0000950123-01-506729.txt : 20011009
0000950123-01-506729.hdr.sgml : 20011009
ACCESSION NUMBER: 0000950123-01-506729
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010926
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AUTHENTIDATE HOLDING CORP
CENTRAL INDEX KEY: 0000885074
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
IRS NUMBER: 141673067
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-20190
FILM NUMBER: 1745567
BUSINESS ADDRESS:
STREET 1: BLDG 50 ROTTERDAM INDUSTRIAL PK
CITY: SCHENECTADY
STATE: NY
ZIP: 12306
BUSINESS PHONE: 5183569741
MAIL ADDRESS:
STREET 1: BLDG 50 ROTTERDAM INDUSTRIAL PARK
CITY: SCHENECTADY
STATE: NY
ZIP: 12306
FORMER COMPANY:
FORMER CONFORMED NAME: BITWISE DESIGNS INC
DATE OF NAME CHANGE: 19930328
10-K
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y53484e10-k.txt
AUTHENTIDATE HOLDING CORP
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission File No. 0-20190
AUTHENTIDATE HOLDING CORP.
--------------------------------------------------
(Exact Name of Issuer as Specified in Its Charter)
Delaware 14-1673067
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2165 Technology Drive Schenectady, N.Y. 12308
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (518) 346-7799
----------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
---------------------------------------------
(Title of class)
[Cover Page 1 of 2 Pages]
2
Check whether Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The Issuer's revenues for its most recent fiscal ended June
30, 2001 were $17,860,544.
On September 20, 2001, the aggregate market value of the
voting stock of Authentidate Holding Corp. (consisting of Common Stock, $.001
par value) held by non- affiliates of the Registrant (approximately 15,542,246
shares) was approximately $49,735,187 based on the closing price for such Common
Stock ($3.20) on said date as reported by the Nasdaq National Market System.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
On September 20, 2001, there were 16,180,426 shares of Common
Stock, $.001 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
--------------------------
[Cover Page 2 of 2 Pages]
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Table of Contents
PART I
PAGE
----
Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market For the Company's Common Equity and Related Stockholder Matters 21
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 25
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplemental Data 32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial 33
Disclosure
PART III
Item 10. Directors and Executive Officers of the Company 34
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 47
iii
4
PART I
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING ITEM 1 ("BUSINESS") AND ITEM 7
("MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"), CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. WHEN USED IN THIS REPORT, THE WORDS "BELIEVE,"
"ANTICIPATE," "THINK," "INTEND," "PLAN," "WILL BE," "EXPECT", AND SIMILAR
EXPRESSIONS IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REGARDING
FUTURE EVENTS AND/OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE ACTUAL EVENTS OR THE
ACTUAL FUTURE RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES INCLUDE AMONG OTHER
THINGS, THE AVAILABILITY OF ANY NEEDED FINANCING, THE COMPANY'S ABILITY TO
IMPLEMENT ITS BUSINESS PLAN FOR VARIOUS APPLICATIONS OF ITS TECHNOLOGIES, THE
IMPACT OF COMPETITION, THE MANAGEMENT OF GROWTH, AND OTHER RISKS AND
UNCERTAINTIES THAT MAY BE DETAILED FROM TIME TO TIME IN THE COMPANY'S REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. IN LIGHT OF THE SIGNIFICANT
RISKS AND UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, THE INCLUSION OF SUCH STATEMENTS SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS
OF THE COMPANY WILL BE ACHIEVED.
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Authentidate Holding Corp. ("AHC"), its subsidiaries DJS Marketing
Group, Inc. ("DJS"), Authentidate, Inc., and WebCMN, Inc., and through its joint
ventures Authentidate International, AG, and Authentidate Sports Edition, Inc.
(sometimes collectively referred to herein as the "Company"), are engaged in the
manufacture and distribution of document imaging systems, the sale of computer
systems and related peripheral equipment, components, and accessories, network
and internet services and the development and sale of software-based
authentication services. AHC was formerly known as Bitwise Designs, Inc. The
name change was approved by our shareholders at the March 23, 2001 Annual
Meeting.
In March 1996, we acquired DJS (d.b.a Computer Professionals), a system
integrator, and computer reseller in Albany, New York. DJS is an authorized
sales and support provider for Novell, Microsoft Solutions and Lotus Notes.
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AHC established its Authentidate subsidiary during the fiscal year
ended June 30, 2000 to engage in the business of providing end users with a
service providing for the storage, confirmation and authentication of electronic
data and images. Authentidate Sports Edition, Inc., established during the
fiscal year ended June 30, 2001, as a joint venture with an partner experienced
in the sports memorabilia industry, is developing a service that applies the
Authentidate technology to the field of signature authentication as it relates
to sports memorabilia and entertainment collectibles. WebCMN, Inc. is in the
process of developing a business model to apply the Authentidate technology to
the medical supply business relating to the automation and processing of
Certificates of Medical Necessity.
AHC was organized in August 1985 and reincorporated under the laws of
the state of Delaware in May 1992. Our executive offices are located at 2165
Technology Drive, Schenectady, New York 12308, and our telephone number is (518)
346-7799.
GENERAL BUSINESS DEVELOPMENTS DURING THE PREVIOUS FISCAL YEAR
Reorganization
We held our annual meeting of shareholders on March 23, 2001. At the
meeting our shareholders approved a proposal to change our name from Bitwise
Designs, Inc. to Authentidate Holding Corp. This name change was recommended by
our Board of Directors in connection with the Board's decision to focus on
developing our Authentidate business line. The name change became effective
March 23, 2001 and our trading symbol on the Nasdaq National Market was changed
from BTWS to ADAT on March 28, 2001.
