def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
SHORETEL, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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October 22,
2007
To Our Stockholders:
You are cordially invited to attend the 2007 Annual Meeting of
Stockholders of ShoreTel, Inc. to be held at our headquarters
located at 960 Stewart Drive, Sunnyvale, California, 94085, on
Friday, November 16, 2007, 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,
John W. Combs
Chairman, President and Chief Executive Officer
SHORETEL,
INC.
960 Stewart Drive
Sunnyvale, California 94085
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 2007 Annual Meeting of
Stockholders of ShoreTel, Inc. will be held at our headquarters
located at 960 Stewart Drive, Sunnyvale, California 94085, on
Friday, November 16, 2007, at 1:00 p.m., Pacific Time,
for the following purposes:
1. To elect three Class I directors of ShoreTel, Inc.,
each to serve until the 2010 annual meeting of stockholders and
until his successor has been elected and qualified, or until his
earlier death, resignation or removal. ShoreTel’s Board of
Directors intends to present the following nominees for election
as Class I director:
Mark F.
Bregman
John W.
Combs
Edward F. Thompson
2. To ratify the appointment of Deloitte & Touche
LLP as the independent registered public accounting firm of
ShoreTel, Inc. for the fiscal year ending June 30, 2008.
3. To transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
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
October 12, 2007 are entitled to notice of, and to vote at,
the meeting or any adjournment or postponement thereof.
By Order of the Board of Directors
John W. Combs
Chairman, President and Chief Executive Officer
Sunnyvale, California
October 22, 2007
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.
TABLE OF
CONTENTS
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SHORETEL,
INC.
960 Stewart Drive
Sunnyvale, California 94085
PROXY
STATEMENT
October 22, 2007
The accompanying proxy is solicited on behalf of the Board of
Directors (the “Board of Directors” or the
“Board”) of ShoreTel, Inc., a Delaware corporation
(“ShoreTel”), for use at the 2007 Annual Meeting of
Stockholders (the “Annual Meeting”) to be held at our
headquarters located at 960 Stewart Drive, Sunnyvale, California
94085, on Friday, November 16, 2007, 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 22, 2007. An annual report for the fiscal year
ended June 30, 2007 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 October 12, 2007, which is the record date,
will be entitled to vote at the Annual Meeting. At the close of
business on October 12, 2007, we had 42,618,467 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. To be approved,
Proposal No. 2 requires the affirmative vote of the
majority of shares of common stock entitled to vote and present
in person or represented by proxy at the Annual Meeting and who
vote for or against the proposal. 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,
and will have no effect with regard to Proposal No. 2,
as abstentions are not counted as a vote for or against.
Brokers who hold shares for the accounts of their clients may
vote such shares either as directed by their clients or in the
absence of such direction, in their own discretion if permitted
by the stock exchange or other organization of which they are
members. Members of the New York Stock Exchange are permitted to
vote their clients’ proxies in their own discretion as to
certain “routine” proposals, such as all of the
proposals to be voted on at the Annual Meeting. 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. Although all of the proposals to be voted
on at the Annual Meeting are considered “routine,”
where a proposal is not “routine,” a broker who has
received no instructions from its clients 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. Those shares would not be taken into account in
determining the outcome of the non-routine proposal.
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 I directors, as a vote “for” election
to Class I of the Board of all
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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.
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.
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, that must be
borne by the stockholder.
PROPOSAL NO. 1 —
ELECTION OF DIRECTORS
ShoreTel’s Board of Directors is presently comprised of
eight 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, John W. Combs and Edward F. Thompson have
been designated as Class I directors, Edwin J. Basart,
Kenneth D. Denman and Thomas van Overbeek have been designated
as Class II directors, and Gary D. Daichendt and Charles D.
Kissner have been designated as Class III directors.
Mr. Combs serves as Chairman of the Board and
Mr. Kissner serves as lead independent director.
The Class II directors will stand for reelection or
election at the 2008 Annual Meeting, the Class III
directors will stand for reelection or election at the 2009
annual meeting of stockholders and the Class I directors
will stand for reelection or election at the 2010 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
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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 I is currently a
director of ShoreTel. If elected at the Annual Meeting, each of
the nominees would serve until the 2010 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 I directors
at the Annual Meeting and of the incumbent Class II and
Class III directors, and certain information about them,
including their ages as of October 1, 2007, are included
below.
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Director
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Name
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Age
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Principal Occupation
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Since
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Nominee for election as Class I director with term
expiring in 2010:
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Mark F. Bregman(3)
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Executive Vice President and Chief Technology Officer of
Symantec Corporation
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2007
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John W. Combs
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Chairman, President and Chief Executive Officer
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2004
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Edward F. Thompson(1)
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Director
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2006
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Incumbent Class II director with term expiring in
2008:
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Edwin J. Basart
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Chief Technology Officer and Director
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1996
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Kenneth D. Denman(1)(2)
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Chairman, President and Chief Executive Officer of iPass, Inc.
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2007
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Thomas van Overbeek(2)
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Director
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2002
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Incumbent Class III director with term expiring in
2009:
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Gary J. Daichendt(2)(3)
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Private investor, Managing member of TheoryR Properties LLC
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2007
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Charles D. Kissner*(1)(3)
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Chairman of Harris Stratex Networks, Inc.
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2006
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Lead independent director. |
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Member of our Audit Committee. |
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Member of our Compensation Committee. |
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Member of our Corporate Governance and Nominating Committee. |
John W. Combs has served as our President and Chief
Executive Officer and as a director since July 2004 and as our
Chairman since February 2007. From July 2002 to May 2004,
Mr. Combs served as Chairman and Chief Executive Officer of
Littlefeet Inc., a wireless infrastructure supplier. From
September 1999 to July 2002, Mr. Combs served as Chief
Executive Officer of InternetConnect Inc., a broadband
networking solutions provider. Mr. Combs has also held
senior management positions at Nextel Communications, Inc., a
wireless digital communications system provider, L.A. Cellular,
a wireless network operator, Mitel Inc., a manufacturer of
private branch exchanges and Fujitsu Business Communication
Systems, Inc., a provider of telecommunications products.
Mr. Combs holds a B.S. in engineering from California
Polytechnic State University, San Luis Obispo.
Edwin J. Basart co-founded ShoreTel in 1996 and has
served as our Chief Technology Officer and as a director since
inception. Prior to co-founding ShoreTel, Mr. Basart
co-founded Network Computing Devices, Inc., a provider of thin
client computing hardware and software, where he served as Vice
President of Engineering, and Ridge Computers, Inc. where he
served as Vice President of Software. Mr. Basart began his
career as a software engineer at Hewlett Packard.
Mr. Basart holds a B.S. in English from Iowa State
University and an M.S. in electrical engineering from Stanford
University.
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Mark F. Bregman has served as a director of ShoreTel
since May 2007. Dr. Bregman has 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, in July 2005. 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.
Gary J. Daichendt has served as a director of ShoreTel
since April 2007. 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.
Kenneth D. Denman has served as a director of ShoreTel
since May 2007. Mr. Denman has served as Chairman of iPass,
Inc. a platform-based enterprise mobility services company since
January 2003, as director since December 2001 and as President
and Chief Executive Officer since October 2001. From January
2000 to March 2001, Mr. Denman served as 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 also serves on
the board of Openwave Systems, Inc., a provider of open
standards software products and services for the
telecommunications industry. 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.
Charles D. Kissner has served as our lead independent
director since April 2007 and as a director of ShoreTel since
April 2006. Mr. Kissner is Chairman of Harris Stratex
Networks, Inc., formerly Stratex Networks, a provider of
wireless transmission systems. 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 switch
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 for over thirteen
years. He also serves on the Board of Directors of SonicWALL,
Inc., a provider of Internet security products. Mr. Kissner
is a member of the Advisory Board of Santa Clara
University’s Leavey School of Business and holds a B.S. in
industrial management and engineering from California State
Polytechnic University and an M.B.A. from Santa Clara
University.
Thomas van Overbeek has served as a director of ShoreTel
since February 2002. Mr. van Overbeek served as Chief Executive
Officer and President of ShoreTel from February 2002 until he
retired in July 2004. He also served as a consultant to ShoreTel
from December 2001 to February 2002. Prior to joining ShoreTel,
Mr. van Overbeek served as President and Chief Executive Officer
of WavTrace Inc., a developer of broadband wireless technology.
Prior to joining WavTrace, Mr. van Overbeek served as President
and Chief Executive Officer of Cornerstone Imaging.
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Edward F. Thompson has served as a director of ShoreTel
since January 2006. Mr. Thompson has served as a senior
advisor to Fujitsu Limited and as a director of several Fujitsu
subsidiaries or portfolio companies since 1995. 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
Harris Stratex Networks, Inc. (formerly Stratex Networks) and
SonicWALL Inc., and also serves as Audit Committee chair of
those companies. 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.
The Board
of Directors recommends a vote FOR the election
of each of the nominated directors
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 within
specified periods following the completion of our initial public
offering in July 2007. 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, Charles D.
Kissner, Edward F. Thompson and Thomas van Overbeek are
“independent directors” as defined under the rules of
the NASDAQ Stock Market.
During fiscal year 2007, the Board met formally 11 times and did
not act by written consent. None of the directors attended fewer
than 75% of the aggregate of the total number of meetings of the
Board (held during the period for which he was a director) and
the total number of meetings held by all committees of the Board
on which such director served (held during the period that such
director served). In addition, the independent outside directors
met two times during fiscal year 2007.
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 ShoreTel’s website at www.shoretel.com.
Audit
Committee
Our Audit Committee oversees our corporate accounting and
financial reporting process. Among other matters, the Audit
Committee:
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evaluates the qualifications, independence and performance of
our independent registered public accounting firm;
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determines the engagement of our independent registered public
accounting firm and reviews and approves the scope of the annual
audit and the audit fee;
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discusses with management and our independent registered public
accounting firm the results of the annual audit and the review
of our quarterly financial statements;
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approves the retention of our independent registered public
accounting firm to perform any proposed permissible non-audit
services;
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monitors the rotation of partners of our independent registered
public accounting firm on our engagement team as required by law;
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reviews our critical accounting policies and estimates; and
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annually reviews the Audit Committee charter and the
committee’s performance.
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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 2007, the Audit Committee met four times.
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 stock options and other awards under our equity
award plans. The Compensation Committee will review and
evaluate, 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 Gary J. Daichendt, who is the chair of the
committee, and Kenneth D. Denman and Thomas van Overbeek. Each
of Messrs. Daichendt, Denman and van Overbeek 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 2007, 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 chair of the committee, Mark F.
Bregman and Gary J. Daichendt. Each of
Dr. Bregman and Messrs. Daichendt and Kissner is an
independent director as defined under the applicable rules of
the NASDAQ Stock Market. The Corporate Governance and Nominating
Committee was formed by our Board of Directors in June 2007,
near the end of the fiscal year, so it did not meet during
fiscal 2007.
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:
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•
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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.
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•
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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.
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•
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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.).
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•
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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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8
Compensation
Committee Interlocks and Insider Participation
Until May 2007, our Compensation Committee consisted of Seth D.
