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Exhibit 10.1
 
Image [image.jpg]

 
November 12, 2012

ShoreTel, Inc.
960 Stewart Drive
Sunnyvale, CA 94085
Attn:  Michael Healy, CFO
 
Re:
(i) Credit Agreement, dated as of March 15, 2012, among ShoreTel, Inc., a
Delaware corporation (the “Borrower”), the “Lenders” party thereto (each a
“Lender” and, collectively, the “Lenders”), and Silicon Valley Bank, a
California corporation, as administrative agent and collateral agent for the
Lenders (in such capacity, the “Administrative Agent”) (the “Credit Agreement”
the terms defined therein and not otherwise defined herein being used herein as
therein defined), (ii) the consent and waiver letter agreement, dated as of
April 13, 2012, among the Borrower, the sole Lender and the Administrative Agent
(the “First Waiver”), (iii) the consent and waiver letter agreement, dated as of
May 15, 2012, among the Borrower, the sole Lender and the Administrative Agent
(the “Second Waiver”), (iii) the consent and waiver letter agreement, dated as
of June 15, 2012, among the Borrower, the sole Lender and the Administrative
Agent (the “Third Waiver”), and (iv) the consent and waiver letter agreement,
dated as of July 31, 2012, among the Borrower, the sole Lender and the
Administrative Agent (the “Fourth Waiver”).

Dear Mr. Healy:

The Borrower has informed the Administrative Agent that certain of the
documents, agreements, certificates and other items required to be delivered by
or on behalf of the Borrower and/or the Acquired Business on a post-closing
basis pursuant to Section 4.3 of the Credit Agreement will not be delivered on
or prior to the respective delivery due dates specified therefor in such Section
4.3 of the Credit Agreement (as modified by the terms of the First Waiver, the
Second Waiver, the Third Waiver and the Fourth Waiver).  In addition, the
Borrower has proposed to the Administrative Agent and the Lenders that certain
provisions of the Credit Agreement be amended as contemplated herein and the
Borrower and the Acquired Business have proposed that certain provisions of the
Guarantee and Collateral Agreement be amended as contemplated herein.  As a
result of the foregoing, (a) the Borrower has requested that the Administrative
Agent and the Required Lenders (i) extend the respective dates by which such
post-closing deliverables are required to be delivered under such Section 4.3 of
the Credit Agreement (as modified by the terms of the First Waiver, the Second
Waiver, the Third Waiver and the Fourth Waiver), and (ii) waive any Defaults and
Events of Default that may otherwise have arisen under the Credit Agreement
solely as a result of the failure by the Borrower and/or the Acquired Business,
as applicable, to have delivered such post-closing deliverables by the
respective dates specified therefor in Section 4.3 of the Credit Agreement (as
modified by the terms of the First Waiver, the Second Waiver, the Third Waiver
and the Fourth Waiver), and (b) the Borrower and the Acquired Business have
requested that the Administrative Agent and the Required Lenders agree to amend
the Credit Agreement and the Guarantee and Collateral Agreement as contemplated
herein.  The Administrative Agent and the Required Lenders have agreed to grant
such consents and waivers and to make such amendments to the Credit Agreement
and the Guarantee and Collateral Agreement, in each case subject to the terms
and conditions hereof.
 
 
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1.             Consents.  Notwithstanding anything to the contrary set forth in
the Credit Agreement or the other Loan Documents (including the First Waiver,
the Second Waiver, the Third Waiver, the Fourth Waiver and Sections 4.3 and 5.11
of the Credit Agreement), and subject to the satisfaction of the conditions to
effectiveness specified in Section 6 hereof, each of the Administrative Agent
and each of the Required Lenders named in the signature pages hereto hereby
consents to:
 
(a)           subject to Section 5.7 of the Guaranty and Collateral Agreement
(after giving effect to the amendment of such Section contemplated herein), the
disposition of the requirement set forth in Sections 4.3 and 5.11 of the Credit
Agreement and Sections 3.3(e), 5.3(a) and 5.7 of the Guarantee and Collateral
Agreement that the Borrower and the Acquired Business cause the delivery to the
Administrative Agent of Deposit Account Control Agreements and/or Securities
Account Control Agreements, as applicable, in respect of the Deposit Accounts
and Securities Accounts of the Acquired Business listed in Schedule 1 hereto;
 