At the annual meeting, our shareholders also approved the proposal to
acquire the outstanding minority interests of our Authentidate, Inc. subsidiary
in exchange for securities of our company on a 1.5249:1 basis. This proposal was
also recommended to our shareholders in connection with the decision of our
Board of Directors to focus on our Authentidate business line. As of the date of
this Form 10-K, security holders owning an aggregate of 601,750 shares of Common
Stock and an aggregate of 616,623 options and warrants of Authentidate, Inc.
have accepted the exchange offer and we have issued an aggregate of 917,608
shares of our Common Stock and 940,289 options and warrants to these security
holders.
Regulation S Offerings
In May, 2001 we consummated two financings under Regulation S, which
resulted in our receipt of an aggregate of $5,500,000 in gross proceeds. In
these transactions we sold a total of 5,500 shares of our newly created Series C
Convertible Preferred Stock and warrants to purchase 114,000 shares of our
Common Stock. The Series C Preferred Stock is convertible into Common Stock at a
conversion price of $4.845 per share and the warrants are exercisable at $4.845
per share for a period of five years from the date of issuance. The conversion
price is not subject to any resets or adjustment for changes in the market price
of our Common Stock. The Series C Preferred Stock
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also pays an annual 4% dividend, payable in cash or stock at our election, until
conversion or redemption.
We received approximately an aggregate of $5,200,000 in net proceeds
after payment of commissions and expenses. The proceeds of these transactions
will be used to increase the business development, marketing and sales efforts
for the Authentidate services, along with general working capital needs of the
Company.
The transactions were completed under Regulation S of the Securities
Act of 1933, as amended, and the securities sold in the offering are deemed
restricted securities under Regulation S. Accordingly these securities may not
be sold or transferred in the United States for a period of one year, except
pursuant to registration under the Securities Act or an exemption therefrom. We
have agreed to register for resale the shares of Common Stock which may be:
- issued upon the conversion of the Series C Preferred Stock;
- paid as dividends on the Series C Preferred Stock; and
- issued upon the exercise of the warrants.
WebCMN, Inc.
We recently incorporated WebCMN, Inc., a new majority-owned subsidiary.
Through WebCMN, we intend to develop a service designed to assist users to
accurately and efficiently process Certificates of Medical Necessity, which are
required to be submitted by suppliers of medical devices in order to obtain
Government and private insurance reimbursement for such products. The WebCMN
service will be based on our proprietary Authentidate software and is currently
in the development stage.
INDUSTRY OVERVIEW
The market for our products is highly competitive and rapidly changing.
Our primary focus is the manufacturing and distribution market for document
imaging systems, the sale of personal computers, workstations and portable
personal computers as well as microcomputer peripherals, networks, components
accessories, Internet/Intranet development and Internet services. These markets
have experienced significant growth over the last decade, and we believe such
growth will continue.
.....Document Imaging and Management
In January, 1996, we introduced our document imaging system on a
national level called DocStar ("DocStar"). We design and manufacture DocStar
which enables a user to scan paper documents onto an optical disk, hard disk
drive or other storage medium. Our DocStar product line consists of a personal
computer, proprietary software and may also include a scanner. This system can
be utilized as a "stand-alone" system or as part of a network installation. We
consider our DocStar division to be a software business. While, we sell the
hardware in order provide the
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customer with a "turn-key" system, we believe that it is the software employed
in the DocStar system which differentiates us from our competitors.
We believe that the document imaging market will be one of our primary
businesses and a basis for growth during the next few years. This is an evolving
market which is expected to experience significant growth in the future. We
believe that this market can provide us with significant profits. However, there
can be no assurance that our efforts in this market will result in profits,
income or significant revenues to our business.
.....Authentication Services
We organized our subsidiary, Authentidate, Inc., during the fiscal year
ended June 30, 2000 to develop an authentication software product. Authentidate
has developed and released a software product designed to accept and store
electronic files from around the world and from different operating systems via
the Internet and date and time stamps those files with a secure clock to prove
content, date and time authenticity. The service allows users to also send
notarized E-mail. This service will also be utilized for electronic bill
presentment and payment, human resources, online backup and offsite storage
applications. During the fiscal year ended June 30, 2001, we organized
Authentidate Sports Edition, Inc. (a joint venture) to market the Authentidate
technology and services to the sports memorabilia and collectibles industries
and WebCMN, Inc., to develop a service offering designed to assist users to
accurately and efficiently process Certificates of Medical Necessity. We also
established Authentidate, AG during the fiscal year ended June 30, 2000 to
develop and market authentication services in certain foreign jurisdictions.
.....Computer Products and Integration Services
DJS purchases personal computers and peripheral computer products from
many different suppliers. Peripheral computer products are products that operate
in conjunction with computers, including but not limited to, printers, monitors,
scanners, modems and software. A systems integrator, such as DJS, configures
various computer hardware and peripheral products such as software together, to
satisfy a customer's individual needs. We believe the market for personal
computers and computer integration services will continue to grow the next
several years. However, DJS expects to focus on the services aspect of its
business where it expects the most growth and greater profit margins.
.....Networks
DJS also designs and installs network systems which involves network
software being installed on a fileserver computer with less powerful computers
sharing information from the fileserver. Applications that the network system
provides include E-mail, accounting systems, word processing, communication and
any other applications that require the sharing of information. Although
management believes that designing and installing network systems may be an area
of growth for DJS, there can be no assurance that growth in the network market
will be realized.
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.....Internet/Intranet Development
The Internet/Intranet is a computer based communication system, with
international applicability, which provides customers with the ability to
advertise products, provide news and stock market products, provide educational
data bases, as well as one on one and Group Communications. Through DJS, we
provide customer Internet installation services, including installation of web
pages.