Neiman, a former director, and Thomas van Overbeek. Upon
Mr. Neiman’s resignation and the appointment of Gary
J. Daichendt and Kenneth D. Denman to the Board of Directors in
May 2007, the Board of Directors appointed Mr. Daichendt
(chair), Mr. Denman and Mr. van Overbeek to the
Compensation Committee. 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 2007 fiscal year.
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 ShoreTel’s
independent registered public accounting firm for the year
ending June 30, 2008, and recommends that the stockholders
vote for ratification of such appointment. In the event of a
negative vote on such ratification, the Audit Committee will
reconsider its selection. Representatives of
Deloitte & Touche LLP will 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.
Audit Fees. The aggregate fees billed or to be
billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates
(collectively, “Deloitte & Touche”) for
professional services rendered for (i) the audit of
ShoreTel’s annual consolidated financial statements and the
consolidated financial statements for the six month period ended
December 31, 2006, (ii) the reviews of our quarterly
financial statements, (iii) services rendered in connection
with our
Form S-1
and
Form S-8
filings related to our initial public offering, and
(iv) comfort letters, consents and other matters related to
Securities and Exchange Commission matters were $2,052,025 and
$233,719 for the fiscal years ended June 30, 2007 and 2006.
Audit-Related Fees. For the fiscal years ended
June 30, 2007 and 2006, there were no fees billed by
Deloitte & Touche for professional services rendered
and not reported under “Audit Fees” above.
Tax Fees. The aggregate fees billed or to be
billed by Deloitte & Touche for tax compliance, tax
advice and tax planning services were $94,850 and $1,800 for the
fiscal years ended June 30, 2007 and 2006. Tax-related
services rendered by Deloitte & Touche 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.
All Other Fees. There were no other fees
billed or to be billed by Deloitte & Touche for the
years ended June 30, 2007 and 2006.
Policy
on Audit Committee Pre-Approval of Services Performed by
Independent Registered Public Accounting Firm
The Audit Committee’s policy is to pre-approve all audit
and permissible non-audit services provided by the independent
accountants. These services may include audit services,
audit-related services, tax services and other services. The
Audit Committee generally pre-approves particular services or
categories of services on a
case-by-case
basis. The independent registered public accounting firm and
management are required to periodically report to the Audit
Committee regarding the extent of services provided by the
independent registered public accounting firm in accordance with
these pre-approvals, and the fees for the services performed to
date.
All of the services of Deloitte & Touche for the
fiscal years ended June 30, 2007 and 2006, described above,
were pre-approved by the Audit Committee.
The Board
of Directors recommends a vote FOR the ratification
of the appointment of Deloitte & Touche LLP
9
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 30, 2007 by:
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•
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each of the executive officers listed in the summary
compensation table;
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•
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each of our directors;
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•
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all of our directors and executive officers as a group; and
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•
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each stockholder known by us to be the beneficial owner of more
than 5% of our common stock.
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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 of September 30, 2007 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 42,618,468 shares of
our common stock outstanding on September 30, 2007. 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.
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Number of
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Shares
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Beneficially
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Percent
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Name of Beneficial Owner
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Owned
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of Class
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Directors and Named Executive Officers
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John W. Combs(1)
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2,081,779
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5
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%
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Michael E. Healy(2)
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—
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*
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John Finegan(3)
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279,000
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*
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Pedro Rump(4)
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325,500
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*
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Walter Weisner(5)
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239,999
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*
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Joseph A. Vitalone(6)
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315,500
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*
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Edwin J. Basart(7)
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785,809
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1.8
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%
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Mark F. Bregman(8)
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6,250
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*
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Gary J. Daichendt(9)
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7,291
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*
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Kenneth D. Denman(10)
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6,250
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*
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Charles D. Kissner(11)
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50,000
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*
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Thomas van Overbeek(12)
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1,355,462
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3.2
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Edward F. Thompson(13)
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50,000
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*
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All directors and executive officers as a group
(15 persons)(14)
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5,712,839
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13.4
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5% Stockholders
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Entities affiliated with Crosspoint Venture Partners(15)
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9,321,548
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22.0
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Entities affiliated with Foundation Capital(16)
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6,815,679
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16.0
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Entities affiliated with J.P. Morgan Direct Venture
Capital(17)
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1,760,553
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4.0
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Entities affiliated with Lehman Brothers Venture Partners(18)
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7,566,831
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18.0
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* |
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Less than 1% |
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(1) |
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Consists of shares issued upon early exercise of a stock option,
a portion of which shares remain subject to vesting. The vesting
schedule for these shares is described in footnote 3 to the
“Outstanding Option Awards at June 30, 2007”
table under “Executive Compensation.” |
|
(2) |
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Mr. Healy joined the Company in May 2007 and was granted an
option to purchase 324,999 shares of common stock. This
option will not be vested within 60 days of
September 30, 2007. |
10
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(3) |
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Consists of 208,395 shares issued upon early exercise of
stock options, and 70,605 shares subject to outstanding
stock options, which options are immediately exercisable subject
to our lapsing right of repurchase upon termination of service
or employment. The vesting schedules for these shares and stock
options are described in footnotes to the “Outstanding
Option Awards at June 30, 2007” table under
“Executive Compensation.” Mr. Finegan ceased
serving as our Chief Financial Officer in May 2007. |
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(4) |
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Consists of 25,000 shares issued upon early exercise of
stock options and 300,500 shares subject to outstanding
stock options, which options are immediately exercisable subject
to our lapsing right of repurchase upon termination of service
or employment. The vesting schedules for these stock options are
described in footnotes to the “Outstanding Option Awards at
June 30, 2007” table under “Executive
Compensation.” |
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(5) |
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Consists of 82,500 shares issued upon early exercise of
stock options, a portion of which shares remain subject to
vesting, and 157,499 shares subject to outstanding stock
options, which options are immediately exercisable subject to
our lapsing right of repurchase upon termination of service or
employment. The vesting schedules for these shares and stock
option are described in footnote 7 to the “Outstanding
Option Awards at June 30, 2007” table under
“Executive Compensation.” |
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(6) |
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Consists of 132,750 shares issued upon early exercise of a
stock option, a portion of which shares remain subject to
vesting, and 182,750 shares subject to outstanding stock
options, which options are immediately exercisable subject to
our lapsing right of repurchase upon termination of service or
employment. The vesting schedules for these shares and stock
option are described in footnote 8 to the “Outstanding
Option Awards at June 30, 2007” table under
“Executive Compensation.” |
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(7) |
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Consists of 452,000 shares held by Mr. Basart, and
333,809 shares subject to outstanding stock options, which
options are immediately exercisable subject to our lapsing right
of repurchase upon termination of service or employment. |
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(8) |
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Consists of 50,000 shares subject to outstanding stock
options, of which 6,250 shares will be exercisable within
sixty days of September 30, 2007. See “Director
Compensation.” |
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(9) |
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Consists of 50,000 shares subject to outstanding stock
options, of which 7,291 shares will be exercisable within
sixty days of September 30, 2007. See “Director
Compensation.” |
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(10) |
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Consists of 50,000 shares subject to outstanding stock
options, of which 6,250 shares will be exercisable within
sixty days of September 30, 2007. See “Director
Compensation.” |
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(11) |
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Consists of 50,000 shares issuable pursuant to an
immediately exercisable stock option. See “Director
Compensation.” |
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(12) |
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Consists of 1,344,004 shares held and 11,458 shares
issuable upon exercise of outstanding stock options, which
shares will be exercisable within sixty days of
September 30, 2007. |
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(13) |
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Consists of 50,000 shares issued upon early exercise of a
stock option, a portion of which shares remain subject to
vesting in accordance with the vesting schedule described in
footnote 11 to the Director Compensation table. |
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(14) |
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Includes 549,789 shares subject to our lapsing right of
repurchase upon termination of service or employment and
1,102,852 shares issuable upon exercise of immediately
exercisable stock options, of which 553,264 shares, if
these options are exercised in full, will be subject to our
lapsing right of repurchase upon termination of service or
employment, which rights in each case lapse according to the
vesting schedule of the original options. |
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(15) |
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Consists of 7,132,372 shares held by Crosspoint Venture
Partners 2000 Q, L.P., 816,073 shares held by Crosspoint
Venture Partners 2000, L.P., 812,314 shares held by
Crosspoint Venture Partners 1996, L.P., and 560,789 shares
held by Crosspoint Venture Partners LS 2000, L.P. Crosspoint
Associates 2000, L.L.C. is the general partner of Crosspoint
Venture Partners 2000 Q, L.P., Crosspoint Venture Partners 2000,
L.P. and Crosspoint Venture Partners LS 2000, L.P. Crosspoint
Associates 1996, L.L.C. is the general partner of Crosspoint
Venture Partners 1996, L.P. Seth D. Neiman, a managing member of
Crosspoint Associates 2000, L.L.C. and Crosspoint Associates
1996, L.L.C., has voting and investment authority over the
shares held by Crosspoint Venture Partners 2000 Q, L.P.,
Crosspoint Venture Partners 2000, L.P., Crosspoint Venture
Partners 1996, L.P. and Crosspoint Venture Partners LS 2000,
L.P. The address of Crosspoint Venture Partners is
2925 Woodside Road, Woodside, CA 94062. |
11
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(16) |
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Consists of 4,098,394 shares held by Foundation Capital,
L.P., 2,203,148 shares held by Foundation Capital
Leadership Fund, L.P., 455,375 shares held by Foundation
Capital Entrepreneurs Fund, L.L.C. and 58,762 shares held
by Foundation Capital Leadership Principals Fund, L.L.C.
