Exhibit 10.4

BOARD NOMINATION AND OBSERVER AGREEMENT

This Board Nomination and Observer Agreement (this “Agreement”) is made as of
September 25, 2012, among Authentidate Holding Corp., a Delaware corporation
(the “Company”) and Lazarus Investment Partners, LLLP, a limited liability
partnership (the “Stockholder”). Unless otherwise specified herein, all of the
capitalized terms used herein are defined in Section 5 hereof.

WHEREAS, the Company has entered into a Securities Purchase Agreement, dated as
of September 24, 2012 (the “Purchase Agreement”), with the Stockholder and the
other parties identified on Schedule I thereto whereby the Stockholder has
agreed to participate in transaction described therein; and

WHEREAS, the Company has agreed to grant the Stockholder, subject to the
limitations set forth in this Agreement, to observation and nomination rights as
set forth herein on the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties to this Agreement hereby agree as follows:

Section 1. Board Observer Rights.

(a) At any time prior to the Expiration Time, provided that the Stockholder has
not exercised its rights under Section 2 of this Agreement and such Stockholder
together with its Affiliates Beneficially Own 5.0% or greater of the Outstanding
Equity, the Stockholder may designate a Board observer reasonably acceptable to
the Company (the “Board Observer”) to attend all meetings of the Board, in a
non-voting capacity, by the giving of written notice to the Company’s Chairman
or Chief Executive Officer of such designation (“Observation Election”) prior to
the Expiration Time. In connection therewith and during the time period set
forth in Section 1(b), the Company shall simultaneously give the Board Observer
copies of all notices, consents, minutes and other materials, financial or
otherwise, which the Company provides to the Board in connection with meetings
of the Board to be held during such time frame, provided that (i) if the Board
Observer does not, upon the request of the Company, before attending any
meetings of the Board, execute and deliver to the Company a confidentiality
agreement reasonably acceptable to the Company, the Board Observer may be
excluded from access to any material or meeting or portion thereof if the Board
determines in good faith that such exclusion is reasonably necessary to protect
confidential proprietary information of the Company or confidential proprietary
information of third parties that the Company is required to hold in confidence,
or for other similar reasons; (ii) such representative may be excluded from
access to any material or meeting or portion thereof if the Board determines in
good faith that such exclusion is reasonably necessary to preserve the
attorney-client privilege; (iii) any committee of the Board may exclude the
Observer from attending any meeting of such committee in its discretion; and
(iv) nothing herein shall prohibit the Board or any committee of the Board from
taking any action proposed to be taken at any meeting of the Board or committee
or by written consent.

(b) In the event the Stockholder makes an Observation Election, the Stockholder
shall have the observation rights set forth herein for a period of time expiring
on the earlier of (i) the second anniversary date of the Effective Date,
(ii) the date on which the Stockholder makes an election to appoint a Nominee in
accordance with Section 2 of this Agreement, or (iii) the occurrence of a
General Termination Event. All obligations of the Company pursuant to this
Section 1 shall terminate upon the Stockholder ceasing to have the right to
designate a Board Observer pursuant to this Section 1.

 

- 1 -

--------------------------------------------------------------------------------

(c) Stockholder agrees, and Stockholder will cause any Board Observer to agree,
to hold in confidence with respect to all information so provided and not use or
disclose any confidential information provided to or learned by it in connection
with its rights under this Agreement other than for purposes reasonably related
to its interest as a shareholder of the Company, and not to the detriment of,
the Company. The confidentiality provisions hereof will survive any termination
of this Agreement. The Stockholder shall cause the Board Observer to agree to,
and shall be responsible for the Board Observer’s failure to, hold in confidence
and trust and to act in a fiduciary manner with respect to all information
provided to such Board Observer pursuant hereto.

Section 2. Board Nomination Rights.

(a) At any time prior to the Expiration Time, subject to the terms and
conditions of this Agreement and provided that the Stockholder together with its
Affiliates Beneficially Own 10.0% or greater of the Outstanding Equity, the
Stockholder shall have the right (but not the obligation) to designate one
person to be nominated for election to the Board (a “Nominee”) by giving written
notice to the Chairman of the Board or the Secretary of the Company prior to the
Expiration Time. As a condition of exercising its right under Section 2 of this
Agreement, the Stockholder hereby agrees that effective upon the election of
such Nominee to the Board, the Stockholder’s rights under Section 1 of this
Agreement shall automatically expire and no person may continue to act in the
capacity as Board Observer. The Nominee shall be selected by the Stockholder in
reasonable consultation with (but without the need for the approval of) the
Company’s Nominating and Corporate Governance Committee of its Board of
Directors (the “Nominating Committee”).