AUTHENTIDATE HOLDING CORP.
PRODUCTS
Document Imaging and Management
In January 1996, AHC, on a national level, introduced its document
imaging management system under the tradename DocStar which enables users to
scan paper documents onto an optical disk, hard drive or other storage medium
from which they can be retrieved in seconds. This system allows users to
eliminate or significantly reduce paper filing systems. We believe that a broad
spectrum of businesses and governmental agencies experience the problem of
storage, management and security of paper documents. The DocStar product line is
intended to provide a cost effective method of reducing the space necessary to
store documents while granting a user the ability to instantly retrieve
documents. We believe that ease of use is a key ingredient of the DocStar
software.
The operation of a document management system is similar to the
operation of a facsimile machine. Documents are fed into an optical scanner that
reads the documents and stores the information on one of several alternative
mass storage devices. Documents can also be transmitted from or to the system
via facsimile machine or modem. Documents can be retrieved almost
instantaneously for viewing, printing or faxing thereby offering a significant
time-saving tool to the modern office.
The main components of a document management system are a personal
computer, a high speed electronic document scanner, a laser printer capable of
reproducing documents quickly, and a software package which controls scanning,
indexing, storage and reproduction. We purchase scanners, laser printers and
other essential hardware from unaffiliated third parties and assemble the PC's
for the system. The software utilized in DocStar consists of various versions of
existing software from other developers, as well as software we have developed.
We offer the DocStar System in several models. The DS 035 is the base model.
Other models offer faster advanced processors or scanners, and increased storage
capacity. Options and accessories include a raid unit to store data, CPU
upgrades, additional software and hardware upgrades. The DS300 connects DocStar
electronic imaging capabilities with the network scanning and printing functions
of Canon, Inc.'s digital scanners.
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We market the document management system under the tradename DocStar
through a national dealer network. We own one dealership in the Albany, New York
region, which also serves as a test market for new applications and software.
BACKLOG
We normally ship products within 5 days after receipt of an order and
typically have no more than two weeks of sales in backlog at any time. The
amount of backlog fluctuates but usually is not material.
RESEARCH AND DEVELOPMENT
The market for our products is characterized by rapid technological
change involving the application of a number of advanced technologies, including
those relating to computer hardware and software, mass storage devices, and
other peripheral components. Our ability to be competitive depends upon our
ability to anticipate and effectively react to technological change, as well as
the application requirements of our customers. We believe that software upgrades
and enhancements are keys to our success.
Since inception, we have devoted efforts to research and development
activities in an effort to improve our current software and introduce new
products. Current development efforts are directed toward improving ease of use,
adding system enhancements and increasing performance. Product development
expense for document imaging was $256,466, $291,791 and $248,801 for fiscal
years 2001, 2000 and 1999, respectively. We will continue to improve our
document imaging software in an effort to satisfy the needs of a dynamic
marketplace.
QUALITY CONTROL AND SERVICE
We administer quality control at each of the three levels of the
production process. First, components considered for use in standard systems are
tested for compatibility by the research staff. Second, incoming components
receive a physical damage inspection on receipt and again at the start of the
production process. Each memory module is electronically tested prior to
assembly. Each complete unit is then functionally tested at the end of the
assembly process to demonstrate that all components are engaged and fully
operational.
Third, each complete unit is "burned-in" from eight to twelve hours.
This process involves running a component test program which sequentially tests
each memory bit, processor circuit, and drive memory track to verify correct
operation in a temperature-controlled chamber. This test is repeated
continuously over the burn-in period. Since electronic components have their
greatest failure risk during the first few hours of active operation, management
believes that the burn-in process reveals most faulty components before they
reach the end user.
Our dealers provide service to the end users. All dealers receive
service training from the national service staff. We provide the dealer with
replacement parts free of charge for 13 months
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after date of shipment. Our vendors provide a similar warranty for failed
components. We offer telephone support service to our dealers.
MANUFACTURING AND SUPPLIERS
Our products have been designed to enable a variety of system
configurations to be assembled from a few basic modules. Our manufacturing
operations consist primarily of the assembly, test and quality control of all
parts, components, subassemblies and systems.
We use standard parts and components in our existing product lines
which we purchase from unaffiliated third party suppliers. We do not, however,
have any contractual arrangements with our current suppliers. Although we have
never experienced material delays in deliveries from our suppliers, shortages of
component parts could occur and delay or interrupt our manufacture and delivery
of products and adversely affect our operating results. We believe adequate
alternative suppliers are available to mitigate the potentially adverse effect
of supply interruptions, but there can be no assurance that such components will
be available as and when needed.
All peripheral computer products available through us, such as monitors
and scanner/printer units, are manufactured by third parties. We only assemble
the computer which is part of the DocStar system.
PATENTS AND TRADEMARKS
We have, along with our Authentidate subsidiary, four patents pending
concerning the technology and one patent pending for business processes
underlying the Authentidate product line and have registered the logos "DocStar"
and "Authentidate" as trademarks. No assurance can be given that registration
will be effective to protect our trademarks. We believe our tradenames and
patents are material to our business.
SALES AND MARKETING
Our products are primarily being distributed through a national dealer
network and through a dealership we own in our local market area. We believe
that we have achieved a national sales presence through national advertising,
favorable reviews in industry publications, newspapers, magazines, press
releases and other periodicals utilized by the document imaging industry.
Moreover, we periodically offer direct mail and tele-marketing services to
selected qualified dealers in their market area. Management intends to increase
the number of dealer locations during the current fiscal year, although there
can be no assurance we will be successful in such efforts.