(b)           the delivery by or on behalf of the Borrower to the Administrative
Agent of the stock certificates and stock powers evidencing the Pledged Stock in
(i) ShoreTel Australia Pty Ltd, (ii) 8058644 Canada Inc., and (iii) ShoreTel
Singapore PTE Ltd, in each case, by no later than November 30, 2012; and
 
(c)           the delivery by or on behalf of the Acquired Business (in its
capacity as a Guarantor) to the Administrative Agent of any landlord access
agreements required to be delivered pursuant to Sections 4.3 and 5.11 of the
Credit Agreement or pursuant to the terms of the Guarantee and Collateral
Agreement, in each case by no later than November 30, 2012.
 
2.             Waivers.  The Administrative Agent and the Required Lenders
hereby waive any Default or Event of Default that may have arisen under Sections
7.1(c) or (d) of the Credit Agreement solely as a result of the failure by the
Borrower and/or the Acquired Business, as applicable, to have delivered any of
the any of the post-closing deliverables  specified in Section 1 hereof by the
respective due dates specified therefor in Section 4.3 of the Credit Agreement
(as modified by the terms of the First Waiver, the Second Waiver, the Third
Waiver and the Fourth Waiver).
 
3.             Amendments to the Credit Agreement.  With effect from and after
the Effective Date, the Credit Agreement shall be amended as follows:

(a)           Section 6.1(b) of the Credit Agreement shall be amended and
restated to read in its entirety as follows:

(b)           Minimum Liquidity.  Permit Liquidity, measured as of the last day
of any month, to be less than the sum of (i) $30,000,000, and (ii) up to
$20,000,000 of the difference, if any, between the aggregate principal amount of
Revolving Loans outstanding on such day and $30,000,000.

(b)           Section 6.1(c) of the Credit Agreement shall be amended and
restated to read in its entirety as follows:

(c)           Minimum Consolidated EBITDA.  Permit Consolidated EBITDA, measured
as of the last day of each fiscal quarter of the Borrower specified below and
with reference to the four consecutive fiscal quarter period then ended, to be
less than the amount indicated below for such period:

 
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Four Fiscal Quarter Period Ending
 
Minimum Consolidated EBITDA
 
March 31, 2012
  $ 1  
June 30, 2012
  $ 1,000,000  
September 30, 2012
  $ (1,500,000 )
December 31, 2012
  $ (1,500,000 )
March 31, 2013
  $ (1,000,000 )
June 30, 2013
  $ 1  
September 30, 2013
  $ 1  
December 31, 2013
  $ 1,000,000  
March 31, 2014
  $ 1,500,000  
June 30, 2014 and thereafter
  $ 2,000,000  

(c)           Exhibit B to the Credit Agreement (Form of Compliance Certificate)
shall be amended and restated to read in its entirety as set forth in Exhibit B
hereto.

4.             Amendment to the Guarantee and Collateral Agreement.  With effect
from and after the Effective Date, Section 5.7 of the Guarantee and Collateral
Agreement shall be amended by adding the following as new subsection (d) to the
end of such Section 5.7:

(d)           Notwithstanding anything to the contrary set forth in any Loan
Document (including Sections 4.3 and 5.11 of the Credit Agreement and Sections
3.3(e), 5.3(a) and 5.7(a) through (c) hereof), the Acquired Business shall not
be required to cause the execution and delivery to the Administrative Agent of
any Deposit Account Control Agreements or Securities Account Control Agreements,
as applicable, with respect to any of the following Deposit Accounts and
Securities Account of the Acquired Business:  (i) Square 1 Bank Deposit Account
No. 103125, (ii) Sovereign Bank Deposit Account No. 7581014991, (iii) Square 1
Bank Money Market Account No. 237065, (iv) Square 1 Bank Money Market Account
No. 100083, (v) Square 1 Bank Money Market Collateral Account No. 65794, (vi)
Sovereign Bank Money Market Account No. 5460, and (vii) Sovereign Bank Money
Market Account No. 300; provided that the aggregate amount of all cash and
Investment Property maintained at any time in all such Deposit Accounts and
Securities Accounts which are not subject to Control Agreements in favor of the
Administrative Agent shall not exceed $2,000,000 at such time.

