**Exhibit 10.12**

** **

**OMTOOL, LTD.**

 

                                                                                                July30, 2002

 

**Personaland Confidential**

 

Mr. Michael Sheehy

203 Pine Hill Road

Hollis, NH 03049

 

                Re:   Severance Eligibility

 

Dear Mike:

 

                Inconnection with your “at-will” employment offer by Omtool, Ltd. (“Omtool” or the“Company”), Omtool agrees to provide you with eligibility for the severancebenefits set forth in this letter agreement (the “Agreement”) if youremployment is terminated under the circumstances described below:

 

                1.             **At-Will Employment.** This Agreement is not a contract to employ you for a definite timeperiod, and is not intended to be and does not constitute a contract or part ofa contractual agreement for continued employment, either express or implied,between the Company and you, it being acknowledged that your employment is “atwill” and that either you or Omtool may terminate the employment relationshipat any time, for any or no reason, with or without “Cause” (as defined herein)and with or without prior notice.

 

                2.             **Notice of Termination and other Matters.**  Any termination of your employment, whetherby you or Omtool, will be communicated by written notice (“Notice ofTermination”) to the other party. All notices provided for in this Agreementwill be in writing and will be effective when delivered or mailed by U.S. mail,postage prepaid, addressed to Omtool, Ltd., 8 Industrial Way, Salem, NH 03079,and to you at the address shown above or to such other address as either Omtoolor you may have furnished to the other in writing.

 

                3.             **Severance Payments and Benefits Upon a Qualified Termination.**

                                (a)           Omtool will provide you with theseverance payments listed below only in the event of a Qualified Terminationand provided that you execute a general release agreement in a form acceptableto the Company, except that the release will not effect your rights toindemnification or vested Benefits, and provided that you continue to adhere toany post-termination obligations including, but not limited to, anynon-competition, non-disclosure and non-solicitation covenants. A “QualifiedTermination” means your employment is terminated by the Company without “Cause”or by you for “Good Reason” (i) within the first eighteen months of youremployment, or (ii) anytime after a Change of Control of the Company.  A termination of your employment will notconstitute a “Qualified Termination” if your employment is terminated because(i) you die or become Disabled, (ii) Omtool terminates you for “Cause,” (iii)you resign or retire without “Good Reason”, (iv) you resign with “Good Reason”or you are terminated without “Cause” after the first eighteen months of youremployment but before a Change of Control, or (v) the Company files forbankruptcy.

 

 

 

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                                (b)          If a Qualified Terminationoccurs, you will be eligible to receive the following severance pay andbenfits:

 

                                                (i)            Severance Pay.  Severance pay, in equal monthly installmentsat your monthly base salary rate in effect immediately prior to the QualifiedTermination, for twelve months from the date of the Qualified Termination. Thefirst severance payment will be made upon the first regularly scheduled Companypayday on or following your execution of the release agreement referencedabove, in accordance with the Company’s normal payroll practices as establishedor modified from time to time, and will be subject to all federal, state and/orlocal payroll and withholding taxes.

 

                                                (ii)           Payment of COBRA Premiums.   If you are eligible for and elect tocontinue health and dental continuation coverage in accordance with theConsolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Companywill pay your COBRA premium (equal to the amount it paid during youremployment) until the earlier of (x) 12 months from the date of the QualifiedTermination, or (y) the date on which you become ineligible to receive COBRAcoverage. During the period in which the Company is providing this benefit, youwill be responsible for paying the portion of the premiums required for activeemployees, which will be automatically deducted from the severance paymentsreferenced in Section 3(b)(i). Thereafter, you will be responsible for allCOBRA payments.

 

                                (c)           In addition to the amounts set forthin Section 3(b), in the event a Qualified Termination occurs within one yearafter a Change of Control, any unvested stock options issued to you will becomeimmediately vested and exercisable.

 

                                (d)           In the event it shall be determinedthat any payment by the Company to you (or for your benefit pursuant to thisAgreement) is an “excess parachute payment” within the meaning of Section 280Gof the Internal Revenue Code of 1986, as amended (the “Code”), in connectionwith, or arising out of, your employment with the Company or a Change inControl of the Company or a substantial portion of its assets (a “Payment”),and would be subject to the excise tax imposed by Section 4999 of the Code (the“Excise Tax”), then the Company shall pay to you an additional payment (the“Gross-Up Payment”) in an amount such that the amount paid to you, net of anyExcise Tax on such Payment and any additional Excise Tax or Income Tax on theGross-Up Payment, shall equal the amount of such Payment. Such Gross-Up Paymentshall be subject to and paid net of any applicable withholding. The amount ofany Gross-Up Payment or Excise Tax shall be reasonably determined by theCompany after consultation with its legal and tax advisors. In the event thatthe Excise Tax with respect to the Payments is subsequently determined to beless than the amount taken into account for purposes of calculating theGross-Up Payment, you shall promptly repay to the Company the portion of theGross-Up Payment that exceeds the Gross-Up Payment that otherwise would havebeen payable in connection with the actual Excise Tax imposed on the Payments.If the actual Excise Tax imposed on the Payments is greater than originallycalculated by the Company the Company will promptly make any requiredadditional payments to fulfill its obligations under this section.

 

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                                (e)          You will not be entitled to anyof the severance payments and/or benefits set forth above in Sections 3(b) or3(c) if your employment termination from Omtool is not a QualifiedTermination.  If your employmenttermination is not a Qualified Termination, your employment and this Agreementwill automatically terminate and the Company will pay you (or in the case ofdeath, your designated beneficiary or, if no beneficiary has been designated byyou, your estate) your base salary earned but unpaid and vacation pay accruedbut unused as of the termination date.