Our products are usually sold on credit terms or through a floor
planning finance company (to qualified accounts), and are warranted against
defects in materials and workmanship for a period of 13 months from purchase. We
currently employ four regional sales directors to cover the significant markets
of the country in addition to a national sales director. No customer or
distributor
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accounted for more than 10% of our total revenue in the fiscal years ended June
30, 1999, 2000 or 2001.
COMPETITION
The market for our products is rapidly changing and highly competitive.
The competition is direct (i.e., companies that make similar products) and
indirect (i.e., companies that participate in the market, but are not our direct
competitors). We compete with major document imaging companies such as Digitech,
Laserfiche and Optika. Many of our current and prospective competitors have
significantly greater financial, technical, manufacturing and marketing
resources, as well as a larger installed base, than us.
EMPLOYEES
We employ 39 full-time employees including our executive officers. No
employees are covered by a collective bargaining agreement, and we believe our
employee relations are satisfactory.
GOVERNMENT REGULATION
Compliance with federal, state, local, and foreign laws enacted for the
protection of the environment has to date had no material effect upon our
capital expenditures, earnings, or competitive position. Although we do not
anticipate any material adverse effects in the future based on the nature of our
operations and the thrust of such laws, no assurance can be given such laws, or
any future laws enacted for the protection of the environment, will not have a
material adverse effect on our business.
AUTHENTIDATE BUSINESS LINES
We established our Authentidate, Inc. subsidiary to engage in a new
business line of providing end users with a service which will (a) accept and
store electronic files from networks and personal computers throughout the world
and from different operating systems via the Internet; (b) time and date stamp
those files using a secure clock; (c) allow users to transmit only the "secure
codes" to Authentidate fileservers while maintaining the original within the
customers "firewall"; and (d) allow users to prove authenticity of time, date
and content of stored electronic documents.
We established Authentidate Sports Edition, Inc., a joint venture
between AHC and an investor with experience in the sports memorabilia industry
during the last fiscal year. Authentidate Sports Edition was created to market
Authentidate services to the sports memorabilia and collectibles industries.
In March, 2000, AHC formed Authentidate International, AG, to develop
the Authentidate Software in foreign languages and to market that product
outside the Americas, Japan, Australia,
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New Zealand and India. This entity is operated as a joint venture between AHC
and a German company. AHC owns 39% of the joint venture.
In March, 2001, AHC formed a subsidiary named WebCMN, Inc. which will
use the Authentidate technology for processing Certificates of Medical Necessity
for the medical equipment supplier industry. Through WebCMN, we intend to
develop a service offering designed to enable users to accurately and
efficiently process Certificates of Medical Necessity, which are required to be
submitted by suppliers of medical devices in order to obtain insurance
reimbursement for such products. The WebCMN service will be based on our
proprietary Authentidate software and is currently in the development stage.
PRODUCTS
The Authentidate product, marketed as the Enterprise Edition, was
released for sale in May, 2001. We contemplate that product integration
development work will be necessary for many applications or customers. We are in
the process of selling this product and expect to record revenue during the
first half of the fiscal year ending June 30, 2002.
RESEARCH AND DEVELOPMENT
The Internet market is characterized by rapid technological change
involving software, hardware and communication technologies. Our ability to be
competitive depends upon our ability to anticipate and effectively react to
technological change on the Internet as well as constantly changing market
conditions for the evolving Internet market place. Current development efforts
are directed to enhancing the current product and integrating this product into
customer applications. We have a policy of capitalizing product development
expenses and amortizing those expenses over the anticipated useful life.
However, because of market uncertainty software development costs related to the
Authentidate Retail Version were fully amortized during the fourth quarter of
the year ended June 30, 2000. We have expensed $1,982,129 and $372,200 as
product development expenses related to our Authentidate technology in the years
ended June 30, 2001 and June 30, 2000, respectively.
DEVELOPMENT AND SUPPLIERS
We initially retained an international consulting firm, Cap Gemini
America, Inc., to develop the current product line. During the previous twelve
months, we have assembled our own research and development staff. We have also
retained AT&T, Inc., to maintain all hardware at an AT&T facility in New York,
New York, from where the Authentidate product line will operate. We believe that
there are sufficient alternative suppliers of these services.
PATENT AND TRADEMARKS
Along with AHC, Authentidate has four patents pending concerning the
technology and one patent pending regarding business processes, underlying the
Authentidate product line and has
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registered the trademark "Authentidate" and has filed a motion with the United
States Patent and Trademark Office to permit it to register the trademark
"Authentigraph." No assurances can be given that the registration will be
effective to protect our trademarks.
SALES AND MARKETING
Authentidate markets the service directly to corporate accounts using a
combination of direct sales and indirect sales. Authentidate also plans to
market the product to application software companies to be included as an "added
feature" in their products using the same sales model as corporate accounts.
Authentidate expects to use a combination of terms, usage fees, flat fees and
license fees.
COMPETITION
This product concept is new and competition is currently limited.
Authentidate may, however, experience competition from much larger Internet and
software companies that have greater financial, technological and marketing
resources than it does.
EMPLOYEES
Currently, Authentidate has 24 employees. None of the employees of
Authentidate are represented by a collective bargaining agreement. Authentidate
believes that its employee relations are satisfactory.
DJS MARKETING GROUP, INC.
DJS (d/b/a "Computer Professionals") is a network and systems
integrator of computer and peripheral products to a variety of customers,
including corporations, schools, government agencies, manufacturers and
distributors. DJS is one of the largest systems integrators in the Albany, New
York region.
DJS provides network integration, Internet/Intranet development,
accounting solutions, service, consultation, document management and video
conferences. DJS also services the products it sells by employing factory
trained computer technicians and network engineers.
