May 11, 2007
Mail-Stop 4561
Mr. John W. Combs
Chairman, President and Chief Executive Officer
ShoreTel, Inc.
960 Stewart Drive
Sunnyvale, CA 94085
Re: ShoreTel, Inc.
Amendment No. 1 to Form S-1
Filed May 1, 2007
File No. 333-140630
Dear Mr. Combs:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing. We look forward to working
with you in these respects. We welcome any questions you may have
about our comments or any other aspect of our review. Feel free
to
call us at the telephone numbers listed at the end of this letter.
Form S-1
The Offering, page 4
1. Please refer to prior comment 4. We understand that you will
comply with this comment when you determine the ratio of the
reverse
stock split.
Basis of Presentation, page 34
2. We note your disclosure that prices given to a channel partner
depend on the channel partner`s volume and customer satisfaction
metrics, as well as your strategic considerations. Due to the
variability in the pricing, please tell us the factors you
considered
in concluding that VSOE of fair values exist for the delivered and
undelivered elements under paragraph 10 of SOP 97-2.
Internal Control Over Financial Reporting, page 45
3. Please disclose the two significant deficiencies in the design
or
operations of your internal control over financial reporting that
resulted in a number of audit adjustments to your consolidated
financial statements for the six months ended December 31, 2006.
4. Please tell us the factors you considered in concluding that
you
have not created any specified upgrades or enhancements as a
result
of the roadmap presentations for sales prior to December 31, 2006.
Also, disclose the impact on your financial statements if you are
required to provide your customers the specified upgrades and
enhancements.
Stock-based Compensation, page 48
5. Please tell us your basis for assuming that each option class
has
the same estimated forfeiture rate.
Valuation of Common Stock, page 49
Please refer to prior comments 49 and 50.
6. We understand that you will be providing us with the
preliminary
initial public offering range of valuations discussed between you
and
your underwriters. Please tell us when the discussion occurred.
7. For your April 13, 2007 stock option grants, please tell us how
the independent third-party valuation determined the fair value of
$1.13 per common stock. Also, tell us your enterprise value as of
April 13, 2007 and how it was determined.
8. Please tell us the nature of the "small weighting in the
January
2006 retrospective valuation report assigned to the value of the
preferred stock sold in the Company`s most recent private equity
financing that occurred in October 2004." Tell us why you
concluded
that the weighting is relevant in light of the significant
developments that have transpired since October 2004 which have
impacted your enterprise value. Tell us the resultant deemed FMV
of
your common stock, absent the effect of the subject weighting.
9. Based on your response, it appears that you have obtained both
contemporaneous and retrospective third-party valuations. Please
disclose this fact and disclose the fair value as determined by
the
contemporaneous valuation. Also, disclose the reason why you
chose
not to obtain a contemporaneous valuation by an unrelated
valuation
specialist for all other valuations. Further, disclose the name
of
the independent third-party appraisers and include their consents
in
the filing.
10. Please discuss each significant factor that accounts for the
variance between your most current stock valuation and the initial
public offering price after it has been set.
Management
Executive Officers and Directors, page 66
11. Revise Mr. Overbeek`s biography on page 68 to indicate his
employment or retired status after July 2004.
Note 1. Product Revenue. Page F-9
12. Please refer to prior comment 19. We note that "the perpetual
license is a product element in the bundled arrangement." Please
tell us your basis for determining the VSOE of the perpetual
license
apart from the PCS. Also, tell us how you determined the VSOE for
the perpetual license.
13. Please refer to prior comment 34. Disclose the nature of the
identifiable benefit you receive. Also, tell us how you
determined
the fair value of such benefit.
Note 1. Post-Contractual Support, page F-9
14. Please refer to prior comment 20. Since it appears that you
have
VSOE of fair values for both delivered and undelivered elements in
your bundled arrangements, the residual method is not appropriate
under SOP 97-2 and 98-9. Please revise to use the relative fair
value method.
Note 1. Stock-based Compensation, pages F-11 to F-12
15. Please refer to "Expected Term" on page F-12. Replace the
term,
"safe harbor method," with "simplified method."
16. Please refer to prior comment 38. Please tell us your
consideration of the correlation of the stock returns of the
entities
in your peer group from which you derive expected volatility.
Note 9. Stock Option Plan, pages F-23 to F-25
17. Please refer to prior comment 46. Per your disclosure in Note
9,
you have several share-based arrangements, such as incentive stock
options and non-qualified stock options which have terms that vary
by
employee class. The disclosures prescribed in paragraphs 64 and
A240(b)(2) and (c) and (k) of SFAS 123R are required separately
for
each arrangement to the extent that the differences in the
characteristics of the awards make separate disclosure important
to
an investor`s understanding of your use of share-based
compensation.
We note your disclosure of your two classes of options on page 48.
Please revise.
Note 13. Subsequent Events, page F-27
18. Please disclose that 7.4 million of options were granted on
April
13, 2007 at an exercise price of $1.13.
* * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
??should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
??the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
??the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in connection with our review
of
your filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
You may contact Kathryn Jacobson at (202) 551-3365 or Dean
Suehiro at (202) 551-3384 if you have questions regarding comments
on
the financial statements and related matters. Please contact
Michael
Clampitt at (202) 551-3434 or me at (202) 551-3418 with any other
questions.
Sincerely,
William Friar
Senior Financial Analyst
Financial Services Group
CC: Jeffrey Vetter, Esq.
Fenwick & West LLP
Silicon Valley Center
801 California Street
Mountain View, CA 94041
Phone (650) 988-8500
Facsimile (650) 938-5200
Mr. John W. Combs
ShoreTel, Inc.
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