 

                                (f)           If Omtool determines that youhave violated the terms of any non-competition or confidentiality provisioncontained in any employment, consulting, advisory, non-disclosure,non-competition or other similar agreement between you and Omtool, then youagree that Omtool, regardless of the manner of your employment termination, canrefuse to pay and/or cease paying and/or performing all severance-relatedobligations under this Section 3 to the extent permitted by applicable law.  The cessation of these severance paymentsand benefits shall be in addition to, and not as an alternative to, any otherremedies at law or in equity available to the Company, including the right toseek an injunction, which you shall not oppose.

 

                4.             **Definitions.**  Forthe purposes of this Agreement, the terms listed below are defined as follows:

 

                                (a)           **Disabled.**              You are “Disabled” forthe purposes of this Agreement if you have been absent from the full-timeperformance of your duties with Omtool for 180 days, whether or notconsecutively, within a any consecutive 12-month period, because of incapacitydue to physical or mental impairment that substantially limits a major lifeactivity, and you fail to resume performance of your essential job duties, withor without reasonable accommodation (provided that any such accommodation doesnot cause the Company an undue hardship).

 

                                (b)           **Cause.**    “Cause,”which shall be determined by the Company’s Board of Directors (the “Board”),shall mean: (i) your failure or refusal to render services to the Company, (ii)your failure to perform adequately the duties of your employment after youreceive written notice from the Board setting forth in reasonable detail thenature of the performance inadequacies and you fail to cure such inadequacieswithin 30 days from receiving such notice, (iii) your commission of any act ofgross negligence, dishonesty which materially adversely affects the company orits employees, insubordination or breach of fiduciary duty, (iv) your materialbreach of any term of this Agreement or any other agreement with Omtool, (v)your conviction of or plea of *nolocontendere* to (A) any felony or (B) any misdemeanor involving fraud,deceit, moral turpitude or embezzlement, (vi) your disregard of or failure tofollow the Company’s rules or policies, or your commission of any other actionthat may cause material injuries to the Company, including yourmisappropriation of any money or other assets or property (tangible orintangible) of the Company.

 

 

                                (c)           **Change of Control.**  A “Change of Control” shall mean theoccurrence of an “Acquisition” as defined in the Company’s 1997 Stock Plan, asamended, during the period in which you are eligible to receive the severancepayments listed in Section 3.

 

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                                (d)           **Good Reason.**  A termination by you for “Good Reason” will occur whenever any ofthe following circumstances have taken place, without your written consent,which the Company and the Board after receiving written notice thereof, havefailed to cure within 30 days of  receivingsuch notice: (i) your position, duties and/or responsibilities aresignificantly and materially diminished, such that you are effectively demoted;(ii) your base salary is reduced; or (iii) in the event of a Change of Control,Omtool or any person in control of Omtool requires you to perform yourprincipal duties in a new location outside of a radius of 30 miles from yourbusiness location at the time of the Change of Control.

 

**                5.             Assignment.**  Omtool may assign this Agreement, which will inure to the benefitof and be reinforced by Omtool’s successors and assigns.  You may not assign this Agreement.

 

**                6.             Confidentiality.     **The terms and conditions ofthis Agreement are strictly confidential. You shall not discuss or reveal any information concerning this letteragreement to any past or present Omtool employee or any third person or entityother than your counsel and members of your immediate family.

 

**                7.             Miscellaneous.**

 

                                (a)           Inthe event of any dispute, this Agreement will be construed as a whole, will beinterpreted in accordance with its fair meaning, and will not be construedstrictly for or against either you or the Company.  If one or more of the provisions contained in this Agreementshall for any reason be held to be excessively broad as to scope, activity,subject or otherwise so as to be un enforceable at law, such provision orprovisions shall be construed by the appropriate judicial body by limiting orreducing it or them, so as to be enforceable to the maximum extent compatiblewith the applicable law as it shall therein appear.

 

                                (b)           ThisAgreement shall be deemed to be made and entered into in the State of NewHampshire.  This Agreement and anyclaims arising out of this Agreement (or any other claims arising out of therelationship between the parties) shall be governed by and construed inaccordance with the laws of the State of New Hampshire and shall in allrespects be interpreted, enforced and governed under the internal and domesticlaws of such State, without giving effect to the principles of conflicts oflaws of such State.

 

                                (c)           Nowaiver by the Company of any breach by you of any provision hereof shall bedeemed to be a waiver of any later or other breach thereof or as a waiver ofany other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminatedorally or by any course of dealing between the parties, but only by aninstrument in writing signed by you and either the Company’s Chief Executive ora designated, disinterested member of the Company’s Board of Directors.

 

                                (d)           Youmust execute a legally enforceable separation agreement and general release ina form acceptable to Omtool prior to the receipt of any payments set forthabove.

 

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                                 (e) This Agreement is the exclusive agreementwith respect to the severance benefits payable to you in the event of atermination of your employment.  Allprior negotiations and agreements regarding severance benefits, whether oral orwritten, express or implied, are hereby superseded and cancelled.

 

                Ifthis letter sets forth our agreement, kindly sign and return to Omtool theenclosed copy of this letter.

 

                                                                                                Sincerely,

 

                                                                                                **OMTOOL, LTD.**

 

**                                                                               **                By:       /s/ Timothy P. Losik

 

                                                                                                Title:     Chief Operating Officer & CFO

 

Accepted and agreed to this5th day of August, 2002

 

                                                                

                Michael Sheehy

 

                /s/ Michael Sheehy              

Signature