Foundation Capital Management, L.L.C. is the general partner of
Foundation Capital, L.P. and managing member of Foundation
Capital Entrepreneurs, L.L.C. Jim Anderson, William Elmore,
Kathryn Gould and Paul Koontz are the managing members of
Foundation Capital Management, L.L.C. and share voting and
investment control over the shares. The managing members of
Foundation Capital Management, L.L.C. disclaim beneficial
ownership of the shares, except to the extent of their direct
pecuniary interest in the shares. Foundation Capital Leadership
Management Company, L.L.C. is the general partner of Foundation
Capital Leadership Fund, L.P. and managing member of Foundation
Capital Leadership Principals Fund, L.L.C. William Elmore,
Kathryn Gould, Adam Grosser, Paul Koontz, and Mike Schuh
are the managing members of Foundation Capital Leadership
Management Company, L.L.C. and share voting and investment power
of the shares. The managing members of Foundation Capital
Leadership Management Company, L.L.C. disclaim beneficial
ownership of the shares, except to the extent of their direct
pecuniary interest in the shares. Each of these entities is
affiliated with Foundation Capital. The address of Foundation
Capital is 70 Willow Road, Suite 200, Menlo Park, CA 94025. |
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(17) |
|
Consists of 1,522,044 shares held by J.P. Morgan
Direct Venture Capital Institutional Investors LLC,
202,839 shares held by J.P. Morgan Direct Venture
Capital Private Investors LLC and 35,670 shares held by
522 Fifth Avenue Fund, L.P. JPMorgan Chase Bank, N.A.
serves as investment advisor of J.P. Morgan Direct Venture
Capital Institutional Investors LLC. J.P. Morgan Investment
Management Inc. serves as investment advisor of J.P. Morgan
Direct Venture Capital Private Investors LLC. J.P. Morgan
Investment Management Inc. serves as investment advisor of
522 Fifth Avenue Fund, L.P. Jarrod Fong and Lawrence
Unrein, portfolio managers for J.P. Morgan Direct Venture
Capital Institutional Investors LLC, J.P. Morgan Direct
Venture Capital Private Investors LLC and 522 Fifth Avenue
Fund, L.P., share voting and investment control over the shares
held by these entities. The address of J.P. Morgan Direct
Venture Capital is 245 Park Avenue, New York, NY
10167. These stockholders are affiliated with J.P. Morgan
Securities Inc., which acted as an underwriter of our initial
public offering. |
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(18) |
|
Consists of 3,203,592 shares held by Lehman Brothers VC
Partners 2002 L.P., 1,448,292 shares held by Lehman
Brothers P.A. LLC, 1,176,001 shares held by LB I Group
Inc., 917,190 shares held by Lehman Brothers Venture
Capital Partners II, L.P., 652,525 shares held by Lehman
Brothers Partnership Account 2000/2001, L.P. and
169,231 shares held by Lehman Brothers Offshore Partnership
Account 2000/2001, L.P. Lehman Brothers Holdings Inc., a
reporting company under the Securities Exchange Act of 1934, has
voting and investment control over the shares held by these
entities. The address of Lehman Brothers Venture Partners is
3000 Sand Hill Road, Building 3, Suite 190, Menlo Park, CA
94025. These stockholders are affiliated with Lehman Brothers
Inc., which acted as an underwriter of our initial public
offering. |
Equity
Compensation Plans
To date, a substantial majority of the options to purchase
shares of our common stock have been granted under our 1997
stock option plan. Our 1997 stock option plan has terminated,
and we now grant options to purchase shares of our common stock
only from our 2007 equity incentive plan. The following
descriptions are qualified by the terms of the actual plans
filed as exhibits to our registration statement on
Form S-1
or annual report on
Form 10-K.
The following table gives information about equity awards under
these plans and options as of June 30, 2007.
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(c)
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(a)
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Number of Securities
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Number of Securities
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(b)
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Remaining Available for
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|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Future Issuance Under
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|
|
|
Exercise of
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|
|
Exercise Price of
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|
|
Equity Compensation
|
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|
|
Outstanding Options,
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Outstanding Options,
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|
Plans (Excluding Securities
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Plan Category
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|
Warrants and Rights
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Warrants and Rights
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|
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Reflected in Column (a))
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Equity compensation plans approved by security holders
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4,697,367
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|
$
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4.51
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9,130,227
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|
Equity compensation plans not approved by security holders
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—
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|
—
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|
—
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Total
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|
4,697,367
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|
|
|
4.51
|
|
|
|
9,130,227
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|
12
2007
Equity Incentive Plan
Background. The 2007 equity incentive plan
serves as the successor equity compensation plan to our 1997
stock option plan. Our Board of Directors adopted our 2007
equity incentive plan and our shareholders approved the plan in
February 2007. This plan became effective upon adoption and will
terminate in February 2017. The 2007 equity incentive plan
provides for the grant of incentive stock options, nonqualified
stock options, restricted stock awards, stock appreciation
rights, restricted stock units and stock bonuses.
Administration. The 2007 equity incentive plan
is administered by our Compensation Committee. This committee
acts as the plan administrator and determines which individuals
are eligible to receive awards under the plan, the time or times
when such awards are to be made, the number of shares subject to
each such award, the status of any granted option as either an
incentive stock option or a nonqualified stock option under
United States federal tax laws, the vesting schedule applicable
to an award and the maximum term for which any award is to
remain outstanding (subject to the limits set forth in the 2007
equity incentive plan). The committee also determines the
exercise price of options granted, the purchase price for rights
to purchase restricted stock and, if applicable, restricted
units and the strike price for stock appreciation rights. Unless
the committee provides otherwise, the plan does not allow for
the transfer of awards and only the recipient of an award may
exercise an award during his or her lifetime.
Share Reserve. We have reserved
5,000,000 shares of our common stock for issuance under the
2007 equity incentive plan. Additionally, our 2007 equity
incentive plan provides for automatic increases in the number of
shares available for issuance under it as follows:
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•
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on the first day of each January from 2008 through 2017, the
number of shares of our common stock will be increased by 5% of
the number of shares of our common stock issued and outstanding
on the preceding
December 31st; or
|
|
|
•
|
a lesser number of shares of our common stock as determined by
our Board of Directors.
|
As of September 30, 2007, 2,306,271 options to purchase
shares of our common stock were outstanding under the 2007
equity incentive plan.
Equity Awards. Our 2007 equity incentive plan
permits us to grant the following types of awards:
Stock Options. The 2007 equity incentive plan
provides for the grant of incentive stock options (commonly
referred to as ISOs), and nonqualified stock options (commonly
referred to as NSOs), to employees, directors and consultants.
ISOs may only be granted to employees. Options may be granted
with terms determined by the committee, provided that ISOs are
subject to statutory limitations. The committee determines the
exercise price for a stock option, within the terms and
conditions of the plan and applicable law, provided that the
exercise price of an ISO may not be less than 100% (or higher in
the case of ISOs granted to certain types of recipients) of the
fair market value of our common stock on the date of grant.
Options granted under the 2007 equity incentive plan will vest
at the rate specified by the committee and such vesting schedule
will be set forth in the stock option agreement pursuant to
which such stock option grant relates. Generally, the committee
determines the term of stock options granted under the plan, up
to a term of ten years, except in the case of certain incentive
stock options for which the term can be no more than
five years.
After termination of an optionee, he or she may exercise his or
her vested option for the period of time stated in the stock
option agreement to which such option relates. Generally, if
termination is due to death or disability, the vested option
will remain exercisable for 12 months. In all other cases,
the vested option will generally remain exercisable for three
months. However, an option may not be exercised later than its
expiration date. Notwithstanding the foregoing, if an optionee
is terminated for cause (as defined in our 2007 equity incentive
plan), then the optionee’s options shall expire on the
optionee’s termination date or at such later time and on
such conditions as determined by our Compensation Committee.
Restricted Stock. A restricted stock award is
an offer by us to sell shares of our common stock subject to
restrictions that the committee may impose. These restrictions
may be based on completion of a specified period of service with
us or upon the completion of performance goals during a
performance period (or a combination of the foregoing). The
price of a restricted stock award will be determined by the
committee.
13
Unless otherwise determined by the committee at the time of
award, vesting ceases on the date the participant no longer
provides services to us and unvested shares are forfeited to us
or subject to repurchase by us.
Stock Appreciation Rights. Stock appreciation
rights provide for a payment, or payments, in cash or shares of
common stock, to the holder based upon the difference between
the fair market value of our common stock on the date of
exercise over the stated exercise price. Stock appreciation
rights may vest based on time or achievement of performance
conditions (or a combination of the foregoing).
Restricted Stock Units. Restricted stock units
represent the right to receive shares of our common stock at a
specified date in the future, subject to forfeiture of such
right due to termination of employment
and/or
failure to achieve specified performance conditions. If the
restricted stock unit has not been forfeited, then on the date
specified in the restricted stock unit agreement, we will
deliver to the holder of the restricted stock unit whole shares
of our common stock, cash or a combination of our common stock
and cash.
Stock Bonuses. Stock bonuses are granted as
additional compensation for performance, and therefore, are not
issued in exchange for cash.
Change of Control. In the event of a
liquidation, dissolution or change in control transaction,
outstanding awards may be assumed or replaced by the successor
company (if any). Outstanding awards that are not assumed or
replaced by the successor company (if any) will expire on the
consummation of the liquidation, dissolution or change in
control transaction at such time and on such conditions as our
Board of Directors determines (including, without limitation,
full or partial vesting and exercisability of any or all
outstanding awards issued under our 2007 equity incentive plan).
Transferability of Awards. Generally, a
participant may not transfer an award other than by will or the
laws of descent and distribution unless, in the case of awards
other than ISOs, the committee permits the transfer of an award
to certain authorized transferees (as set forth in our 2007
equity incentive plan).
Eligibility. The individuals eligible to
participate in our 2007 equity incentive plan include our
officers and other employees, our non-employee Board of
Directors members and any consultants.
Payment for Purchase of Shares of our Common
Stock. Payment for shares of our common stock
purchased pursuant to the 2007 equity incentive plan may be made
by any of the following methods (provided such method is
permitted in the applicable award agreement to which such shares
relate): (i) cash (including by check),
(ii) cancellation of indebtedness, (iii) surrender of
shares, (iv) waiver of compensation due or accrued for
services rendered; (v) through a “same day sale”
program or through a “margin” commitment or
(vi) by another other method approved by our Board of
Directors.
Limit on Awards. Under our 2007 equity
incentive plan, during any calendar year, no participant will be
eligible to receive more than 2,500,000 shares of our
common stock.
Amendment and Termination. Our Board of
Directors may amend or terminate the 2007 equity incentive plan
at any time. Notwithstanding the foregoing, neither the Board of
Directors nor the committee shall, without stockholder approval,
amend the plan in any manner that requires stockholder approval.
In addition, no amendment that is detrimental to a plan
participant may be made to an outstanding option without the
consent of the affected participant.
1997
Stock Option Plan and Non-Plan Stock Option
Our Board of Directors adopted and our shareholders approved our
1997 stock option plan in January 1997. As of September 30,
2007, options to purchase 2,873,342 shares of our common
stock were outstanding under our 1997 stock option plan. This
plan terminated in January 2007, and no additional options may
be granted under this plan. However, all stock options
outstanding on the termination of the 1997 stock option plan
will continue to be governed by the terms and conditions of the
1997 stock option plan. Options granted under the 1997 stock
option plan are subject to terms substantially similar to those
described above with respect to options granted under the 2007
equity incentive plan.
In September 2006, our Board of Directors granted an option to
purchase 125,000 shares of our common stock to an employee
in the United Kingdom. This option was not granted under our
1997 stock option plan.
14
2007
Employee Stock Purchase Plan
Background. Our 2007 employee stock
purchase plan is designed to enable eligible employees to
periodically purchase shares of our common stock at a discount.
Purchases are accomplished through participation in discrete
offering periods. Our 2007 employee stock purchase plan is
intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code. Our Board of
Directors adopted our 2007 employee stock purchase plan in
February 2007, our stockholders approved the plan in June 2007.
Our plan becomes effective upon the commencement of its first
offering period in November 2007.
Share Reserve. We have initially reserved
500,000 shares of our common stock for issuance under our
2007 employee stock purchase plan. The number of shares
reserved for issuance under our 2007 employee stock
purchase plan will increase automatically on the first day of
each January, starting with January 1, 2008, by the number
of shares equal to 1% of our total outstanding shares as of the
immediately preceding
December 31st (rounded
to the nearest whole share). Our Board of Directors or
Compensation Committee may reduce the amount of the increase in
any particular year. No more than 5,000,000 shares of our
common stock may be issued under our 2007 employee stock
purchase plan and no other shares may be added to this plan
without the approval of our stockholders.
Administration. Our Compensation Committee
will administer our 2007 employee stock purchase plan.
