		—		70,000		—		320,000
Pedro Rump	2011		265,000			—		64,160		199,311		60,487		—		588,958
SVP, Engineering and	2011		254,450			—		27,300		124,440		107,952		—		514,142
Operations	2010		235,000			—		—		—		73,000		—		308,000
Ava M. Hahn	2011		250,208			—		80,200		261,003		56,945		—		648,356
VP Corporate	2011		233,333			—		25,025		111,196		98,916		—		468,470
Development, General Counsel & Secretary	2010		176,000			—		—		—		46,000		—		222,000

(1) The amounts in this column include payments by us in respect of accrued vacation, holidays, and sick days, as well as any salary contributed by the named executive officer to our 401(k) plan.

(2) Represents the aggregate grant date fair value under SFAS 123(R). In fiscal year 2012 we estimated the grant date fair value of stock option awards using the Black-Scholes option valuation model with the following assumptions — Expected life: 6.08 years, Risk free interest rate: 0.79-1.15%, Volatility: 65-66%, and Dividend yield: 0, and in fiscal year 2011 we estimated the grant date fair value of stock option awards using the Black Scholes option valuation model with the following assumptions — Expected life: 5.75-6.26 years, Risk free interest rate: 1.43-2.12%, Volatility: 57%, and Dividend yield: 0, and in fiscal year 2010 we estimated the grant date fair value of stock option awards using the Black-Scholes option valuation model with the following assumptions — Expected life: 6-6.5 years, Risk free interest rate: 2.26-2.47%, Volatility: 57-58%, and Dividend yield: 0.

(3) Except as otherwise noted below, all non-equity incentive plan compensation were paid pursuant to a bonus incentive plan. For a description of this plan, see “Compensation Discussion and Analysis — Non-Equity Incentive Plan Award.”

(4) Mr. Hoffman joined us in connection with the acquisition of M5 Networks in March 2012.

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Grants of Plan-Based Awards During the Fiscal Year

The following table provides information with regard to grants of plan-based awards to each named executive officer during our fiscal year ended June 30, 2012:

	Grant		Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)				Number of Securities Underlying			Exercise Price of Option		Grant Date Fair Value of Stock Option
Name	Date		Target($)		Maximum($)		Awards(2)			Awards(3)($)		Awards(6)($)
Peter Blackmore		—		400,000		600,000		—			—		—
Daniel Hoffman	3/28/2012			—		—		269,000	(4)		5.63		901,823
Michael E. Healy	8/15/2011			—		—		55,000	(4)		8.02		261,003
	8/15/2011			—		—		10,000	(5)		—		80,200
		—		130,500		435,000		—			—		—
Pedro Rump	8/15/2011			—		—		42,000	(4)		8.02		199,311
	8/15/2011			—		—		8,000	(5)		—		64,160
		—		119,250		397,500		—			—		—
Ava M. Hahn	8/15/2011			—		—		55,000	(4)		8.02		261,003
	8/15/2011			—		—		10,000	(5)		—		80,200
		—		121,500		405,000		—			—		—

(1) Represents bonuses payable pursuant to ShoreTel bonus plans for fiscal 2012. For a description of these plans, see “Compensation Discussion and Analysis — Non Equity Incentive Plan Award.”

(2) Each award was granted pursuant to our 2007 Equity Incentive Plan.

(3) Represents the fair market value of a share of our common stock on the grant date of the option, and represents the closing price of our common stock on such date.

(4) A stock option that vests as to 25% of the shares on the first anniversary of the grant date and vests as to 1/48 of the shares each month over the next three years thereafter.

(5) A restricted stock unit that vests as to 25% of the shares on the first anniversary of the grant date and vests as to 25% of the shares each anniversary of the grant date over the next three years thereafter.

(6) Represents the grant date fair value under SFAS 123(R), we estimated the grant date fair value of stock option awards described in footnotes 4-5 using the Black-Scholes option valuation model with the following assumptions — Expected life: 56.08 years, Risk free interest rate: 0.79-1.15%, Volatility: 65-66%, and Dividend yield: 0. See Footnote 1 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for further discussion of the assumptions used.

Equity awards may be subject to accelerated vesting upon involuntary termination or constructive termination following a change of control of ShoreTel, as discussed below in “— Employment, Severance and Change of Control Arrangements.”