PRODUCTS
Network Integration
The DJS network integration group designs, implements, installs,
manages and supports enterprise networks with products from Novell, Microsoft,
UNIX, Tricord, Synoptics, Compaq, Cisco and others.
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DJS designs customized solutions for its clients with precise
objectives and its engineers analyze hardware, software, and cabling to ensure
effective and affordable solutions.
Internet/Intranet Development
DJS offers services related to the Internet, including Internet
connectivity, web page development, and hardware installation. Additionally, DJS
assists its clients through the buying and implementation process with
Internet/Intranet training and ongoing support.
Service and Consultation
DJS's service department is authorized to repair and maintain all major
brand products sold by DJS, including warranty and post-warranty equipment. DJS
generally guarantees a four (4) hour response time for all service calls, with
an average resolution time of next day.
DJS's engineers also provide complete system configuration services,
which includes installation of all hardware, including memory, disk drives,
network or communication adapters, as well as any associated software or driver.
All units are thoroughly tested after configuration and all malfunctioning units
are eliminated.
Document Management
DJS also offers document imaging services which it believes is an
efficient and financially attainable alternative to conventional, costly paper
trails. Management believes digital documents can be stored, searched, retrieved
and edited in a fraction of the time with complete access to the network and
quality control features. Among other product lines, DJS offers customers the
Company's DocStar line.
SALES AND MARKETING
DJS markets its products and services throughout New York State, parts
of Vermont and Massachusetts. DJS intends to expand its national and
international sales and marketing departments. Clients include corporations,
small office/home office owners, schools, government agencies, manufacturers and
distributors.
COMPETITION
DJS is one of the oldest and largest network and systems integrators in
the Capital District of Albany, New York, and works on many diverse platforms.
While management believes that no other computer company in the Albany, New York
region offers the extensive services that DJS offers, competitors in computer
sales, service and support in general, include Computerland,
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Computers Etc., CompUSA, Entex and Ameridata. Some of our competitors may have
significantly greater financial, technical and other resources than us.
EMPLOYEES
DJS has 37 full-time staff members, including three (3) executive
officers. None of the employees of DJS are represented by a collective
bargaining agreement. DJS believes that its employee relations are good.
CAUTIONARY STATEMENTS
As provided for under the Private Securities Litigation Reform Act of
1995, we wish to caution stockholders and investors that the following important
factors, among others discussed throughout this Report on Form 10-K, in some
cases have affected and in some cases could affect our actual results of
operations and cause such results to differ materially from those anticipated in
forward looking statements made herein.
IF WE CONTINUE TO FACE UNCERTAINTIES IN MARKETING OUR AUTHENTIDATE PRODUCT AND
THE DOCSTAR SYSTEM, WE MAY CONTINUE TO LOSE MONEY.
We incurred losses of $9,340,103, $5,274,043 and $3,166,488,
respectively, for our fiscal years ended June 30, 2001, 2000 and 1999. We have
incurred significant costs developing our Authentidate services. We will
continue to incur these costs in the future as we attempt to increase market
awareness and sales. Moreover, our prospects should be considered in light of
the difficulties frequently encountered in connection with the establishment of
a new business line and the competitive environment in which we operate. There
can be no assurance that we will be able to achieve profitable operations in
future operating periods.
WE HAVE LIMITED WORKING CAPITAL AND MAY NEED ADDITIONAL FUNDS TO FINANCE FUTURE
OPERATIONS.
Our capital requirements have been and will continue to be significant.
We have been substantially dependent upon public offerings and private
placements of our securities and on short-term and long-term loans from lending
institutions to fund such requirements. We are expending significant amounts of
capital to promote and market the Authentidate product. Due to these
expenditures, we have incurred significant losses to date. In the future, we may
need additional funds from loans and/or the sale of equity securities to fully
implement our business plans. No assurance can be given that such funds will be
available or, if available, will be on commercially reasonable terms
satisfactory to us. In the event such funds are not available, we will be forced
to reduce our current and proposed operations.
IF OUR PRODUCTS ARE NOT COMPETITIVE, OUR BUSINESS WILL SUFFER.
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AHC and its subsidiaries are engaged in the highly competitive
businesses of manufacturing and distributing document imaging systems, the sale
of Internet products, computer hardware and software as well as technical
support services for such businesses. The document imaging business is
competitive and we compete with major manufacturers. Many of these companies
have substantially more experience, greater sales, as well as greater financial
and distribution resources than do we. The most significant aspects of
competition are the quality of products, including advanced capabilities, and
price. There can be no assurance the Company can effectively continue to compete
in the future.
The Authentidate business is a new business line and the level of
competition is unknown at this point in time. There can be no assurances,
however, that Authentidate products will achieve market acceptance.
Our DJS subsidiary is engaged in the highly competitive business of
systems integration, computer services and computer reselling. DJS competes with
many small and local companies which provide similar technical services to those
offered by DJS. Additionally, DJS must compete with other computer resellers,
many of whom have greater financial and technical resources. There can be no
assurance that DJS will be able to compete successfully with these competitors.
OUR PRODUCTS MAY NOT BE ACCEPTED BY OUR CONSUMERS WHICH WOULD SERIOUSLY HARM OUR
BUSINESS.
Although we introduced our DocStar imaging system products on a
national level in January 1996, demand and market acceptance for the DocStar
imaging system remains subject to a high level of uncertainty. Achieving
widespread acceptance of this product line will continue to require substantial
marketing efforts and the expenditure of significant funds to create brand
recognition and customer demand for such products. There can be no assurance
that adequate marketing arrangements will be made for such products. The
Authentidate product line is a new product line and there can be no assurance
that these products will ever achieve widespread market acceptance or increased
sales or that the sale of such products will be profitable.