Participation is limited to our employees. Our employees
generally are eligible to participate in our 2007 employee
stock purchase plan if they are employed by us, or a subsidiary
of ours that we designate, for more than 20 hours per week
and more than five months in a calendar year. Employees who are
5% stockholders, or would become 5% stockholders as a result of
their participation in our 2007 employee stock purchase
plan, are ineligible to participate in our 2007 employee
stock purchase plan. We may impose additional restrictions on
eligibility as well. Under our 2007 employee stock purchase
plan, eligible employees may acquire shares of our common stock
by accumulating funds through payroll deductions. Our eligible
employees may select a rate of payroll deduction between 1% and
15% of their cash compensation. We also have the right to amend
or terminate our 2007 employee stock purchase plan and
offering periods thereunder. Our 2007 employee stock
purchase plan will terminate on the tenth anniversary of the
first offering date, unless it is terminated earlier by our
Board of Directors.
Purchase Rights. When an offering period
commences, our employees who meet the eligibility requirements
for participation in that offering period are automatically
granted a non-transferable option to purchase shares in that
offering period. Each offering period may run for no more than
24 months. An employee’s participation automatically
ends upon termination of employment for any reason.
Each offering period will be for six months and will run
November 1 to April 30 or May 1 to October 31, as the case
may be. The first offering period will begin on November 1,
2007 and end on April 30, 2008.
No participant will have the right to purchase our shares at a
rate which, when aggregated with purchase rights under all our
employee stock purchase plans that are also outstanding in the
same calendar year(s), have a fair market value of more than
$25,000, determined as of the first day of the applicable
offering period, for each calendar year in which such right is
outstanding. The purchase price for shares of our common stock
purchased under our 2007 employee stock purchase plan will
be 90% of the lesser of the fair market value of our common
stock on (i) the first trading day of the applicable
offering period and (ii) the last trading day of the
applicable offering period.
Change in Control. In the event of a change in
control transaction, our 2007 employee stock purchase plan
and any offering periods that commenced prior to the completion
of the proposed transaction may terminate on the completion of
the proposed transaction and the final purchase of shares will
occur on that date, but our Compensation Committee may instead
terminate any such offering period at a different date.
Additional
Employee Benefit Plans
Executive
Bonus Plan
In October 2006, our Board of Directors approved a bonus plan
for fiscal 2007. The plan specified a bonus target for our chief
executive officer equal to 75% of his base salary, and 45% of
base salary for other executive officers. The bonus criteria
consist of: (1) company targets, which consist of 50%
weighting for revenue, 25% weighting for profitability and 25%
weighting for overall customer satisfaction, (2) individual
targets established by
15
our chief executive officer for the particular employee, and
(3) a multiplier ranging from 0 to 1.5 based on the
executive’s overall performance rating. The actual bonus
award is determined according to our company’s and each
executive officer’s level of achievement against these
performance objectives. If the company objectives are within a
specified range, from 50% to 150% of the particular target could
be payable. Messrs. Combs, Healy, Finegan, Rump, Weisner,
and Vitalone earned bonuses equal to $272,172, $0, $104,000,
$130,000, $100,000, and $54,000 respectively, under the bonus
plan for fiscal 2007 as a result of having achieved, and in some
cases exceeded, the bonus targets specified for fiscal 2007.
These bonuses were paid in March 2007 and September 2007 (except
for the first half-year bonus to Mr. Combs, which was paid
in June 2007). Mr. Healy joined the company in May 2007 and
received a sign-on bonus of $30,000. Mr. Vitalone also
received sales commissions of $53,400 in fiscal 2007 in addition
to his bonus described above.
401(k)
Plan
We offer a 401(k) plan to all employees who meet specified
eligibility requirements. The plan provides for voluntary tax
deferred contributions of 1 to 20% of gross compensation subject
to certain IRS limitations. Based on approval by our Board of
Directors, we may make matching contributions to the plan. No
matching contributions had been made as of September 30,
2007.
COMPENSATION
DISCUSSION AND ANALYSIS
Our executive compensation program is designed to attract, as
needed, individuals with the skills necessary for us to achieve
our business plan, to reward those individuals fairly over time,
to retain those individuals who continue to perform at or above
the levels that we expect and to closely align the compensation
of those individuals with the performance of our company on both
a short-term and long-term basis. To that end, our executive
officers’ compensation has three primary
components — base compensation or salary, cash
performance bonuses and stock option awards. In addition, we
provide our executive officers a variety of benefits that in
most cases are available generally to all salaried employees.
General. We view the components of
compensation as related but distinct. Although our Compensation
Committee reviews total compensation of our executive officers,
we do not believe that significant compensation derived from one
component of compensation should negate or reduce compensation
from other components. We determine the appropriate level for
each compensation component based in part, but not exclusively,
on competitive benchmarking consistent with our recruiting and
retention goals, our view of internal equity and consistency,
overall company performance and other considerations we deem
relevant. To this end, we review executive compensation surveys
of high technology companies located in the Silicon Valley area
when making a crucial executive officer hiring decision and
annually when we review executive compensation. For fiscal 2007,
we reviewed compensation surveys by Radford, HR Advantage, NCEO,
Presidio, Iquantic and Deloitte & Touche. Except as
described below, our Compensation Committee has not adopted any
formal or informal policies or guidelines for allocating
compensation between long-term and currently paid out
compensation, between cash and non-cash compensation or among
different forms of non-cash compensation. However, our
philosophy is to make a greater percentage of an employee’s
compensation performance-based and to keep cash compensation to
a competitive level while providing the opportunity to be well
rewarded through equity if the company performs well over time.
We also believe that for technology companies stock-based
compensation is the primary motivator in attracting employees,
rather than base salary or cash bonuses.
Our current intent is to perform at least annually a strategic
review of our executive officers’ overall compensation
packages to determine whether they provide adequate incentives
and motivation and whether they adequately compensate our
executive officers relative to comparable officers in other
companies with which we compete for executives. The most recent
overall compensation review occurred in April 2007. Board
meetings typically have included, for all or a portion of each
meeting, not only the Compensation Committee and board members
but also our chief executive officer. For compensation
decisions, including decisions regarding the grant of equity
compensation, relating to executive officers other than to our
chief executive officer, the board considers recommendations
from the Compensation Committee and also typically considers
recommendations from the chief executive officer.
Our board decided to set executive officers’ total overall
cash compensation at a level that was at or near the
50th to
60th percentile
of salaries of executives with similar roles at comparable
pre-public companies, with incentive compensation targeted at
the
50th to
60th percentile
and base salary targeted at the
45th to
50th percentile.
16
Equity compensation was also targeted at the
50th percentile
of comparable companies. Going forward, now that we are publicly
traded, we will use comparable public companies for these
purposes. These allocations were consistent with our goal of
attracting and retaining superior employees, while also aligning
their interests with our performance. We realize that using a
benchmark may not always be appropriate but believe that it is
the best alternative at this point in the life cycle of our
company. In instances where an executive officer is uniquely key
to our success, our board may provide compensation in excess of
these percentiles. Our board’s judgments with regard to
market levels of base compensation and aggregate equity holdings
were based on reports from Olivieri and Associates, an
independent consultant specializing in executive compensation,
which was engaged by our board to assist in the adjustment of
the compensation to our executives. The report compared our
executive compensation with the executive compensation at a
number of similarly situated private companies. Our choice of
the foregoing percentiles to apply to the data in the report
reflected consideration of our stockholders’ interests in
paying what was necessary, but not significantly more than
necessary, to achieve our corporate goals, while conserving cash
and equity as much as practicable. At its October 2006 and April
2007 meetings, based on these benchmarks, our Compensation
Committee recommended and our Board of Directors subsequently
approved salary increases and additional option grants to our
executive officers. The numbers of shares subject to the options
granted in fiscal 2007 to these officers are reflected in the
“2007 Grants of Plan-Based Awards” table below.
We account for equity compensation paid to our employees under
SFAS 123(R), which requires us to estimate and record an
expense over the service period of the award. Our cash
compensation is recorded as an expense at the time the
obligation is accrued. We receive a tax deduction for the
compensation expense. We structure cash bonus compensation so
that it is taxable to our executives at the time it becomes
available to them. We currently intend that all cash
compensation paid will be tax deductible for us. However, with
respect to equity compensation awards, while any gain recognized
by employees from nonqualified options granted at fair market
value should be deductible, to the extent that an option
constitutes an incentive stock option gain recognized by the
optionee will not be deductible if there is no disqualifying
disposition by the optionee. In addition, if we grant restricted
stock or restricted stock unit awards that are not subject to
performance vesting, they may not be fully deductible by us at
the time the award is otherwise taxable to employees.
Base compensation. The salaries of
Messrs. Combs, Healy, Finegan, Rump, Weisner, and Vitalone
were set at $325,000, $250,000, $200,000, $225,000, $225,000,
$200,000 for the fiscal year ended June 30, 2007.
Mr. Rump’s base salary was increased to $235,000 in
February 2007. These were established as part of our normal
annual salary review process and reflect our Compensation
Committee’s review of the compensation levels of similar
positions at comparable companies. Our Board of Directors
approved, effective February 1, 2007, increases to the
annual base salaries of our employees, including our named
executive officers, which generally ranged from 3% to 5%.
Cash bonuses. We utilize cash bonuses to
reward performance achievements. Bonus targets are established
every six months and are paid following each six month period.
These bonus targets are determined by our Compensation Committee
as a percentage of each executive officer’s base salary.
Our board also determines the performance measures and other
terms and conditions of these cash bonuses for executive
officers. For fiscal 2007, the bonus target for our chief
executive officer was 75% of his base salary, as provided in his
employment offer letter. The target bonus is 45% of base salary
for other executive officers. The bonus targets for each
executive officer is a pre-determined percentage of base salary
that is intended to provide a competitive level of compensation
if the executive officer achieves his or her performance
objectives as approved by our Compensation Committee. The bonus
criteria consist of: (1) company targets, which consist of
50% weighting for revenue, 25% weighting for profitability and
25% weighting for overall customer satisfaction,
(2) individual targets established by our chief executive
officer for the particular employee, and (3) a multiplier
ranging from 0 to 1.5 based on the executive’s overall
performance rating. The actual bonus award is determined
according to our company’s and each executive
officer’s level of achievement against these performance
objectives. If the company objectives are within a specified
range, from 50% to 150% of the particular target could be
payable to the executives. The bonus for fiscal 2007 for our
chief executive officer was based on the board’s review of
company performance targets, consisting of revenue,
profitability, customer satisfaction and its assessment of his
performance. In fiscal 2007, the individual performance targets
of executives who performed sales functions were based at least
in part on an individualized sales commission plan that is
directly related to the amount of products sold and that
person’s role in the sale, although all executive officer
bonuses are currently determined under the criteria described
above. The Compensation
17
Committee chose revenue and profitability level because it
believed that, as a “growth company,” we should reward
revenue growth, but only if that revenue growth is achieved cost
effectively. Customer satisfaction was also selected as a
company target because of our belief that customer satisfaction
is critical to the success of our business. The performance
level multiplier was added based on our belief that employees
that might otherwise reach various targets, may be contributing
or not contributing to the overall success of our company in a
manner that promotes the long-term growth and success of our
company. Thus, we considered the chosen metrics to be the best
indicators of financial success and stockholder value creation.
We do 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.
Our Board of Directors approved bonus plans for the first and
last six months of fiscal 2007 in October 2006 and December
2006, respectively. These target bonuses are based on the
overall metrics and formulas used for fiscal 2006, with
adjustments in the target company financial performance goals to
reflect our growth. The bonus target for our chief executive
officer was 75% of base salary, pursuant to the terms of his
employment offer letter, and the target bonuses remain at 45% of
base salary for our other executive officers.