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Outstanding Equity Awards at June 30, 2012

The following table presents the outstanding option and restricted stock units held as of June 30, 2012 by each named executive officer:

	Number of Securities Underlying Unexercised Options(1)						Option Exercise		Option Expiration		Shares of Units of Stock That Have			Market Value of Shares or Units of Stock That Have Not Vested
Name	Exercisable			Unexercisable			Price(2)		Date		Not Vested			($)(3)
Peter Blackmore		281,250			468,750	(4)	$	7.63	12/13/2020			—			—
		93,750			156,250	(4)		11.0	12/13/2020			—			—
Michael Healy		220,832			54,167	(5)		4.82	2/3/2016			—			—
		100,000			—	(6)		5.08	5/6/2018			—			—
		—			50,000	(7)		4.55	8/17/2020			—			—
		—			55,000	(21)		8.02	8/15/2021
		—			—			—		—		6,000	(8)		26,280
		—			—			—		—		10,000	(22)		43,800
Daniel Hoffman		—			269,000	(9)		5.63	3/28/2022			—			—
Pedro Rump		237,500	(13)		—			0.80	1/12/2016			—			—
		60,000	(14)		—			3.20	10/3/2016			—			—
		41,666			8,333	(15)		4.82	2/3/2016			—			—
		83,333			16,667	(15)		4.82	2/3/2016			—			—
		—			50,000	(7)		4.55	8/17/2020			—			—
		—			42,000	(21)		8.02	8/15/2021			—			—
		—			—			—		—		6,000	(8)		26,280
		—			—			—		—		8,000	(22)		35,040
Ava M. Hahn		2,917			417	(17)		5.56	8/26/2018			—			—
		—			—			—		—		600	(19)		2,628
		7,583			6,417	(18)		5.27	5/11/2019			—			—
		14,583			8,334	(5)		4.82	2/3/2016			—			—
		—			45,000	(7)		4.55	8/17/2020			—			—
		—			55,000	(21)		8.02	8/15/2021			—			—
		—			—			—		—		3,400	(20)		14,892
		—			—			—		—		5,500	(8)		24,090
		—			—			—		—		10,000	(22)		43,800

(1) Each stock option was granted pursuant to our 1997 Stock Option Plan or 2007 Equity Incentive Plan. The vesting and exercisability of each stock option is described in the footnotes below for each option. Each of these equity awards expires 7 or 10 years from the date of grant. Certain of these stock options are also subject to accelerated vesting upon involuntary termination or constructive termination following a change of control of ShoreTel, as discussed below in “Employment, Severance and Change of Control Arrangements.”

(2) Represents the fair market value of a share of our common stock on the option’s grant date, as determined by our Board of Directors or if the grant date was subsequent to our initial public offering, the closing price of our common stock on the date of grant.

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(3) Market value of shares or units of stock that have not vested is computed by multiplying $4.38, closing price on The Nasdaq Global Market of our common stock on June 30, 2012, by the number of shares or units.

(4) Represents shares subject to an outstanding stock option. The option vests as to 25% of the shares in December 2011, and 1/48 of the shares each month over three years thereafter.

(5) Represents shares subject to an outstanding stock option. The option vests as to 25% of the shares in February 2010, and 1/48 of the shares each month over three years thereafter.

(6) Represents shares subject to an outstanding stock option. The option vests as to 50% of the shares in May 2010 and 1/48 of the shares each month over two years thereafter.

(7) Represents shares subject to an outstanding stock option. The option vests as to 50% of the shares in August 2012, and 1/48 of the share each month over two years thereafter.

(8) Represents an RSU. The RSU vests as to 50% of the units in August 2012, and vests 25% of the units on each anniversary over two years thereafter.

(9) Represents shares remaining subject to an outstanding stock option. The option vests as to 25% of the shares inMarch 2013, and vests as to 1/48 of the shares each month over three years thereafter.

(10) Represents an RSU. The RSU vests as to 50% of the units in February 2010, and vests 25% of the units on each annual date over two years thereafter.

(11) Represents shares subject to an outstanding stock option. The option vests as to 50% of the shares in August 2011, and 1/48 of the shares each month over two years thereafter.

(12) Represents shares subject to an outstanding stock option. The option vests as to 50% of the shares in February 2012, and 50% of the shares in February 2013.

(13) Represents shares remaining subject to an immediately exercisable stock option to purchase 265,500 shares that was partially exercised. Mr. Rump has early-exercised 25,000 shares subject to this option. The option/shares vested as to 25% of the shares in January 2007, and vests as to 1/48 of the shares each month over three years thereafter. As of June 30, 2011, 265,500 shares were vested and none were unvested.

(14) Represents shares subject to an immediately exercisable outstanding stock option. The option vested as to 50% of the shares in October 2008, and 1/48 of the shares each month over two years thereafter.

(15) Represents shares subject to an outstanding option. The option vested as to 50% of the shares in February 2011, and vests 1/48 of the shares each month over two years thereafter.