IF WE CANNOT CONTINUOUSLY ENHANCE OUR PRODUCTS IN RESPONSE TO RAPID CHANGES IN
THE MARKET, OUR BUSINESS WILL BE HARMED.
The software and computer software industries and Internet services
industry are characterized by extensive research and development efforts which
result in the frequent introduction of new products which render existing
products obsolete. Our ability to compete successfully in the future will depend
in large part on our ability to maintain a technically competent research and
development staff and our ability to adapt to technological changes in the
industry and enhance and improve existing products and successfully develop and
market new products that meet the changing needs of our customers. Although we
are dedicated to continued research and development of our products with a view
towards offering products with the most advanced capabilities, there can be no
assurance that we will be able to continue to develop new products on a regular
basis which will be
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competitive with products offered by other manufacturers. At the present time,
we do not have a targeted level of expenditures for research and development. We
will evaluate all opportunities but believe the majority of our research and
development will be devoted to enhancements of our existing products.
Technological improvements in new products that we and our competitors
offer, which, among other things, results in the rapid decline of the value of
inventories, as well as the general decline in the economy and other factors,
have resulted in recent declines in retail prices for computer products. As
competitive pressures have increased, many companies have ceased operation and
liquidated inventories, further increasing downward pricing pressure. Such
declines have, in the past, and may in the future, reduce our profit margins.
WE DO NOT HAVE PATENTS ON ALL THE TECHNOLOGY WE USE WHICH COULD HARM OUR
COMPETITIVE POSITION.
We do not currently hold any patents and the technology embodied in
some of our current products cannot be patented. We have four patents pending
for the innovative technology underlying the Authentidate business plan that can
verify the authenticity of digital images by employing a secure clock to stamp
the date and time on each image captured and have one patent pending concerning
the associated business process. We have also registered as trademarks the logos
"DocStar" and "Authentidate". We rely on confidentiality agreements with our key
employees to the extent we deem it to be necessary. We further intend to file a
patent application for any new products we may develop, to the extent any
technology included in such products is patentable, if any. There can be no
assurance that any patents in fact, will be issued or that such patents will be
effective to protect our products from duplication by other manufacturers. In
addition, there can be no assurance that any patents that may be issued will be
effective to protect our products from duplication by other developers.
Other companies operating within our business segment may independently
develop substantially equivalent proprietary information or otherwise obtain
access to our know-how. In addition, there can be no assurance that we will be
able to afford the expense of any litigation which may be necessary to enforce
our rights under any patent. Although we believe that the products we sell do
not and will not infringe upon the patents or violate the proprietary rights of
others, it is possible that such infringement or violation has or may occur. In
the event that products we sell are deemed to infringe upon the patents or
proprietary rights of others, we could be required to modify our products or
obtain a license for the manufacture and/or sale of such products. There can be
no assurance that, in such an event, we would be able to do so in a timely
manner, upon acceptable terms and conditions, or at all, and the failure to do
any of the foregoing could have a material adverse effect upon our business.
Moreover, there can be no assurance that we will have the financial or other
resources necessary to enforce or defend a patent infringement or proprietary
rights violation action. In addition, if our products or proposed products are
deemed to infringe upon the patents or proprietary rights of others, we could,
under certain circumstances, become liable for damages, which could also have a
material adverse effect on our business.
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WE DEPEND ON OTHERS FOR COMPONENTS OF OUR PRODUCTS, WHICH MAY RESULT IN DELAYS
AND QUALITY-CONTROL ISSUES.
We do not own or lease any manufacturing facilities and do not
manufacture any of the component parts for our products. Rather, we purchase all
of these components from unaffiliated suppliers. All of our products are
assembled at our facilities. We believe that at the present time we have
sufficient sources of supply of component parts, and that in the event any
existing supplier ceases to furnish component parts to us, alternative sources
are available. However, there can be no assurance that the future production
capacity of our current suppliers and manufacturers will be sufficient to
satisfy our requirements or that alternate suppliers and manufacturers will be
available on commercially reasonable terms, or at all. Further, there can be no
assurance that the availability of such supplies will continue in the future.
IF WE LOSE OUR PRESIDENT, OUR BUSINESS WILL BE HARMED.
Our success is largely dependent upon the services of our Chairman of
the Board and President, John T. Botti. The loss of his services would have a
material adverse affect on our business and prospects. We have entered into a
three-year employment agreement with Mr. Botti expiring in January, 2003. We
have obtained, for our benefit, "key man" life insurance in the amount of
$1,000,000 on Mr. Botti's life.
SINCE WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK, YOU MAY NOT RECEIVE INCOME
FROM AN INVESTMENT IN OUR COMMON STOCK.
We have not paid any dividends on our Common Stock since our inception
and do not contemplate or anticipate paying any dividends on our Common Stock in
the foreseeable future. Earnings, if any, will be used to finance the
development and expansion of our business.
IF OUR COMMON STOCK IS DELISTED FROM NASDAQ, LIQUIDITY IN OUR COMMON STOCK MAY
BE AFFECTED.
Our Common Stock is listed for trading on the Nasdaq National Market.
In order to continue to be listed on Nasdaq, however, we must meet certain
criteria, including one of the following:
- maintaining $4,000,000 in net tangible assets, a minimum bid
price of $1.00 per share and a market value of its public
float of $5,000,000; or
- having a market capitalization of at least $50,000,000, a
minimum bid price of $5.00 per share and a market value of its
public float of $15,000,000.