Messrs. Combs, Healy, Finegan, Rump, Weisner and Vitalone
earned bonuses equal to $272,172, $0, $104,000, $130,000,
$100,000 and $54,000 respectively, under the bonus plan for
fiscal 2007 as a result of having achieved, and in some cases
exceeded, the bonus targets specified for fiscal 2007. These
bonuses were paid in March 2007 and September 2007 (except for
the first bonus to Mr. Combs, which was paid in June 2007).
Mr. Healy joined the company in May 2007 and received a
sign-on bonus of $30,000. Mr. Vitalone also received sales
commissions of $53,400 in fiscal 2007 in addition to his bonus
described above.
In April 2007, our Board of Directors approved changes to
Mr. Vitalone’s bonus arrangement, effective for the
second half of fiscal 2007. Under his new arrangement, his
annual bonus target was raised from $100,000 to $140,000 and the
bonus he received was earned through his participation under our
bonus plan for the second half of fiscal 2007, rather than from
the achievement of individualized sales commission performance
goals.
In addition, Mr. Finegan, our former chief financial
officer is entitled to a performance bonus that provides for a
payout at the 150% level under the bonus plan for the first half
of fiscal 2008 so long as he remains employed with our company
at December 31, 2007 and has met his performance goals.
Stock options and equity awards. We utilize
stock options to ensure that our executive officers have a
continuing stake in our long-term success. 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, the determination of which is discussed below, these
options will have value to our executive officers only if the
market price of our common stock increases after the date of
grant. Typically, our stock options vest at a rate of 25% of the
shares subject to the option on the first anniversary of the
grant date, and with respect to approximately 2.1% of the shares
each month thereafter. The stock options that we have granted
under our 1997 stock option plan to executive officers may be
exercised by the recipient at any time; however, any shares
purchased are subject to a lapsing right of repurchase in our
favor. This repurchase right lapses on the same schedule as the
vesting of the option.
Authority to make stock option grants to executive officers has
been delegated to our Compensation Committee. In determining the
size of stock option 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
options are vested and the recommendations of our chief
executive officer and other members of management.
In fiscal 2007, prior to our initial public offering, our Board
of Directors based its determination of the value of our common
stock on its assessment of our financial performance and
prospects and the likelihood of a liquidity event. Since the
likelihood of an initial public offering of our common stock
increased during this period, we engaged valuation firms to help
us assess an appropriate fair market value for our options to
purchase common stock.
During fiscal 2007, we were not a public company, and therefore
did not have any program, plan or obligation that required us to
grant equity compensation on specified dates. Moreover, we did
not make equity grants in connection with the release or
withholding of material non-public information. However, in
connection with our initial public offering in July 2007, we
implemented policies to ensure that equity awards are granted at
fair market value on the date that the grant action occurs.
18
In October 2006, we granted Mr. Rump an option to purchase
60,000 shares of common stock, Mr. Weisner an option
to purchase 39,999 shares of common stock, and
Mr. Vitalone an option to purchase 50,000 shares of
common stock, each at an exercise price of $3.20 per share. In
April 2007, we granted Mr. Rump an option to purchase
49,999 shares of common stock, and Mr. Vitalone an
option to purchase 39,999 shares, each at an exercise price
equal to $11.30 per share. Each of these stock options vests as
to 50% of the shares on the two-year anniversary of the date of
grant, and as to 1/48th of the shares each month over the
following two years. Each of the stock options granted in
October 2006 is immediately exercisable in full; however, any
unvested shares issued upon exercise will be a subject to a
right of repurchase by us upon termination of employment, which
right lapses in accordance with the vesting schedule described
above. Each of the stock options granted in April 2007 become
exercisable as they vest. These grants were made by our Board of
Directors as part of our process of reviewing the equity
positions of our employees, and the board determined that, in
light of the individuals’ performances, equity ownership
and level of vesting, it was appropriate to provide additional
incentive for each of these personnel, particularly in order to
retain these individuals through and following the initial
public offering process, and to incentivize them to help our
company achieve the growth targets it has set.
In May 2007,we granted Mr. Healy an option to purchase
324,999 shares of our common stock in accordance with his
offer letter, at an exercise price of $11.40 per share. This
option vests at a rate of 25% of the shares subject to the
option on the first anniversary of the grant date, and with
respect to approximately 2.1% of the shares each month
thereafter.
In general, our stock option grants through January 2007 were
made under our 1997 stock option plan. In February 2007, we
adopted a new equity incentive plan and a new employee stock
purchase plan. The 2007 equity incentive plan replaced our 1997
stock option plan and affords greater flexibility in making a
wide variety of equity awards, including stock options, shares
of restricted stock and stock appreciation rights, to executive
officers and our other employees. We adopted our
2007 employee stock purchase plan to be effective in
November 2007 and will enable eligible employees to periodically
purchase shares of our common stock at a discount. Participation
in the 2007 employee stock purchase plan will be available
to all executive officers on the same basis as our other
employees. See “Equity Incentive Plans” for further
descriptions of our 1997 stock option plan, 2007 equity
incentive plan and 2007 employee stock purchase plan.
Other than the equity plans described above, we do not have any
equity security ownership guidelines or requirements for our
executive officers.
Severance and change of control payments. Each
of our named executive officers (as defined in the Summary
Compensation Table below) is entitled to receive acceleration of
vesting of stock options in amounts ranging from
12 months’ vesting to 100% of the then-unvested shares
in the event such officer is terminated following a change of
control of ShoreTel. Mr. Combs earns his vesting
acceleration so long as he does not voluntarily terminate his
employment with an acquiring company for six months following a
change of control, and Mr. Finegan receives his vesting
acceleration automatically upon a change of control. We believe
these change of control arrangements, the value of which are
contingent on the value obtained in a change of control
transaction, effectively create incentives for our executive
team to build stockholder value and to obtain the highest value
possible should the company be acquired in the future, despite
the risk of losing employment and potentially not having the
opportunity to otherwise vest in equity awards which comprise a
significant component of each executive’s compensation.
These arrangements are intended to attract and retain qualified
executives that could have other job alternatives that may
appear to them to be less risky absent these arrangements,
particularly given the significant level of acquisition activity
in the technology sector. All of our change of control
arrangements are “double trigger,” meaning that
acceleration of stock option vesting is not awarded upon a
change of control unless the executive option holder’s
employment is terminated within a specified period of time
following the transaction. We believe this structure strikes a
balance between the incentives and the executive hiring and
retention effects described above, without providing these
benefits to executives who continue to enjoy employment with an
acquiring company in the event of a change of control
transaction. We also believe this structure is more attractive
to potential acquiring companies, who may place significant
value on retaining members of our executive team and who may
perceive this goal to be undermined if executives receive
significant acceleration payments in connection with such a
transaction and are no longer required to continue employment to
earn the remainder of their equity awards.
19
In addition, our chief executive officer is entitled to receive
a severance payment equal to one year’s base salary
(payable over 12 months) and acceleration of stock option
vesting by one year in the event his employment is terminated
involuntarily or he is constructively terminated. We agreed to
this provision as part of the negotiation of our chief executive
officer’s compensation package when he joined us, and we
believed it was necessary to agree to such a provision in order
to retain his services.
For a description and quantification of these severance and
change of control benefits, please see “Employment,
Severance and Change of Control Arrangements.”
Other benefits. Executive officers are
eligible to participate in all of our employee benefit plans,
such as medical, dental, vision, group life, disability, and
accidental death and dismemberment insurance and our 401(k)
plan, in each case on the same basis as other employees, subject
to applicable law. We also provide vacation and other paid
holidays to all employees, including our executive officers,
which are comparable to those provided at peer companies. In
fiscal 2007, Messrs. Combs and Weisner received
reimbursement for commuting expenses from their permanent homes
to the San Francisco Bay Area. Messrs. Combs and
Weisner also received a housing allowance. We agreed to pay
these amounts to these executives as the Compensation Committee
believed that it was necessary to attract and retain these
executives who would not relocate to the San Francisco Bay
Area on a full time basis.
For a description of the compensation arrangements with our
current Chief Financial Officer, Michael E. Healy, please
see “Employment, Severance and Change of Control
Arrangements.”
Executive
compensation tables
The following table presents compensation information for our
fiscal year ended June 30, 2007 paid to or accrued for our
Chief Executive Officer, the individuals who served as our Chief
Financial Officer during the fiscal year, and each of our three
other most highly compensated executive officers whose aggregate
salary and bonus was more than $100,000. We refer to these
executive officers as our “named executive officers”
elsewhere in this prospectus.
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Non-Equity
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Fiscal
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Option
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Incentive Plan
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All Other
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Name and Principal Position
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Year
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Salary(1)
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Bonus
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Awards(2)
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Compensation(3)
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Compensation
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Total
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John W. Combs
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2007
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$
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325,720
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—
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$
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27,725
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$
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272,172
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$
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39,870
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(4)
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$
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665,487
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President and Chief Executive Officer
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2006
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287,500
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—
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—
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188,162
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25,868
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(4)
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501,530
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Michael E. Healy(5)
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2007
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35,038
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$
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30,000
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|
|
73,786
|
|
|
|
—
|
|
|
|
—
|
|
|
|
138,824
|
|
Chief Financial Officer
|
|
|
2006
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
John Finegan
|
|
|
2007
|
|
|
|
203,000
|
|
|
|
—
|
|
|
|
754
|
|
|
|
104,000
|
|
|
|
—
|
|
|
|
307,754
|
|
Former Chief Financial Officer(6)
|
|
|
2006
|
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,000
|
|
|
|
—
|
|
|
|
255,000
|
|
Pedro Rump
|
|
|
2007
|
|
|
|
230,000
|
|
|
|
—
|
|
|
|
103,250
|
|
|
|
130,000
|
|
|
|
—
|
|
|
|
463,250
|
|
Vice President, Engineering and Operations
|
|
|
2006
|
|
|
|
104,855
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104,855
|
|
Walter Weisner
|
|
|
2007
|
|
|
|
228,000
|
|
|
|
—
|
|
|
|
38,670
|
|
|
|
100,000
|
|
|
|
30,501
|
(4)
|
|
|
397,171
|
|
Vice President, Global Support Services
|
|
|
2006
|
|
|
|
214,038
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80,000
|
|
|
|
39,211
|
(4)
|
|
|
333,249
|
|
Joseph A. Vitalone
|
|
|
2007
|
|
|
|
207,614
|
|
|
|
—
|
|
|
|
66,084
|
|
|
|
107,400
|
(7)
|
|
|
—
|
|
|
|
381,098
|
|
Vice President, Sales
|
|
|
2006
|
|
|
|
155,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
134,767
|
(6)
|
|
|
—
|
|
|
|
289,767
|
|
|
|
|
(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) |
|
Under the SFAS 123(R) modified prospective method, in
fiscal year 2007 we estimated the grant date fair value of stock
option awards using the Black-Scholes option valuation model
with the following assumptions — Expected life: 4 or
6 years, Risk free interest rate: 4.6-4.8%, Volatility:
55%, and Dividend yield: 0. In fiscal |
20
|
|
|
|
|
year 2006, we complied with APB 25 for our stock-based
compensation. See Footnote 1 in the Notes to Consolidated
Financial Statements in the Company’s
10-K for
further discussion of the assumptions used. |
|
(3) |
|
Except as otherwise noted below, all non-equity incentive plan
compensation were paid pursuant to the ShoreTel Executive Bonus
Incentive Plan for fiscal 2007. For a description of this plan,
see “Compensation discussion and analysis — Cash
bonuses.” |
|
(4) |
|
Represents travel expenses, living expenses and rent. See
“Compensation discussion and analysis — Other
benefits.” |
|
(5) |
|
Mr. Healy commenced employment in May 2007. |
|
(6) |
|
Mr. Finegan ceased serving as our Chief Financial Officer
in May 2007 and currently serves as our Vice President of
Finance. |
|
(7) |
|
Also includes $53,400 in sales commissions. |
We entered into an offer letter with our current Chief Financial
Officer, Michael E. Healy, in May 2007. The offer letter
established Mr. Healy’s starting annual base salary at
$250,000. In addition, Mr. Healy is eligible to participate
in our executive 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 is forfeitable on a
prorated basis should Mr. Healy voluntarily terminate his
employment with us or be 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 $11.40 per share. The option vests as to 25% of the shares in
May 2008, and vests as to 1/48 of the shares each month over the
three years thereafter. For a description of the material terms
of offer letters for the named executive officers in the above
table and Mr. Healy, please see the section entitled
“ — Employment, Severance and Change of Control
Arrangements” below.