(16) Represents shares subject to an immediately exercisable outstanding stock option. The option vested as to 25% of the shares in March 2006, and 1/48 of the shares each month over three years thereafter.

(17) Represents shares subject to an outstanding stock option. The option vested as to 50% of the shares in August 2010, and 1/48 of the shares each month over two years thereafter.

(18) Represents shares subject to an outstanding stock option. The option vested as to 50% of the shares in May 2011, and 1/48 of the shares each month over two years thereafter.

(19) Represents an RSU. The RSU vested as to 50% of the shares in August 2010, and vests 25% of the units on each anniversary over two years thereafter.

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(20) Represents an RSU. The RSU vested as to 50% of the shares in May 2011, and vests 25% of the units on each anniversary over two years thereafter.

(21) Represents shares subject to an outstanding stock option. The option vests as to 25% of the shares in August 2012, and 1/48 of the shares each month over three years thereafter.

(22) Represents an RSU. The RSU vested as to 25% of the shares in August 2012, and vests 25% of the units on each anniversary over three years thereafter

Option Exercises During Fiscal 2012

The following table shows the number of shares acquired pursuant to the exercise of options by each named executive officer during our fiscal year ended June 30, 2012:

Name	Number of Shares Acquired Upon Vesting		Value Realized on Vesting (1)
Peter Blackmore		—		—
Michael E. Healy		—		—
Pedro Rump		—		—
Ava M. Hahn		4,000	$	17,984
Dan Hoffman		—		—

(1) Reflects the closing price of our common stock on the vesting date.

Employment, Severance and Change of Control Arrangements

Peter Blackmore, our chief executive officer, executed an executive employment agreement in December 2010. Please see “Agreement with Mr. Blackmore –Employment Agreement” above.

Michael E. Healy, our chief financial officer, executed an offer letter in May 2007. The offer letter provides for at-will employment without any specific term. The offer letter established Mr. Healy’s starting annual base salary at $250,000. In addition, Mr. Healy is eligible to participate in our company bonus plan as in effect from time to time, at a bonus target of 45% of his annual salary. Mr. Healy also received a prepaid bonus of $30,000, which was forfeitable on a prorated basis had Mr. Healy voluntarily terminated his employment with us or was terminated for cause within the first 12 months of his employment. Pursuant to the offer letter, Mr. Healy was granted an option to purchase 324,999 shares of common stock with an exercise price equal to the fair market value of our common stock on the date of grant. Mr. Healy also has a retention incentive agreement that provides for severance upon his termination. Please see “–Retention Incentive Agreements” above.

Dan Hoffman, our president and general manager for ShoreTel Cloud Division, executed an offer in March 2012. The offer letter provides for at-will employment without any specific term. The offer letter established Mr. Hoffman’s starting annual base salary at $260, 000. In addition, Mr. Hoffman is eligible for an annual incentive bonus. Mr. Hoffman also is eligible for a bonus of $23,000, which will be funded so long as voluntary terminations do not exceed 10% in the first anniversary acquisition date. In March 2012, Mr. Hoffman received a stock option grant of 269,000 shares of common stock with an exercise price equal to the fair market value of our common stock on the date of such grant. Mr. Hoffman also has a retention incentive agreement that provides for severance upon his termination. Please see “–Retention Incentive Agreements” above.

Pedro Rump, our senior vice president of engineering and operations, executed an offer letter in December 2005. The offer letter provides for at-will employment without any specific term. The offer letter established Mr. Rump’s starting annual base salary at $225,000. In addition, Mr. Rump is eligible for an annual incentive bonus. In connection with his joining our company in December 2005, Mr. Rump received a stock option grant of 265,500 shares of common stock with an exercise price equal to the fair market value of our common stock on the date of such grant. Mr. Rump also has a retention incentive agreement that provides for severance upon his termination. Please see “–Retention Incentive Agreements” above.

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Ava M. Hahn, our vice president of corporate development, general counsel and secretary, executed an offer letter in June 2007 which was restated for her promotion in April 2009. The offer letter provides for at-will employment without any specific term. The restated offer letter established Ms. Hahn’s starting annual base salary at $176,000 based on a 32-hour work week. In addition, Ms. Hahn is eligible for an annual incentive bonus. In connection with joining our company in June 2007, Ms. Hahn received a stock option grant of 50,000 shares of common stock with an exercise price equal to the fair market value of our common stock on the date of such grant. The restated offer provided for an additional stock option grant of 28,000 shares and 13,600 restricted stock units. Ms. Hahn also has a retention incentive agreement that provides for severance upon her termination. Please see “–Retention Incentive Agreements” above.