On June 29, 2001, our closing bid price was $4.43. The dilution to our
shareholders which could be caused by the widespread conversion of the Series B
Preferred Stock could cause the per share value of our common stock to drop
below the minimum bid of $1.00 required for continued
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listing. As of March 31, 2001, we had net tangible assets of approximately
$11,800,000 and as of June 29, 2001 the market value of our public float was
approximately $68,270,677.
If in the future should we fail to meet Nasdaq maintenance criteria,
our Common Stock may be delisted from Nasdaq, and trading, if any, in our
securities would thereafter be conducted in the non-Nasdaq over-the-counter
market. As a result of such delisting, an investor could find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of, our
securities.
Although we anticipate that our Common Stock will continue to be listed
for trading on Nasdaq, if the Common Stock were to become delisted from trading
on Nasdaq and the trading price of the Common Stock were to fall below $5.00 per
share on the date the Common Stock was delisted, trading in such securities
would also be subject to the requirements of certain rules promulgated under the
Exchange Act, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our securities, which could
severely limit the market price and liquidity of such securities and the ability
of purchasers to sell their securities in the secondary market.
OUR SERIES B PREFERRED STOCK FINANCING MAY RESULT IN DILUTION TO OUR COMMON
SHAREHOLDERS.
Dilution of the per share value of our common shares could result from
the conversion of most or all of the Series B Preferred Stock we sold in a
private placement in October 1999. Holders of our Series B Preferred Stock may
convert these shares into shares of our common stock at a conversion price of
$1.875 beginning one year after the issuance of the Series B Preferred Stock.
However, after three years from the closing, the conversion price is subject to
a floating rate equal to the lower of $1.875 or the average of the closing bid
and asked prices of our common stock for the immediately preceding ten
consecutive trading days ending one day prior to the notice of conversion. As of
the date of this Report on Form 10-K, there are 44,000 shares of Series B
Preferred Stock outstanding.
The following chart presents the maximum number of common shares
issuable on conversion of the currently outstanding shares of Series B Preferred
Stock based on different conversion rates. On March 5, 2001, the holder of 2,000
shares of Series B Preferred Stock elected to convert those shares into 26,667
shares of our Common Stock. In August, 2001, the holders of an aggregate of
4,000 shares of the Series B Preferred Stock converted those shares into 53,334
shares of our Common Stock. While we expect to issue a maximum of an additional
586,666 shares of common
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stock upon conversion of the Series B Preferred Stock until October 5, 2002, we
could issue a significantly greater number of common shares upon conversion of
the Series B Preferred Stock after October 5, 2002, when the floating conversion
rate is triggered.
Percentage of Total
Conversion Conversion Maximum Number of Shares of Common Stock
Period Rate Shares of Common Stock Issuable Outstanding
------ ---- ------------------------------- -----------
10/6/2000 - $1.875 586,666 3.6%
10/5/2002
10/6/2002 - $1.875 586,666 3.6%
10/6/2002 - $1.50 733,333 4.5%
10/6/2002 - $1.00 1,100,000 6.8%
10/6/2002 - $0.75 1,466,666 9.1%
Regardless of the date of exercise, dilution could occur from the
widespread conversion of the Series B Preferred Stock. The following scenarios
could result in dilution to our common shareholders:
- In either period, the conversion price could be lower than the
actual trading price on the day of conversion. This could
result in the holder immediately selling all of its converted
common shares, which would have a dilutive effect on the value
of the outstanding common shares.
- After three years, if the average trading price falls below
$1.875, the lower the average trading price, the greater the
number of common shares that a holder of our Series B
Preferred Stock will receive upon conversion. This might
further encourage the holders of the Series B Preferred Stock
to convert their shares into common shares. The increased
number of common shares would further depress the average
trading price of our common stock.
- The significant downward pressure on the trading price of our
common stock as Series B Preferred Stock holders converted
these securities and sell the common shares received on
conversion could encourage short sales by the holders of
Series B Preferred Stock or other shareholders. This would
place further downward pressure on the trading price of our
common stock. Even the mere perception of eventual sales of
common shares issued on the conversion of the Series B
Preferred Stock could lead to a decline in the trading price
of our common stock.
OUR SERIES C PREFERRED STOCK FINANCINGS MAY RESULT IN DILUTION TO OUR COMMON
SHAREHOLDERS.
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Dilution of the per share value of our common shares could result from
the conversion of most or all of the Series C Preferred Stock we sold in two
transactions pursuant to Regulation S to non-U.S. entities in May, 2001. Holders
of our Series C Preferred Stock may convert these shares into shares of our
common stock at a fixed conversion price of $4.845 beginning at the earlier of
one year after the issuance of the Series C Preferred Stock or upon the
effectiveness of a registration statement covering such shares. In addition, the
purchasers in these transactions received warrants to purchase such number of
shares of our common stock as equals 10% of the number of shares issuable upon
conversion of the Series C Preferred Stock, rounded up to the nearest 1,000
shares. The warrants may not be exercised until the earlier of one year from the
date of issuance or upon the effectiveness of a registration statement covering
the Common Stock underlying the warrants. As of the date of this Report on Form
10-K, we issued 5,500 shares of Series C Preferred Stock which are convertible
into an aggregate of 1,135,191 shares of Common Stock and 114,000 warrants.
SINCE THE HOLDER OF OUR OUTSTANDING SERIES A PREFERRED STOCK CONTROL OUR BOARD
OF DIRECTORS, OTHER SHAREHOLDERS MAY NOT BE ABLE TO INFLUENCE OUR DIRECTION.