Our Board of Directors approved general increases of 3% to 5% to
the annual base salaries of our employees, including our named
executive officers, effective February 1, 2007. In
addition, on April 13, 2007, Mr. Vitalone’s
annual target bonus was raised from $100,000 to $140,000
effective for the second half of fiscal 2007. Additionally, any
bonus Mr. Vitalone received was earned through his
participation under our bonus plan for the second half of fiscal
2007, rather than from the achievement of individualized sales
commission performance goals. Also, in fiscal 2007,
Messrs. Healy, Rump, Weisner and Vitalone were granted
stock options. See “— Grants of Plan-Based Awards
During the 2007 Fiscal Year” below.
In addition, we allow our executives to use our ShoreTel phone
systems in their homes at no cost, provided that they return the
equipment upon termination of employment.
21
Grants
of Plan-Based Awards During the 2007 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, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
Number of
|
|
|
Exercise
|
|
|
Fair Value
|
|
|
|
|
|
|
Under Non-Equity
|
|
|
Securities
|
|
|
Price of
|
|
|
of Stock
|
|
|
|
Grant
|
|
|
Incentive Plan Awards(1)
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
Name
|
|
Date
|
|
|
Target
|
|
|
Maximum
|
|
|
Awards(2)
|
|
|
Awards(3)
|
|
|
Awards(7)
|
|
|
John W. Combs
|
|
|
—
|
|
|
$
|
276,250
|
|
|
$
|
414,375
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Michael E. Healy
|
|
|
5/21/2007
|
|
|
|
—
|
|
|
|
—
|
|
|
|
324,999
|
(4)
|
|
$
|
11.40
|
|
|
$
|
2,118,051
|
|
|
|
|
—
|
|
|
|
112,500
|
|
|
|
168,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Finegan(8)
|
|
|
—
|
|
|
|
69,525
|
|
|
|
69,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Pedro Rump
|
|
|
10/3/2006
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,000
|
(5)
|
|
|
3.20
|
|
|
|
259,440
|
|
|
|
|
4/13/2007
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,999
|
(6)
|
|
|
11.30
|
|
|
|
322,989
|
|
Walter Weisner
|
|
|
10/3/2006
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,999
|
(5)
|
|
|
3.20
|
|
|
|
172,960
|
|
|
|
|
—
|
|
|
|
102,600
|
|
|
|
153,900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Joseph A. Vitalone
|
|
|
10/3/2006
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
(5)
|
|
|
3.20
|
|
|
|
216,200
|
|
|
|
|
4/13/2007
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,999
|
(6)
|
|
|
11.30
|
|
|
|
258,390
|
|
|
|
|
—
|
|
|
|
140,000
|
|
|
|
210,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
(1) |
|
Represents bonuses payable pursuant to the ShoreTel Executive
Bonus Incentive Plan for fiscal 2008. For a description of this
plan, see “Additional Employee Benefit Plans —
Executive Bonus Plans.” |
|
(2) |
|
Each stock option was granted pursuant to our 1997 Stock Option
Plan or 2007 Stock Option Plan. |
|
(3) |
|
Represents the fair market value of a share of our common stock
on the grant date of the option, as determined by our Board of
Directors. |
|
(4) |
|
A stock option that vests as to 25% of the shares in May 2008,
and vests as to 1/48 of the shares each month over the next
three years thereafter. |
|
(5) |
|
An immediately exercisable stock option that vests as to 50% of
the shares in October 2008, and vests as to 1/48 of the shares
each month over the next two years thereafter; however, any
unvested shares issued upon exercise will be a subject to a
right of repurchase by us upon termination of employment, which
right lapses in accordance with the vesting schedule described
above. |
|
(6) |
|
A stock option that vests as to 50% of the shares in April 2009,
and vests as to 1/48 of the shares each month over the next two
years thereafter. |
|
(7) |
|
Under the SFAS 123(R) modified prospective method, we
estimated the grant date fair value of stock option awards
described in footnotes 4-6 using the Black-Scholes option
valuation model with the following assumptions —
Expected life: 4 or 6 years, Risk free interest rate:
4.6-4.8%, Volatility: 55%, and Dividend yield: 0. See Footnote 1
in the Notes to Consolidated Financial Statements in the
Company’s
10-K for
further discussion of the assumptions used. |
|
(8) |
|
Represents expected bonus amount for the first half of fiscal
2008 only, pursuant an agreement with Mr. Finegan described
in “Compensation Discussion and Analysis — Cash
Bonuses” above. |
Each of these stock options expires 10 years from the date
of grant. 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.”
22
Outstanding
Equity Awards at June 30, 2007
The following table presents the outstanding option awards held
as of June 30, 2007 by each named executive officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Underlying
|
|
|
Option
|
|
|
Option
|
|
|
|
Unexercised Options(1)
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price(2)
|
|
|
Date
|
|
|
John W. Combs(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Michael E. Healy(4)
|
|
|
—
|
|
|
|
324,999
|
|
|
$
|
11.40
|
|
|
|
5/21/2017
|
|
John Finegan
|
|
|
59,813
|
(5)
|
|
|
—
|
|
|
|
0.10
|
|
|
|
5/7/2013
|
|
|
|
|
4,792
|
(6)
|
|
|
—
|
|
|
|
0.30
|
|
|
|
3/2/2014
|
|
|
|
|
6,000
|
(7)
|
|
|
—
|
|
|
|
0.40
|
|
|
|
3/14/2015
|
|
Pedro Rump
|
|
|
240,500
|
(8)
|
|
|
—
|
|
|
|
0.80
|
|
|
|
1/12/2016
|
|
|
|
|
60,000
|
(9)
|
|
|
—
|
|
|
|
3.20
|
|
|
|
10/3/2016
|
|
|
|
|
—
|
|
|
|
49,999
|
(10)
|
|
|
11.30
|
|
|
|
4/13/2017
|
|
Walter Weisner
|
|
|
117,500
|
(11)
|
|
|
—
|
|
|
|
0.40
|
|
|
|
9/8/2015
|
|
|
|
|
39,999
|
(12)
|
|
|
—
|
|
|
|
3.20
|
|
|
|
10/3/2016
|
|
Joseph A. Vitalone
|
|
|
132,750
|
(13)
|
|
|
—
|
|
|
|
0.40
|
|
|
|
10/3/2015
|
|
|
|
|
50,000
|
(14)
|
|
|
—
|
|
|
|
3.20
|
|
|
|
10/3/2016
|
|
|
|
|
—
|
|
|
|
39,999
|
(15)
|
|
|
11.30
|
|
|
|
4/13/2017
|
|
|
|
|
(1) |
|
Each stock option was granted pursuant to our 1997 Stock Option
Plan or 2007 Stock Plan. The vesting and exercisability of each
stock option is described in the footnotes below for each
option. Each of these stock options expires 10 years from
the date of grant. 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. |
|
(3) |
|
Mr. Combs early-exercised in full a stock option to
purchase 2,081,799 shares during fiscal 2005 and 2006. This
option/shares vested as to 12.5% of the shares in January 2005,
and vests as to 1/48 of the shares each month thereafter. As of
June 30, 2007, 1,517,963 shares were vested, and
563,816 shares were unvested. |
|
(4) |
|
Represents shares subject to an outstanding stock option. The
option vests as to 25% of the shares in May 2008, and 1/48 of
the shares each month thereafter. |
|
(5) |
|
Represents shares remaining subject to an immediately
exercisable stock option. Mr. Finegan has early-exercised
the remaining 201,187 shares subject to this option. The
option/shares vested as to 25% of the shares in March 2004, and
vests as to 1/48 of the shares each month thereafter. |
|
(6) |
|
Represents shares remaining subject to an outstanding stock
option. Mr. Finegan has exercised 5,208 shares subject
to this option. The option vests as to 1/48 of the shares each
month over four years from the date of grant. |
|
(7) |
|
Represents shares remaining subject to an outstanding stock
option. Mr. Finegan has exercised 2,000 shares subject
to this option. The option vested as to 25% of the shares in
March 2006, and vests as to 1/48 of the shares each month over
three years thereafter. |
|
(8) |
|
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. |
|
(9) |
|
Represents shares subject to an immediately exercisable
outstanding stock option. The option vests as to 50% of the
shares in October 2008, and vests as to 1/48 of the shares each
month over two years thereafter. |
|
(10) |
|
Represents shares subject to an outstanding stock option . The
option vests as to 50% of the shares in April 2009, and vests as
to 1/48 of the shares each month over two years thereafter. |
23
|
|
|
(11) |
|
Represents shares remaining subject to an immediately
exercisable stock option to purchase 180,000 shares that
was partially exercised. Mr. Weisner has exercised
62,500 shares subject to this option, 42,500 of which were
exercised in fiscal 2007, as indicated in the table below.. The
option/shares vested as to 25% of the shares in July 2006, and
vests as to 1/48 of the shares each month over three years
thereafter. |
|
(12) |
|
Represents shares subject to an immediately exercisable
outstanding stock option. The option vests as to 50% of the
shares in October 2008, and vests as to 1/48 of the shares each
month over two years thereafter. |
|
(13) |
|
Represents shares remaining subject to an immediately
exercisable stock option to purchase 265,500 shares that
was partially exercised. Mr. Vitalone has early-exercised
132,750 shares subject to this option,. The option/shares
vested as to 25% of the shares in October 2006, and vests as to
1/48 of the shares each month over three years thereafter. |
|
(14) |
|
Represents shares subject to an outstanding immediately
exercisable stock option. The option vests as to 50% of the
shares in October 2008, and vests as to 1/48 of the shares each
month over two years thereafter. |
|
(15) |
|
Represents shares subject to an outstanding stock option. The
option vests as to 50% of the shares in April 2009, and vests as
to 1/48 of the shares each month over two years thereafter. |
Option
Exercises During the 2007 Fiscal Year
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, 2007 and the
aggregate dollar amount realized by the named executive officer
upon exercise of the option:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
Name
|
|
Acquired on Exercise
|
|
|
on Exercise(1)
|
|
|
John W. Combs
|
|
|
—
|
|
|
|
—
|
|
Michael E. Healy
|
|
|
—
|
|
|
|
—
|
|
John Finegan
|
|
|
—
|
|
|
|
—
|
|
Pedro Rump
|
|
|
—
|
|
|
|
—
|
|
Walter Weisner(2)
|
|
|
42,500
|
|
|
$
|
395,250
|
|
Joseph A. Vitalone
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(1) |
|
The aggregate dollar amount realized upon the exercise of an
option represents the difference between the aggregate market
price of the shares of our common stock underlying that option
on the date of exercise (assumed to be the initial public
offering price of $9.50 per share) and the aggregate exercise
price of the option. |
|
(2) |
|
Represents the exercise of an immediately exercisable stock
option, as described in footnote (11) to the
“Outstanding Option Awards at June 30, 2007”
table above. All of these shares became vested during fiscal
year 2007. |
Employment,
Severance and Change of Control Arrangements
John W. Combs, our president and chief executive officer,
executed an offer letter in July 2004. The offer letter provides
for at-will employment without any specific term. The offer
letter established his starting annual base salary at $275,000,
subject to annual review by the Compensation Committee of the
Board and further subject to an increase to $325,000 following
two consecutive quarters of cash flow positive operations. His
annual base salary was increased to $325,000 in April 2006 as a
result of this milestone having been satisfied. In addition, the
offer letter entitles Mr. Combs to an incentive bonus, as
determined by the board, of up to 85% of his then-current base
salary. Pursuant to the offer letter, Mr. Combs received a
stock option grant of 2,081,779 shares of common stock with
an exercise price equal to the fair market value of our common
stock on the date of grant. In the event his employment is
terminated by us without cause, or Mr. Combs resigns for
good reason, as such terms are defined in the offer letter,
Mr. Combs will be entitled to receive monthly continuation
of his then-current base salary for a period of 12 months
and acceleration of his unvested stock options in an amount
equal to the number of shares that would have vested had his
employment continued for an additional 12 months. If his
employment is terminated without cause within six months of a
change of control, as such terms are defined in the offer
letter, Mr. Combs will receive accelerated vesting of 100%
of any then unvested shares, options and other equity he holds
at the time.