The following table summarizes the value of benefits payable to each named executive officer pursuant to the arrangements described above if they are terminated without cause:

Potential Payments on Termination or Change of Control

	Termination Absent a Change of Control					Change of Control
Name	Salary($)			Acceleration of Equity Vesting(1)($)		Salary($)			Acceleration of Equity Vesting(1)($)
Peter Blackmore		620,790			—		1,220,790			—	(4)
Daniel Hoffman		139,077	(5)		—		395,155	(3)		—	(4)
Michael E. Healy		154,077	(5)		24,090		438,655	(6)		52,560	(7)
Pedro Rump		139,216	(5)		—		397,680	(6)		45,990	(7)
Ava M. Hahn		123,661	(10)		—		177,515	(8)		42,705	(9)

(1) Calculated based on the termination or change of control taking place as of June 30, 2012, and the closing price of our common stock on that date of $4.38 per share.

(2) Reflects continued base salary for 12 months following termination and reimbursement of premiums paid for continuation coverage for 12 months pursuant to COBRA.

(3) Reflects continued base salary for 18 months following termination, 100% of annual target bonus and reimbursement of premiums paid for continuation coverage for 18 months pursuant to COBRA.

(4) Reflects acceleration of all outstanding equity awards.

(5) Reflects continued base salary for 6 months following termination and reimbursement of premiums paid for continuation coverage for 6 months pursuant to COBRA.

(6) Reflects continued base salary for 12 months following termination, 100% of annual target bonus and reimbursement of premiums paid for continuation coverage for 12 months pursuant to COBRA.

(7) Reflects acceleration of 75% outstanding equity awards.

(8) Reflects continued base salary for 6 months following termination, 50% of annual target bonus and reimbursement of premiums paid for continuation coverage for 6 months pursuant to COBRA.

(9) Reflects acceleration of 50% outstanding equity awards.

(10) Reflects continued base salary for 2 months following termination, plus an additional month of salary for every year of service beyond one year, capped at 4 years, and reimbursement of premiums paid for continuation coverage for 6 months pursuant to COBRA.

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All of our NEOs have Retention Incentive Agreements. The Agreements provide for specified termination benefits, and if executed by the executive officer, replace any existing severance agreements with the executive officer. The Agreements were adopted in an effort to establish consistency in its executive severance practices and to encourage retention of its executive talent.

The Agreement entered into with Messrs. Healy, Rump and Hoffman provide for the following benefits:

Termination in Absence of a Change of Control. In the event of employment termination without cause in the absence of a change of control of our company, and upon the execution of a binding release agreement, each of Messrs. Healy, Girskis and Rump will be entitled to receive (1) a lump sum payment in an amount equal to six months of his base salary, less applicable withholding taxes, and (2) reimbursement of premiums paid for continuation coverage for six months pursuant to COBRA.

Termination Upon a Change of Control. In the event of employment termination without cause upon a change of control of our company, and upon the execution of a binding release agreement, each of Messrs. Healy, Girskis and Rump will be entitled to receive (1) a lump sum payment in an amount equal to twelve months of his base salary, less applicable withholding taxes, (2) a lump sum payment in an amount equal to 100% of his annual target bonus, less applicable withholding taxes, (3) acceleration of 75% of all outstanding equity awards, and (4) reimbursement of premiums paid for continuation coverage for twelve months pursuant to COBRA.

The Agreement with Ms. Hahn provides for the following benefits:

Termination in Absence of a Change of Control. In the event of employment termination without cause in the absence of a change of control of the Company, and upon the execution of a binding release agreement, each of Mr. Basart and Ms. Hahn will be entitled to receive a lump sum payment in an amount equal to the sum of (x) two (2) months of base salary plus (y) one (1) additional month of base salary for each full year of employment completed after the the first full year of employment, not to exceed four subsequent years. They will also be entitled to COBRA reimbursement for the same amounts of months calculated for their severance.

Termination Upon a Change of Control. In the event of employment termination without cause upon a change of control of our company, and upon the execution of a binding release agreement, each of Mr. Basart and Ms. Hahn will be entitled to receive (1) a lump sum payment in an amount equal to six months of base salary, less applicable withholding taxes, (2) a lump sum payment in an amount equal to 50% of annual target bonus, less applicable withholding taxes, (3) acceleration of 50% of outstanding equity awards, and (4) reimbursement of premiums paid for continuation coverage for six months pursuant to COBRA.