5.             Representations and Warranties.  In order to induce the
Administrative Agent and the Required Lenders to provide the consents and
waivers specified in Sections 1 and 2 hereof and the amendments specified in
Sections 3 and 4 hereof, each of the Borrower and the Acquired Business
represents and warrants to the Administrative Agent and the Required Lenders
that:

(a)           no Event of Default exists immediately before and that no Default
or Event of Default exists immediately after giving effect to the waivers
contemplated in Section 2 above and to the amendments contemplated by Sections 3
and 4 hereof;

(b)           the execution, delivery and performance by such Person of this
letter agreement have been duly authorized by all necessary corporate, limited
liability company or other action on the part of such Person and do not and will
not require any registration with, consent or approval of, or notice to or
action by, any Person (including any Governmental Authority) in order to be
effective and enforceable;

 
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(c)           this letter agreement and the other Loan Documents to which such
Person is party constitute the legal, valid and binding obligations of such
Person, and are enforceable against such Person in accordance with their
respective terms, without defense, counterclaim or offset; and

(d)           each of the representations and warranties made by such Person in
or pursuant to any Loan Document (i) that is qualified by materiality shall be
true and correct, and (ii) that is not qualified by materiality, shall be true
and correct in all material respects, in each case, on and as of the date
hereof, as if made on and as of such date, except to the extent any such
representation and warranty expressly relates to an earlier date, in which case
such representation and warranty shall have been true and correct in all
material respects as of such earlier date.

6.             Conditions to Effectiveness.  This letter agreement shall become
effective as of the date upon which each of the following conditions precedent
is satisfied (such date, the “Effective Date”):

(a)           the Administrative Agent shall have received from each of the
Borrower and the Acquired Business a duly executed original (or, if elected by
the Administrative Agent, an executed facsimile or PDF followed promptly by an
executed original) counterpart of this letter agreement;

(b)           the Administrative Agent shall have received from the Acquired
Business (in its capacity as a Guarantor) a duly executed original (or, if
elected by the Administrative Agent, an executed facsimile or PDF followed
promptly by an executed original) signature page to the Guarantor Acknowledgment
and Consent attached hereto as Exhibit A;

(c)           the Administrative Agent shall have received from the Borrower an
amendment fee in the amount of $5,000; and

(d)           the Borrower shall have paid, in accordance with Section 9.5 of
the Credit Agreement, all costs and expenses of counsel to the Administrative
Agent to the extent invoiced to the Borrower prior to the Effective Date.

7.             Reservation.  Each of the Borrower and the Acquired Business
acknowledges and agrees that neither the execution nor the delivery by the
Administrative Agent and the Required Lenders of this letter agreement shall (a)
be deemed to create a course of dealing or otherwise obligate the Administrative
Agent or such Required Lenders to grant similar consents, waivers or amendments
under the same or similar circumstances in the future, or (b) be deemed to
create an implied waiver of any right or remedy of the Administrative Agent or
such Required Lenders with respect to any term or provision of any Loan Document
(including any term or provision relating to the occurrence of a Material
Adverse Effect).

8.             Governing Law.  THIS LETTER AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA.  This letter agreement is subject to the provisions of Section 9.14
of the Credit Agreement relating to submission to jurisdiction, jury trial
waiver and judicial reference, which provisions are by this reference
incorporated herein, mutatis mutandis, as if set forth herein in full.

9.             Successors and Assigns.  This letter agreement shall be binding
upon and inure to the benefit of the parties hereto and to the benefit of their
respective successors and assigns.  No third party beneficiaries are intended in
connection with this letter agreement.