24
In addition, we entered into a change of control agreement with
Mr. Combs effective as of August 5, 2004. This
agreement augments the terms provided for by his offer letter.
The agreement provides that, in the event of a change of control
of ShoreTel, so long as Mr. Combs either remains employed
with the company or its successor for six months following the
change of control, or if Mr. Combs is terminated without
cause or resigns for good reason during the six months following
such change of control, then Mr. Combs will receive
accelerated vesting of 100% of his initial stock option grant.
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 executive 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 is forfeitable on a
prorated basis should Mr. Healy voluntarily terminate his
employment with us or be 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. In the event Mr. Healy’s employment is
involuntarily terminated without cause or constructively
terminated, in either case within 12 months following a
change of control, as such terms are defined in the offer
letter, Mr. Healy will receive a lump-sum payment equal to
12 months of his then-current salary plus his then-current
targeted annual bonus, reimbursement of premiums paid for
continued medical, dental and vision plan coverage of him and
any of his eligible dependents through COBRA for up to
12 months at our expense, and accelerated vesting of 75% of
any then-unvested options or shares he holds at the time.
Mr. Healy’s offer letter also provides that if we
terminate him within 24 months of the commencement of his
employment, for any reason other than cause, as such term is
defined in the offer letter, he will receive a severance package
that includes six months of his then-current salary, our payment
of six months of premiums for continued medical, dental and
vision plan coverage of him and any of his eligible dependents
through COBRA, payment of a prorated bonus and equity vesting
prorated for his term of employment with us plus an additional
six months of vesting.
John Finegan, our former chief financial officer, executed an
offer letter in March 2003. The offer letter provides for
at-will employment without any specific term. The offer letter
established Mr. Finegan’s starting annual base salary
at $200,000. In addition, Mr. Finegan is eligible for an
annual incentive bonus. Pursuant to the offer letter,
Mr. Finegan received a stock option grant of
261,000 shares of common stock with an exercise price equal
to the fair market value of our common stock on the date of
grant. In the event Mr. Finegan’s employment is
involuntarily terminated without cause or constructively
terminated, in either case within 12 months following a
change of control, as such terms are defined in the offer
letter, Mr. Finegan will receive accelerated vesting of
100% of his initial stock option grant.
In addition, we entered into a change of control agreement with
Mr. Finegan effective as of May 7, 2003. This
agreement augments the terms provided for by
Mr. Finegan’s offer letter. The agreement provides
that, in the event of a change of control of ShoreTel,
Mr. Finegan’s stock option to purchase
261,000 shares will immediately become exercisable as to
that number of shares that would have vested if Mr. Finegan
had remained continuously employed by ShoreTel for a period of
12 months following the change of control. In addition, if
this benefit would result in excise tax as a “parachute
payment,” Mr. Finegan would be entitled to receive
either his vesting acceleration benefit, or such portion of his
vesting acceleration benefit as would result in no excise tax,
depending on which would result in a greater net benefit.
In February 2007, we entered into a retention arrangement with
Mr. Finegan that provides for a bonus payout at the 150%
level under the bonus plan for the second half of fiscal 2007 so
long as he either remains employed with the company during that
period or if his employment is terminated prior to the end of
that period. This retention arrangement will remain in place for
the first half of fiscal 2008 if Mr. Finegan remains with
the company through that period.
Pedro Rump, our 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. In the event
Mr. Rump’s employment is involuntarily terminated
without cause or
25
constructively terminated, in either case within 12 months
following a change of control, as such terms are defined in the
offer letter, Mr. Rump will receive accelerated vesting of
50% of any then unvested shares, options and other equity he
holds at the time.
Walter Weisner, our vice president of global support services,
executed an offer letter in April 2005 with a start date in July
2005. The offer letter provides for at-will employment without
any specific term. The offer letter established
Mr. Weisner’s starting annual base salary at $225,000.
In addition, Mr. Weisner is eligible for an annual
incentive bonus. In connection with his joining our company in
April 2005, Mr. Weisner received a stock option grant of
180,000 shares of common stock with an exercise price equal
to the fair market value of our common stock on the date of such
grant. In the event Mr. Weisner’s employment is
involuntarily terminated without cause or constructively
terminated, in either case within 12 months following a
change of control, as such terms are defined in the offer
letter, Mr. Weisner will receive accelerated vesting of 50%
of any then unvested shares, options and other equity he holds
at the time.
Joseph A. Vitalone, our vice president of sales, executed an
offer letter in September 2005 with a start date in October
2005. The offer letter provides for at-will employment without
any specific term. The offer letter established
Mr. Vitalone’s starting annual base salary at
$200,000. In addition, Mr. Vitalone is eligible for an
annual incentive bonus and participates in the executive
management bonus program. Pursuant to the offer letter,
Mr. Vitalone 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. In the event Mr. Vitalone’s employment is
involuntarily terminated without cause or constructively
terminated, in either case within 12 months following a
change of control, as such terms are defined in the offer
letter, Mr. Vitalone will receive accelerated vesting of
50% of any then unvested shares, options and other equity he
holds at the time.
The following table summarizes the value of benefits payable to
each named executive officer pursuant to the arrangements
described above:
Potential
Payments on Termination or Change of Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Change of Control
|
|
|
|
|
|
|
Acceleration of
|
|
|
|
|
|
Acceleration of
|
|
Name
|
|
Salary
|
|
|
Equity Vesting(1)
|
|
|
Salary
|
|
|
Equity Vesting(1)
|
|
|
John W. Combs
|
|
$
|
325,000
|
(2)
|
|
$
|
4,788,089
|
(3)
|
|
|
—
|
|
|
$
|
5,187,107
|
(4)
|
Michael E. Healy
|
|
|
188,996
|
(5)
|
|
|
—
|
(6)
|
|
|
377,992
|
(7)
|
|
|
—
|
(8)
|
John Finegan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,825
|
(3)
|
Pedro Rump
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,298,926
|
(9)
|
Walter Weisner
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,031,997
|
(9)
|
Joseph A. Vitalone
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,329,526
|
(9)
|
|
|
|
(1) |
|
Calculated based on the termination or change of control taking
place as of June 30, 2007, the last day of our most recent
fiscal year, because our stock was not publicly traded on that
date, we used the initial public offering price of $9.50 per
share. |
|
(2) |
|
Reflects continued base salary for 12 months following
termination. |
|
(3) |
|
Reflects accelerated vesting as if the officer had continued to
be employed for an additional 12 months. |
|
(4) |
|
Reflects acceleration of vesting as to 100% of the shares. |
|
(5) |
|
Reflects continued base salary, prorated target bonus, and
medical, dental and vision plan coverage for him and his
eligible dependents through COBRA for 6 months following
termination. |
|
(6) |
|
Entitled to accelerated vesting as if the officer had continued
to be employed for an additional 6 months. At June 30,
2007, the price of the options exceeded the stock price, so no
value is assigned. |
|
(7) |
|
Reflects continued base salary, prorated target bonus, and
medical, dental and vision plan coverage for him and his
eligible dependents through COBRA for 12 months following a
change of control. |
|
(8) |
|
Entitled to accelerated vesting as to 75% of the shares. At
June 30, 2007, the price of the options exceeded the stock
price, so no value is assigned. |
|
(9) |
|
Reflects acceleration of vesting as to 50% of the shares. |
26
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
Gary J. Daichendt, Chair
Kenneth D. Denman
Thomas van Overbeek
27
The following table provides information for our fiscal year
ended June 30, 2007 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 2007. Other than as set forth in the table and the
narrative that follows it, to date we have not paid any fees to
or reimbursed any expenses of our directors, made any equity or
non-equity awards to directors, or paid any other compensation
to directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
or Paid
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
All Other
|
|
|
|
|
Name
|
|
in Cash
|
|
|
Awards(5)
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
|
Mark F. Bregman(1)
|
|
|
—
|
|
|
$
|
8,822
|
(6)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
8,822
|
|
Gary J. Daichendt(2)
|
|
|
—
|
|
|
|
17,270
|
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
17,270
|
|
Kenneth D. Denman(1)
|
|
|
—
|
|
|
|
8,822
|
(8)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,822
|
|
Charles D. Kissner
|
|
|
—
|
|
|
|
8,939
|
(9)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,939
|
|
Thomas van Overbeek
|
|
|
—
|
|
|
|
889
|
(10)
|
|
|
—
|
|
|
|
—
|
|
|
|
889
|
|
Edward F. Thompson
|
|
|
—
|
|
|
|
7,176
|
(11)
|
|
|
—
|
|
|
|
—
|
|
|
|
7,176
|
|
Kathryn Gould(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Seth Neiman(4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Brian Paul(4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(1) |
|
Appointed to the Board of Directors in May 2007. |
|
(2) |
|
Appointed to the Board of Directors in April 2007. |
|
(3) |
|
Resigned from the Board of Directors in December 2006. |
|
(4) |
|
Resigned from the Board of Directors in May 2007. |
|
(5) |
|
Under the SFAS 123(R) modified prospective method, we
estimated the fair value of stock option awards described in
footnotes 6-11 using the Black-Scholes option valuation model
with the following assumptions — Expected life: 4 or
6 years, Risk free interest rate: 4.6-4.8%, Volatility:
55%, and Dividend yield: 0. See Footnote 1 in the Notes to
Consolidated Financial Statements in the Company’s
10-K for
further discussion of the assumptions used. |
|
(6) |
|
During fiscal 2007, Mr. Bregman was granted a stock option
to purchase 50,000 shares of our common stock, with an
exercise price of $11.40 per share, which shares vest as to 25%
of the shares in May 2008 and as to 1/48 of the shares each
month over three years thereafter. The grant date fair value was
$325,855. |
|
(7) |
|
During fiscal 2007, Mr. Daichendt was granted a stock
option to purchase 50,000 shares of our common stock, with
an exercise price of $11.30 per share, which shares vest as to
25% of the shares in April 2008 and as to
1/48 of the
shares each month over three years thereafter. The grant date
fair value was $322,995. |
|
(8) |
|
During fiscal 2007, Mr. Denman was granted a stock option
to purchase 50,000 shares of our common stock, with an
exercise price of $11.40 per share, which shares vest as to 25%
of the shares in May 2008 and as to 1/48 of the shares each
month over three years thereafter. The grant date fair value was
$325,855. |
|
(9) |
|
As of June 30, 2007, Mr. Kissner held an immediately
exercisable stock option to purchase 50,000 shares of our
common stock, with an exercise price of $1.00 per share, that
was granted during fiscal 2006, which option vests as to 25% of
the shares in April 2007 and as to 1/48 of the shares each month
over three years thereafter. The grant date fair value was
$35,750. |
|
(10) |
|
As of June 30, 2007, Mr. van Overbeek held a stock option
to purchase 15,625 shares of our common stock, with an
exercise price of $0.30 per share, which shares vest 1/48 each
month through March 2008. The grant date fair value was $0. |
|
(11) |
|
As of June 30, 2007, Mr. Thompson held
50,000 shares of our common stock issued upon early
exercise of a stock option, with an exercise price of $0.80 per
share, that was granted during fiscal 2006, which shares vest as
to 25% of the shares in January 2007 and as to 1/48 of the
shares each month over three years thereafter. The grant date
fair value was $28,600. |
We compensate independent directors with a combination of cash
and equity.