TRANSACTIONS WITH RELATED PERSONS

From July 1, 2009 to the present, there have been no (and there are no currently proposed) transactions in which ShoreTel was (or is to be) a participant and the amount involved exceeded $120,000 and in which any executive officer, director, 5% beneficial owner of our common stock or member of the immediate family of any of the foregoing persons had (or will have) a direct or indirect material interest, except the compensation arrangements described above for our named executive officers and directors and compensation arrangements with our other executive officers not required to be disclosed in this section by the rules and regulations of the Securities and Exchange Commission.

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REPORT OF THE AUDIT COMMITTEE

This report of the audit committee is required by the Securities and Exchange Commission and, in accordance with the Commission’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that ShoreTel specifically incorporates this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act of 1933 or the Securities Exchange Act of 1934.

Management is responsible for ShoreTel’s internal controls and the financial reporting process. Our independent registered public accounting firm is responsible for performing an independent audit of ShoreTel’s consolidated financial statements, and the effectiveness of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to issue a report thereon. The audit committee’s responsibility is to monitor and oversee these processes. In this context, during fiscal year 2010, the audit committee has met and held discussions with management and Deloitte & Touche LLP, our independent registered public accounting firm. Management has represented to the audit committee that ShoreTel’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the audit committee has reviewed and discussed the consolidated financial statements with management and Deloitte & Touche LLP. The audit committee has discussed with Deloitte & Touche LLP the matters required to be discussed by Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380),1 as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

Deloitte & Touche LLP has also provided to the audit committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and the audit committee has discussed with Deloitte & Touche LLP that independent registered public accounting firm’s independence.

Based upon the audit committee’s discussions with management and Deloitte & Touche LLP and the audit committee’s review of the representations of management and the report of Deloitte & Touche LLP to the audit committee, the audit committee recommended that the board include the audited consolidated financial statements in ShoreTel’s Annual Report on Form 10-K for the year ended June 30, 2012 filed with the Securities and Exchange Commission.

THE AUDIT COMMITTEE

Edward F. Thompson (Chair)

Kenneth D. Denman

Charles D. Kissner

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STOCKHOLDER PROPOSALS

Stockholder proposals for inclusion in ShoreTel’s proxy statement and form of proxy relating to ShoreTel’s annual meeting of stockholders to be held in 2013 must be received by the secretary of ShoreTel at its principal executive offices no later than June 6, 2013. In addition, stockholder proposals must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended. Such proposals also must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials.

ShoreTel’s bylaws establish an advance notice procedure with regard to certain matters, including stockholder proposals not included in our proxy statement, to be brought before an annual meeting of stockholders. Stockholders wishing to bring a proposal before the annual meeting to be held in 2013 (but not include it in ShoreTel’s proxy materials) must provide written notice of such proposal to the Secretary of ShoreTel at the principal executive offices of ShoreTel between July 21, 2013 and August 20, 2013.

If the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the previous year’s annual meeting, then notice by the stockholder to be timely must be so received by our secretary not earlier than the close of business on the 105th day prior to such annual meeting and not later than the close of business on the later of (i) the 75th day prior to such annual meeting, or (ii) the tenth day following the day on which public announcement of the date of such annual meeting is first made by ShoreTel.

DIRECTORS’ ATTENDANCE AT ANNUAL STOCKHOLDER MEETINGS

ShoreTel invites its board members to attend its annual stockholder meetings, but does not require attendance.

SECURITYHOLDER COMMUNICATIONS

Any securityholder of ShoreTel wishing to communicate with the board may write to the board at Board of Directors, c/o ShoreTel, 960 Stewart Drive, Sunnyvale, California 94085. An employee of ShoreTel, under the supervision of the chairman of the board, will forward these emails and letters directly to the board. Securityholders may indicate in their email messages and letters if their communication is intended to be provided to certain director(s) only.

CODE OF CONDUCT AND ETHICS

ShoreTel has adopted a code of conduct and ethics that applies to ShoreTel’s directors, executive officers and employees, including its chief executive officer and chief financial officer. The code of conduct and ethics is available under the heading “Corporate Governance” in the investor relations section of ShoreTel’s website at www.shoretel.com.

OTHER MATTERS

The board does not presently intend to bring any other business before the annual meeting, and, so far as is known to the board, no matters are to be brought before the annual meeting except as specified in the notice of the annual meeting. As to any business that may properly come before the annual meeting, however, it is intended that proxies, in the form enclosed, will be voted in respect thereof in accordance with the judgment of the persons voting such proxies.

Whether or not you expect to attend the meeting, please complete, date, sign and promptly return the accompanying proxy in the enclosed postage paid envelope so that your shares may be represented at the meeting.

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