(b) Provided the Stockholder exercises its right under Section 2(a) prior to the
Expiration Time, the Company shall subject to its rights under Section 3:
(i) promptly increase the size of the Board from five (5) to six (6) members;
(ii) appoint such Nominee as a member of the Board; and (iii) at all times
during the Designation Period, include, and shall use its best efforts to cause
the Board, whether acting through the Nominating and Corporate Governance
Committee of the Board or otherwise, to include the Nominee in the slate of
nominees recommended to the Stockholders for election as a director at any
annual or special meeting of the Stockholders held during the Designation Period
(or, if permitted, by any action by written consent of the Stockholders taken
during the Designation Period) at or by which directors of the Company are to be
elected.

(c) If a Board vacancy occurs during the Designation Period solely because of
the death, disability, disqualification, resignation or removal of the Nominee,
the Stockholder shall be entitled to designate such person’s successor in
accordance with Section 3(b).

(d) If during the Designation Period the Nominee is not nominated or elected to
the Board because of such Nominee’s death, disability, disqualification,
withdrawal as a nominee or such Nominee is for any other reason unavailable or
unable to serve on the Board, the Stockholder shall be entitled to promptly
designate another Nominee in accordance with the applicable provisions of
Section 2 and the director position for which such Nominee was nominated shall
not be filled pending such designation.

(e) A Nominee shall be entitled to the same compensation paid and expense
reimbursement payable to other non-employee Directors.

(f) If in the reasonable judgment of the Company, the election or appointment of
the Nominee would cause the Company to not comply with the relevant listing
rules of the Nasdaq Stock Market (the “Listing Rules”), including the
requirement that the Company’s Board be comprised of a majority of Independent
Directors, then the Company may defer the appointment and/or election of such

 

- 2 -

--------------------------------------------------------------------------------

Nominee until it is able to take commercially reasonable measures to ensure that
such appointment or election would not cause the Company to violate the Listing
Rules. For the purpose of clarity, it is agreed that such measures may include a
further increase in the size of the Board and the appointment and/or election of
an additional individual to serve as an Independent Director, which individual
shall be selected in the sole discretion of the Company.

(g) For the avoidance of doubt, the provisions of this Agreement shall not limit
any rights the Stockholder may have as a stockholder of the Company pursuant to
Delaware law, the Certificate of Incorporation or the By-Laws.

Section 3. Company Obligations.

(a) Notwithstanding anything herein to the contrary, the Company shall not be
obligated to appoint any Nominee to serve on the Board or cause to be nominated
for election to the Board or recommend to the stockholders the election of any
Nominee: (i) who fails to submit to the Company on a timely basis such
questionnaires as the Company may reasonably require of its directors generally
and such other information as the Company may reasonably request in connection
with the preparation of its filings under the Securities Laws; or (ii) if the
Board or the Nominating Committee (if any) determines in good faith, after
consultation with outside legal counsel, that (A) such action would constitute a
breach of its fiduciary duties or applicable law or violate the Company’s
Certificate of Incorporation or By-Laws; or (B) such Nominee would not be
qualified under any applicable law, rule or regulation to serve as a Director of
the Company; provided, however, that upon the occurrence of either (i) or
(ii) above, the Company shall promptly notify the Stockholder of the occurrence
of such event and permit the Stockholder to provide an alternate Nominee
sufficiently in advance of any Board action, the meetings of the stockholders
called or written action of stockholders with respect to such election of
nominees and the Company shall use commercially reasonable efforts to perform
its obligations under Section 2 with respect to such alternate Nominee (provided
that if the Company provides at least 45 days advance notice of the occurrence
of any such event such alternative nominee must be designated by the Stockholder
not less than 30 days in advance of any Board action, notice of meeting of the
stockholders or written action of stockholders with respect to such election of
nominees), and in no event shall the Company be obligated to postpone,
reschedule or delay any scheduled meeting of the stockholders with respect to
such election of Nominees.

(b) If at any time during Designation Period a Board vacancy occurs solely
because of the death, disability, disqualification, resignation or removal of
the Nominee, then the Board, or any committee thereof, shall not fill such
vacancy until the earliest to occur of: (i) the Stockholder’s designation of a
successor Nominee (which successor Nominee shall be designated in accordance
with Section 2(a) and subject to the terms of Section 3(a)) and the Board’s
appointment of such successor Nominee to fill the vacancy; (ii) the
Stockholder’s failure to designate a successor Nominee within 20 Business Days
after receiving notification of the vacancy from the Company; or (iii) the
Stockholder’s specifically waiving in writing its rights under this
Section 3(b). For the purposes of clarity, the Company shall have the right to
fill any Board vacancy which may occur due to any reason other than the death,
disability, disqualification, resignation or removal of the Nominee in
accordance with the terms of the Company’s By-Laws and Certification of
Incorporation.

Section 4. Term and Termination.