 
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10.           Entire Agreement; Amendments.  This letter agreement, together
with the Credit Agreement and the other Loan Documents, contains the entire and
exclusive agreement of the parties hereto with reference to the matters
discussed herein and therein.  This letter agreement supersedes all prior drafts
and communications with respect hereto and may not be amended except in
accordance with the provisions of Section 9.1 of the Credit Agreement.

11.           Severability.  If any term or provision of this letter agreement
shall be deemed prohibited by or invalid under any applicable law, such
provision shall be invalidated without affecting the remaining provisions of
this letter agreement, respectively.

12.           Reimbursement of Costs and Expenses.  The Borrower covenants to
pay or reimburse the Administrative Agent, upon demand, for all reasonable and
documented costs and expenses (including the allocated costs of in-house
counsel) incurred by the Administrative Agent in connection with the
development, preparation, negotiation, execution and delivery of this letter
agreement.

13.           Counterparts.  This letter agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.

14.           Loan Document.  This letter agreement shall constitute a Loan
Document.

Please indicate your acknowledgement of and agreement with the terms and
provisions set forth in this letter agreement by countersigning and returning
four originally-executed counterpart signature pages hereto, and four
originally-executed signature pages to the Guarantor Acknowledgment and Consent
attached hereto as Exhibit A, to the attention of Lance Peterson at the
following address:
 

Lance Peterson Morrison & Foerster LLP 425 Market Street, 32nd Floor San
Francisco, CA 94105

 

Very truly yours,                   SILICON VALLEY BANK,         as
Administrative Agent                     By:           Name:           Title:   
       

 

SILICON VALLEY BANK,        
as a Lender
                    By:           Name:           Title:           

 
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ACKNOWLEDGED AND AGREED:
                 
SHORETEL, INC.,
       
as the Borrower
                    By:           Name: Mike Healy         Title:  Senior VP of
Finance & CFO        

M5 NETWORKS, LLC,
       
as the Acquired Business
                    By:           Name: Mike Healy         Title:  Senior VP of
Finance & CFO        

 
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SCHEDULE 1

SPECIFIED DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS OF
THE ACQUIRED BUSINESS
 
DEPOSIT ACCOUNTS:

Square 1 Bank Deposit Account No. 103125
Sovereign Bank Deposit Account No. 7581014991

SECURITIES ACCOUNTS:

Square 1 Bank Money Market Account No. 237065
Square 1 Bank Money Market Account No. 100083
Square 1 Bank Money Market Collateral Account No. 65794
Sovereign Bank Money Market Account No. 5460
Sovereign Bank Money Market Account No. 300
 
 
Schedule 1

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EXHIBIT A

GUARANTOR ACKNOWLEDGEMENT AND CONSENT

The undersigned, a Guarantor with respect to the Obligations of the Borrower to
the Administrative Agent and the Lenders under the terms of the Loan Documents,
hereby:

(a)           acknowledges and consents to the execution, delivery and
performance by the Borrower of the foregoing letter agreement (the “Consent,
Waiver and Amendment Letter”);

(b)           represents and warrants that (i) no default exists under the
Guarantee and Collateral Agreement or any other Loan Document to which the
undersigned is a party, and (ii) the execution and delivery by it of this
Guarantor Acknowledgement and Consent (A) are within its limited liability
company power, (B) have been duly authorized by all necessary limited liability
company action, and (C) do not require the consent, approval or authorization of
any Person which has not been previously obtained; and

(c)           reaffirms and agrees that the Guarantee and Collateral Agreement
as to which the undersigned is party, and all other Loan Documents and
agreements executed and delivered by the undersigned to the Administrative Agent
and/or the Lenders in connection with the Guarantee and Collateral Agreement,
are in full force and effect without defense, offset or counterclaim and will so
continue.

All capitalized terms used but not otherwise defined herein shall have the
respective meanings assigned to such terms in the Credit Agreement (as defined
in the Consent, Waiver and Amendment Letter).