28
Cash Compensation. We did not pay cash
compensation to our directors prior to our initial public
offering in July 2007. Currently, each independent director
receives an annual retainer of $35,000. 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 $3,000, or $5,000 in the
case of Audit Committee service. Our lead independent director
will receive an additional annual retainer of $10,000 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 $5,000, or $10,000 in the case of the Audit
Committee chair, for his service in that capacity.
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.
In addition, we allow our Board members to use our ShoreTel
phone systems in their homes at no cost, provided that they
return the equipment upon termination of service to the company.
Option Grants. Each independent director who
becomes a member of our Board of Directors will be granted an
initial option to purchase 50,000 shares of our common
stock upon appointment or election to our Board of Directors. An
additional option to purchase shares of common stock will be
granted to each independent director on the fourth anniversary
of the date on which he commenced serving on our Board of
Directors or the date of this prospectus, whichever is later,
and on each anniversary thereafter, provided he has served
continuously as a member of our Board of Directors through the
four-year or one-year period, as the case may be. Although we
expect to grant options to purchase 5,200 shares in
connection with the first four-year anniversary option grant,
this number may change in the future based on market conditions
and compensatory standards in our industry at the time of grant.
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
initial option grant vests and becomes exercisable as to
1/48th of the shares each month after the grant date over
four years. Each four-year anniversary option grant and
subsequent annual grant vests as to
1/12th of
the shares each month after the grant date over one year. 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, independent directors are eligible to
receive discretionary awards under the 2007 equity incentive
plan. In connection with Mr. Daichendt’s appointment
as a member of our Board of Directors in April 2007 and
Dr. Bregman’s and Mr. Denman’s appointment
as members of our Board of Directors in May 2007, we granted
each of them an option to purchase 50,000 shares of our
common stock, with an exercise price equal to $11.30 per share
for Mr. Daichendt’s grant and $11.40 per share for
Dr. Bregman’s and Mr. Denman’s grants, which
shares vest and become exercisable as to
1/48th of
the shares each month after the grant date over four years.
Thomas van Overbeek served as our Chief Executive Officer from
February 2002 until he retired in July 2004. He has continued to
serve on our Board of Directors since that time. Mr. van
Overbeek received salary, bonuses and stock options in his
capacity as Chief Executive Officer. In July 2004, we entered
into a separation agreement with Mr. van Overbeek that provides
for the continued vesting of his outstanding stock options and
other equity so long as he continues to serve on our Board of
Directors. While Mr. van Overbeek was employed as our Chief
Executive Officer, he was granted stock options to purchase a
total of 1,359,629 shares of our common stock under our
1997 stock option plan, with a weighted average exercise price
of $0.40 per share, of which options to purchase
1,344,004 shares are currently outstanding and options to
purchase 5,208 shares are exercisable. In addition, the
separation agreement provides that we will use commercially
reasonable efforts to continue his health coverage as an active
employee under our group health plan so long as Mr. van Overbeek
continues to serve on the Board of Directors, and if we are
unable to do so, that we will reimburse COBRA premiums for Mr.
van Overbeek and his spouse.
TRANSACTIONS
WITH RELATED PERSONS
From January 1, 2006 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
29
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.
ShoreTel has adopted and maintains a code of conduct and ethics
that applies to all directors, executive officers and employees.
The code covers matters that we believe are supportive of high
standards of ethical business conduct, including those regarding
legal compliance, conflicts of interest, insider trading,
corporate opportunities, competition and fair dealing,
maintenance of corporate books and records, gifts and
entertainment, political contributions, international business
laws, confidentiality, protection of company assets, public
communications, special obligations applicable to our Chief
Executive Officer and senior financial officers, and standards
and procedures for compliance with the code. The code can be
found under the heading “Corporate Governance” in the
investor relations section of our website at
www.shoretel.com.
The code does not distinguish between potential conflict of
interest transactions involving directors or executive officers
and those involving other employees. It notes that all covered
persons are expected to avoid conflicts of interest. The code
provides some examples of activities that could involve
conflicts of interest, including aiding our competitors,
involvement with any business that does business with us or
seeks to do so, owning a significant financial interest in a
competitor or a business that does business with us or seeks to
do so, soliciting or accepting payments or other preferential
treatment from any person that does business with us or seeks to
do so, taking personal advantage of corporate opportunities and
transacting company business with a family member.
The code defines a “related party transaction” to mean
any transaction that is required to be disclosed in this section
by the rules and regulations of the Securities and Exchange
Commission. The compliance officer under the code will conduct a
review of all related party transactions for potential conflict
of interest situations. Further, all related party transactions
must be approved or ratified by our Audit Committee or another
independent body of the Board. The code does not expressly set
forth the standards that would be applied in reviewing,
approving or ratifying transactions in which our directors,
executive officers or 5% stockholders have a material interest.
We expect that in connection with the review, approval or
ratification of any such transaction, our compliance officer and
Audit Committee or independent body of the Board will be
provided with all material information then available regarding
the transaction, the nature and extent of the director’s,
executive officer’s or 5% stockholder’s interest in
the transaction, and the terms upon which the products, services
or other subject matter of the transaction could be provided by
alternative sources. We expect that any such transaction would
be approved or ratified only if our Audit Committee or
independent body of the Board concluded in good faith that it
was in our interest to proceed with it. We expect that that
pre-approval will be sought for any such transaction when
practicable, and when pre-approval is not obtained, for any such
transaction to be submitted for ratification as promptly as
practicable.
30
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 2007, 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 Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
Deloitte & Touche LLP has also provided to the Audit
Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), 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, 2007 filed with the Securities
and Exchange Commission.
THE AUDIT COMMITTEE
Edward F. Thompson (Chair)
Kenneth D. Denman
Charles D. Kissner
31
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Not applicable.
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 2008 must be received by
the Secretary of ShoreTel at its principal executive offices no
later than June 24, 2008. Stockholders wishing to bring a
proposal before the annual meeting to be held in 2008 (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
August 3, 2008 and September 2, 2008.
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.
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.
32
Comments — Please print your comments below. |
SHORETEL, INC.
C Authorized Signatures — This section must be completed for your vote to be counted. — Date and
Sign Below |
Please sign exactly as your name(s) appear(s) on this Proxy. If shares of stock stand of record in
the names of two or more persons or in the name of husband and wife, whether as joint tenants or
otherwise, both or all of such persons should sign this Proxy. If shares of stock are held of
record by a corporation, this Proxy should be executed by the president or vice president and the
secretary or assistant secretary. Executors, administrators or other fiduciaries who execute this
Proxy for a deceased stockholder should give their full title. Please date this Proxy. |
Date (mm/dd/yyyy) – Please print date below. Signature 1 — Please keep signature within the box
Signature 2 — Please keep signature within the box |
___
___
Change of Address — Please print your new address below. |
2. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP AS SHORETEL’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.
For Against Abstain |
1. Election of Class I Directors:
A Proposals — The Board of Directors recommends a vote FOR all the nominees listed and
FOR Proposal 2. |
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote
your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by
11:59 p.m. Eastern Time, on November 15, 2007.
Vote by Internet |
· Log on to the Internet and go to |
· Follow the steps outlined on the secured website. |
· Call toll free 1-800-652-VOTE (8683) within the United |
States, Canada & Puerto Rico any time on a touch tone
telephone. There is NO CHARGE to you for the call. |
· Follow the instructions provided by the recorded message. |
For Withhold
[ ] [ ]
X
Using a black ink pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas. |
Annual Meeting Proxy Card
02 — John W. Combs
01 — Mark F. Bregman |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND
RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. |
For Withhold
09 — <Name Here> [ ] [ ] |
12 — <Name Here> [ ] [ ]
For Withhold
05 — <Name Here> [ ] [ ] |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND
RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. |
Annual Meeting of Stockholders – November 16, 2007THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORSThe undersigned hereby appoints Michael E. Healy and Ava M. Hahn, and each of them, as
proxies of the undersigned, each with full power to appoint his substitute, and hereby authorizes
them to represent and to vote all the shares of stock of ShoreTel, Inc. which the undersigned is
entitled to vote, as specified on the reverse side of this card, at the Annual Meeting of
Stockholders of ShoreTel, Inc. to be held at our headquarters located at 960 Stewart Drive,
Sunnyvale, California, on Friday, November 16, 2007, at 1:00 p.m., Pacific Time, and at any
adjournment or postponement thereof.When this Proxy is properly executed, the shares to which this
Proxy relates will be voted as specified and, if no specification is made, will be voted for the
Board of Directors nominees and for Proposal No. 2 and this Proxy authorizes the above designated
proxies to vote in their discretion on such other business as may properly come before the meeting
or any adjournments or postponements thereof to the extent authorized by Rule 14a-4(c) promulgated
under the Securities Exchange Act of 1934, as amended.Whether or not you plan to attend the meeting
in person, you are urged to complete, date, sign and promptly mail this Proxy in the enclosed
return envelope so that your shares may be represented at the meeting. |
(Continued and to be signed on reverse side) |