(a) This Agreement shall become effective upon the closing of the transactions
contemplated by the Purchase Agreement (the “Effective Date”).

 

- 3 -

--------------------------------------------------------------------------------

(b) Notwithstanding anything to the contrary contained herein, if the
Stockholder together with its Affiliates cease to Beneficially Own at least
10.0% of the Outstanding Equity, whether as a result of dilution, Transfer or
otherwise, then the rights of the Stockholder under Section 2 of this Agreement
shall terminate automatically (the “Nominee Termination Event”). Within three
Business Days after the occurrence of the Nominee Termination Event (i) that
results from a Transfer of Common Stock by the Stockholder, the Stockholder
shall notify the Company of such event and (ii) that results from any other
event or occurrence, the Company shall notify the Stockholder of such event (in
each case, a “Nominee Termination Notice”).

(c) Notwithstanding anything to the contrary contained herein, upon the
occurrence of a General Termination Event, this Agreement shall be automatically
terminated and of no further force and effect, and no party hereto shall have
any surviving obligations, rights, or duties hereunder after such termination.
Within three Business Days after the occurrence of a General Termination Event
(i) that results from a Transfer of Common Stock by the Stockholder, the
Stockholder shall notify the Company of such event and (ii) that results from
any other event or occurrence, the Company shall notify the Stockholder of such
event (in each case, a “General Termination Notice”).

Section 5. Definitions.

“Affiliate” means, with respect to any Person, any other Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.

“Agreement” has the meaning set forth in the preamble.

“Beneficially Own” has the meaning ascribed to it in Rule 13d-3 and 13d-5 (or
successor rules then in effect) promulgated under Exchange Act.

“Board” means the board of directors of the Company.

“Board Observer” has the meaning set forth in Section 1.

“Business Day” means any day that is not a Saturday, Sunday, legal holiday or
other day on which commercial banks in New York, New York are authorized or
required by applicable law to close.

“By-Laws” means the Company’s By-Laws, as in effect on the date hereof, as the
same may be amended from time to time.

“Certificate of Incorporation” means the Company’s Certificate of Incorporation,
as in effect on the date hereof, as the same may be amended from time to time.

“Common Stock” means the common stock, par value $0.001 per share, of the
Company.

“Company” has the meaning set forth in the preamble.

“Designation Period” means the period commencing on the Effective Date and
expiring on the first to occur of a Nominee Termination Event or the third
anniversary of the Effective Date.

“Director” means a duly elected member of the Board.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

- 4 -

--------------------------------------------------------------------------------

“Expiration Time” means the earlier of (i) termination of this Agreement at the
election of the Stockholder by written notice to the Company and (ii) at 5:00
p.m. (New York time) on the date that is the 180th day following the Effective
Date.

“General Termination Event” means the first to occur of (i) the Expiration Time,
in the event the Stockholder declines to exercise its rights under Section 1 or
Section 2 of this Agreement; (ii) the date on which the Stockholder, together
with its Affiliates, ceases to Beneficially Own at least 5.0% of the Outstanding
Equity, whether as a result of dilution, Transfer or otherwise; or (iii) the
expiration of any time period within which Stockholder may designate a Board
Observer or Nominee in accordance with Section 1 or Section 2 of this Agreement.

“Independent Director” means a Director that is an “independent director” as
such term is defined from time to time in the Nasdaq Stock Market’s listing
standards (or the principal national securities exchange on which Common Stock
is then traded) and is not an “affiliate” or an “associate” (as such terms are
defined in Rule 12b-2 of the Exchange Act) or any member of the “immediate
family” (as such term is defined in Rule 16a-1 of the Exchange Act) of a
director or executive officer of the Company or the Stockholder and shall not
have (or have had during the past three years) any employment arrangement or
other material commercial arrangement with any such person. For the avoidance of
doubt, ownership of a 5% or less limited partnership interest in any fund
managed by the Stockholder shall not be considered to constitute a material
commercial arrangement.

“Nominee” has the meaning set forth in Section 2(a).

“Observation Election” has the meaning set forth in Section 1.

“Outstanding Equity” means, at any time, the issued and outstanding Common Stock
of the Company (assuming (i) the conversion of all outstanding shares of
Preferred Stock and (ii) exercise of all common stock purchase warrants then
held by the Stockholder).

“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.

“Preferred Stock” means the Company’s Series C 15% C Convertible Redeemable
Preferred Stock, par value $0.01 per share, of the Company.

“Securities Act” means the Securities Act of 1933, as amended from time to time.

“Securities Laws” means the Securities Act and the Exchange Act, and the rules
promulgated thereunder.

“Stockholder” has the meaning set forth in the preamble.

“Nominee Termination Event” has the meaning set forth in Section 4.

“Nominee Termination Notice” has the meaning set forth in Section 4.