This Guarantor Acknowledgement and Consent shall constitute a Loan Document
under the Credit Agreement.

 
M5 NETWORKS, LLC
           
By:
      Name:  Mike Healy       Title:   Senior VP of Finance & CFO  

 
 
Exhibit A

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EXHIBIT B

AMENDED AND RESTATED EXHIBIT B TO CREDIT AGREEMENT
(FORM OF COMPLIANCE CERTIFICATE)

EXHIBIT B
 
FORM OF COMPLIANCE CERTIFICATE
 
SHORETEL, INC.

Date:   November 12, 2012 for Period Ending September 30, 2012

This Compliance Certificate is delivered pursuant to Section
[5.2(b)(ii)][5.2(g)(ii)(F)] of that certain Credit Agreement, dated as of March
15, 2012, among ShoreTel, Inc., a Delaware corporation (the “Borrower”), the
Lenders party thereto, and Silicon Valley Bank, as Administrative Agent (as
amended, restated, amended and restated, supplemented, restructured or otherwise
modified from time to time, the “Credit Agreement”).  Unless otherwise defined
herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
 
1.      I am the duly elected, qualified and acting [Insert title of applicable
Responsible Officer] of the Borrower.
 
2.      I have reviewed and am familiar with the contents of this Compliance
Certificate.
 
3.      I have reviewed the terms of the Credit Agreement and the other Loan
Documents and have made, or caused to be made under my supervision, a review in
reasonable detail of the transactions and condition of the Borrower and its
Subsidiaries during the accounting period covered by the financial statements
attached hereto as Attachment 1 (the “Financial Statements”).  Such review did
not disclose the existence during or at the end of the accounting period covered
by the Financial Statements, and I have no knowledge of the existence as of the
date of this Compliance Certificate, of any condition or event which constitutes
a Default or an Event of Default.
 
4.      [Attached hereto as Attachment 2 are the computations showing compliance
with the covenants set forth in Section 6.1 of the Credit Agreement.]. See Excel
file “Borrowing Base Certificate Testing – 9.30.12.xlsx” that was electronically
transmitted to Silicon Valley Bank at 6:02pm on November 8, 2012.
 
5.      [To the extent not previously disclosed to the Administrative Agent, a
description of any change in the jurisdiction of organization of any Loan
Party.] No change reported.
 
6.      [To the extent not previously disclosed to the Administrative Agent, a
list of any material patents, registered trademarks or registered copyrights
issued to or acquired by any Loan Party since [the Closing Date][the date of the
most recent report delivered].]
 
[Remainder of page intentionally left blank; signature page follows]
 
 
Exhibit B

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IN WITNESS WHEREOF, I have executed this Compliance Certificate as of the date
first written above.
 

 
SHORETEL, INC.
           
By:
      Name: Mike Healy     Title: Senior VP of Finance & CFO  

 
 
Exhibit B

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Attachment 1
to Compliance Certificate
 
[Attach Financial Statements]
 
 
Exhibit B

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Attachment 2
to Compliance Certificate
 
The information described herein is as of September 30, 2012 (the “Statement
Date”), and pertains to the four consecutive fiscal quarter period of the
Borrower ended on the Statement Date (the “Subject Period”).

I.    
Section 6.1(a) — Minimum Liquidity Ratio
                            A.  
Liquidity as of the Statement Date (Line II.C):
 
$___________
        B.  
Aggregate amount of Eligible Accounts as of the Statement Date (as determined by
the Administrative Agent with reference to the most recent Borrowing Base
Certificate delivered to the Administrative Agent pursuant to the terms of the
Credit Agreement):
 
$___________
        C.  
Aggregate amount of all Indebtedness of the Borrower and its consolidated
Subsidiaries as of the Statement Date:
 
$___________
        D.  
Liquidity Ratio as of the Statement Date ((Line I.A plus Line I.B) to Line I.C):
 
[__] to 1.00
           
Minimum ratio required:
 
1.50 to 1.00
            Covenant compliance: Yes  o
No  o
     

 
II.
   