“Transfer” means any sale, transfer, assignment or other disposition of (whether
with or without consideration and whether voluntary or involuntary or by
operation of law) of Common Stock and/or Preferred Stock.

 

- 5 -

--------------------------------------------------------------------------------

Section 6. No Assignment; Benefit of Parties; No Transfer. No party may assign
this Agreement or any of its rights or obligations hereunder and any assignment
hereof will be null and void. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns for the uses and purposes set forth and referred to herein. Except as
explicitly set forth herein, nothing contained in this Agreement shall confer or
is intended to confer on any third party or entity that is not a party to this
Agreement any rights under this Agreement.

Section 7. Remedies. The Company and the Stockholder shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that a breach of this Agreement would cause irreparable harm and money damages
would not be an adequate remedy for any such breach and that, in addition to
other rights and remedies hereunder, the Company and the Stockholder shall be
entitled to seek specific performance and/or injunctive or other equitable
relief (without posting a bond or other security) from any court of law or
equity of competent jurisdiction in order to enforce or prevent any violation of
the provisions of this Agreement.

Section 8. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid, return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the Company at the addresses set forth
below and to the Stockholder at the addresses set forth below. Notices shall be
deemed to have been given hereunder when delivered personally, three days after
deposit in the U.S. mail and one day after deposit with a reputable overnight
courier service.

 

The Company’s address is:    Authentidate Holding Corp.    300 Connell Drive,
5th Floor    Berkeley Heights, NJ 07922    Attention: President    Facsimile:
(908) 673-9921

with copies to:

   Becker & Poliakoff, LLP    45 Broadway, 8th Floor    New York, NY 10006   
Attention: Michael A. Goldstein    Facsimile: (212) 557-0295 The Stockholder’s
address is:    Lazarus Investment Partners, LLLP    3200 Cherry Creek South
Drive, Suite 670    Denver, CO 80209    Attention: Mr. Justin Borus   
Facsimile: (303) 309-2675

with copies to:

   Berenbaum Weinshienk PC    370 17th Street, Suite 4800    Denver, CO 80202   
Attention: Joseph S. Borus, Esq.    Facsimile: (303) 629-7610

Section 9. Adjustments. If, and as often as, there are any changes in the Common
Stock by way of stock split, stock dividend, combination or reclassification, or
through merger, consolidation,

 

- 6 -

--------------------------------------------------------------------------------

reorganization, recapitalization or sale, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights, privileges, duties and obligations hereunder shall
continue as so changed.

Section 10. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.

Section 11. No Third-Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to confer upon, or give to, any
person or entity other than the parties hereto and their respective successors
and assigns, any remedy or claim under or by reason of this Agreement or any
terms, covenants or conditions hereof, and all of the terms, covenants,
conditions, promises and agreements contained in this Agreement shall be for the
sole and exclusive benefit of the parties hereto and their respective successors
and assigns.

Section 12. Further Assurances. Each of the parties hereby agrees that it will
hereafter execute and deliver any further document, agreement, instruments of
assignment, transfer or conveyance as may be necessary or desirable to
effectuate the purposes hereof.

Section 13. Counterparts. This Agreement may be executed in one or more
counterparts, and may be delivered by means of facsimile or electronic
transmission in portable document format, each of which shall be deemed to be an
original and shall be binding upon the party who executed the same, but all of
such counterparts shall constitute the same agreement.

Section 14. Governing Law. All issues and questions concerning the construction,
validity, interpretation and enforceability of this Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Delaware.

Section 15. Mutual Waiver of Jury Trial. The parties hereto hereby irrevocably
waive any and all rights to trial by jury in any legal proceeding arising out of
or related to this Agreement. Any action or proceeding whatsoever between the
parties hereto relating to this Agreement shall be tried in a court of competent
jurisdiction by a judge sitting without a jury.

Section 16. Complete Agreement; Inconsistent Agreements. This Agreement
represents the complete agreement between the parties hereto as to all matters
covered hereby, and supersedes any prior agreements or understandings between
the parties.

Section 17. Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired thereby
(it being understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the validity of such
provision in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

Section 18. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholder unless such modification is
approved in writing, in the case of an amendment, by the

 

- 7 -

--------------------------------------------------------------------------------

Company and the Stockholder, and in the case of a waiver, by each party against
whom the waiver is to be effective. The failure of any party to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.

[SIGNATURE PAGE FOLLOWS]

 

- 8 -

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.

 

Company: AUTHENTIDATE HOLDING CORP. By:  

/s/ O’Connell Benjamin

Name:  

O’Connell Benjamin

Title:  

Chief Executive Officer and President

Stockholder: LAZARUS INVESTMENT PARTNERS, LLLP By:  

/s/ Justin Borus

Name:  

 

Title:  

 

Signature Page to Board Nomination and Observer Agreement

 

- 9 -