Section 6.1(b) — Minimum Liquidity
                            A.  
Aggregate amount of all unrestricted cash of the Borrower and its Domestic
Subsidiaries subject as of the Statement Date to a perfected Lien of the
Administrative Agent (held for the ratable benefit of the Lenders):
 
$___________
        B.  
Aggregate amount of Cash Equivalents of the Borrower and its Domestic
Subsidiaries subject as of the Statement Date to a perfected Lien of the
Administrative Agent (held for the ratable benefit of the Lenders):
 
$___________
        C.  
Liquidity as of the Statement Date (Lines II.A plus Line II.B):
 
$___________
           
Minimum liquidity required:
               
The sum of (i) $30,000,000, and (ii) up to $20,000,000 of the difference, if
any, between the aggregate amount of Revolving Loans outstanding on the
Statement Date and $30,000,000
 
$___________
                              Covenant compliance:
Yes  o
No  o
     

 
See Excel file “Borrowing Base Certificate Testing – 9.30.12.xlsx” for analysis.
 
 
Exhibit B

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III.
   
Section 6.1(c) — Minimum Consolidated EBITDA
                              A.    
Consolidated EBITDA for the Subject Period:
                                      1.  
Consolidated Net Income for the Subject Period:
 
$___________
                                  2.  
Consolidated Interest Expense for the Subject Period:
 
$___________
                                  3.  
provision for income taxes (as reported in accordance with GAAP) for the Subject
Period:
 
$___________
                                  4.  
depreciation expenses for the Subject Period:
 
$___________
                                  5.  
amortization expenses for the Subject Period:
 
$___________
                                  6.  
integration expenses (other than restructuring charges) and transaction expenses
for the Subject Period related to the Initial Acquisition and Permitted
Acquisitions:
 
$___________
                                  7.  
Earn-Out Liabilities and any other earn-out liabilities arising in connection
with Permitted Acquisitions and paid during the Subject Period:
 
$___________
                                  8.  
non-recurring one-time charges for the Subject Period in respect of settlements,
litigation and casualty events in an amount not exceeding $500,000 for all such
charges taken together during the term of this Agreement:
 
$___________
                                  9.  
restructuring charges incurred in connection with the Initial Acquisition or any
Permitted Acquisition in an amount not exceeding $2,500,000:
 
$___________
                                  10.  
charges taken during the Subject Period related to equity compensation and
impairment of intangible assets and other non-cash items reducing Consolidated
Net Income (excluding any such non-cash item to the extent that it represents an
accrual or reserve for potential cash items in any future period or amortization
of a prepaid cash item that was paid in a prior period) approved by the
Administrative Agent in writing as an ‘add back’ to Consolidated EBITDA:
 
$___________
                                  11.  
other non-cash items during the Subject Period increasing Consolidated Net
Income for such period (excluding any such non-cash item to the extent it
represents the reversal of an accrual or reserve for potential cash item in any
prior period):
 
$___________
                                  12.  
interest income during the Subject Period:
 
$___________
                                  13.  
Consolidated EBITDA for the Subject Period
(Lines III.A.1+III.A.2+III.A.3+III.A.4+III.A.5+III.A.6 +III.A.7 +III.A.8
+III.A.9 +III.A.10 minus III.A.11 minus III.A.12):
 
$___________
                   

 
Exhibit B
 

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Minimum Consolidated EBITDA required:
         
Subject Period Ending
Minimum Consolidated EBITDA
   
March 31, 2012
$1
   
June 30, 2012
$1,000,000
   
September 30, 2012
$(1,500,000)
   
December 31, 2012
$(1,500,000)
   
March 31, 2013
$(1,000,000)
   
June 30, 2013
$1
   
September 30, 2013
$1
   
December 31, 2013
$1,000,000
   
March 31, 2014
$1,500,000
   
June 30, 2014 and thereafter
$2,000,000
$___________

 
Covenant compliance:
Yes o
No o

 
See Excel file “Borrowing Base Certificate Testing – 9.30.12.xlsx” for analysis.
 
 
 Exhibit B

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