Our Certificate of Incorporation authorizes our Board of Directors to
issue up to 5,000,000 shares of Preferred Stock, from time to time, in one or
more series. The Board of Directors is authorized, without further approval of
the stockholders, to fix the dividend rights and terms, conversion rights,
voting rights, redemption rights and terms, liquidation preferences, and any
other rights, preferences, privileges and restrictions applicable to each new
series of Preferred Stock. We previously established 200 shares of Series A
Preferred Stock which are owned by John Botti and Ira Whitman, our founders and
officers. Currently there are only 100 shares of Series A Preferred Stock
outstanding, all of which are owned by Mr. Botti. The Series A Preferred Stock
entitles the holders to elect a majority of the Board of Directors. The
existence of such stock could adversely affect the voting power of the holders
of Common Stock and, under certain circumstances, make it more difficult for a
third party to gain control of us, discourage bids for the Common Stock at a
premium, or otherwise adversely affect the market price of the Common Stock. In
connection with our recent sale of Series C Preferred Stock, the holder of the
Series A Preferred Stock agreed not to exercise these rights unless we are
current in meeting our dividend obligations and the shares of Common Stock
issuable upon conversion or payable as dividends are not restricted from public
distribution in the United States. There are currently outstanding 5,500 shares
of our Series C Preferred Stock. In addition, we issued 50,000 shares of our
Series B Preferred Stock in our October, 1999 private offering, of which 44,000
shares are currently outstanding.
WE HAVE SOLD RESTRICTED SHARES WHICH MAY DEPRESS OUR STOCK PRICE WHEN IT IS
SELLABLE UNDER RULE 144.
Approximately 2,524,818 shares of Common Stock currently outstanding
may be deemed "restricted securities" as that term is defined under the
Securities Act of 1933 (the "Act"), and in the future, may be sold pursuant to a
registration under the Act, in compliance with Rule 144 under the Act, or
pursuant to another exemption therefrom. Rule 144 provides, that, in general, a
person holding restricted securities for a period of one year may, every three
months thereafter, sell in
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brokerage transactions an amount of shares which does not exceed the greater of
one percent of our then outstanding Common Stock or the average weekly trading
volume of the Common Stock during the four calendar weeks prior to such sale.
Rule 144 also permits, under certain circumstances, the sale of shares without
any quantity limitations by a person who is not an affiliate of ours and was not
an affiliate at any time during the 90 day period prior to sale and who has
satisfied a two year holding period. Sales of our Common Stock by certain
present stockholders under Rule 144 may, in the future, have a depressive effect
on the market price of our securities. In addition, the sale of shares by
officers and directors and other affiliated shareholders, may also have a
depressive effect on the market for our securities.
OUR OUTSTANDING OPTIONS AND WARRANTS MAY DEPRESS OUR STOCK PRICE.
As of June 30, 2001, there were outstanding stock options to purchase
an aggregate of 4,324,705 shares of Common Stock at exercise prices ranging from
$0.84 to $11.25 per share, not all of which are immediately exercisable. As of
June 30, 2001, there were outstanding immediately exercisable warrants to
purchase an aggregate of 2,908,450 shares of Common Stock at exercise prices
ranging from $1.37 to $13.04 per share. In addition, there are currently
outstanding 44,000 shares of our Series B Preferred Stock, which are currently
convertible into an aggregate of 586,666 Shares of Common Stock and 5,500 shares
of our Series C Preferred Stock, which is convertible into an aggregate of
1,135,191 shares of Common Stock. To the extent that outstanding stock options
and warrants are exercised or the Series B and Series C Preferred Stock is
converted, dilution to our shareholders will occur. Moreover, the terms upon
which we will be able to obtain additional equity capital may be adversely
affected, since the holders of the outstanding options and warrants can be
expected to exercise or convert them at a time when we would, in all likelihood,
be able to obtain any needed capital on terms more favorable to us than the
exercise and conversion terms provided by the outstanding options, warrants and
preferred stock.
IF WE CANNOT OFFSET FUTURE TAXABLE INCOME OUR TAX LIABILITIES WILL INCREASE.
At June 30, 2001, the date of our most recent fiscal year end, we had
net operating loss carryforwards ("NOLS") for federal income tax purposes of
approximately $28,100,000 available to offset future taxable income. Under
Section 382 of the Internal Revenue Code of 1986, as amended, utilization of
prior NOLS is limited after an ownership change, as defined in Section 382, to
an annual amount equal to the value of the corporation's outstanding stock
immediately before the date of the ownership change multiplied by the federal
long-term exempt tax rate. Use of our NOLS could also be limited as a result of
grants of stock options under stock option plans and other events. In the event
we achieve profitable operations, any significant limitation on the utilization
of NOLS would have the effect of increasing our current tax liability.
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ITEM 2. DESCRIPTION OF PROPERTIES
Our executive offices and production facilities are located at 2165
Technology Drive, Schenectady, New York 12308. We own the 26,000 square foot
building, subject to a mortgage in the amount of $1,350,000.
A New York State agency awarded us a $1,000,000 grant to build this
facility. The grant includes several requirements concerning our business and
the number of individuals employed. If these requirements are not fulfilled, we
will be required to repay all or a portion of the grant to New York State.
The executive offices of our Authentidate subsidiary are located at 2
World Financial Center, 43rd Floor, New York, New York 10281. Authentidate
leases approximately 5,870 square feet pursuant to an underlease entered into in
October, 2000. The lease term expires on March 29, 2006. Authentidate pays an
annual rent of $278,825 for the first 33 months of the lease term and will pay
an annual rent of $308,175 for the balance of the lease term. Due to the events
of September 11, 2001, the office space is not currently tenantable.
Authentidate is in the process of relocating to alternative offices. The
Authentidate Web hosting site is maintained by AT&T and was not affected by
these events and remains fully operational and generating revenue.
ITEM 3. LEGAL PROCEEDINGS
We are the defendant in a third party complaint filed by Shore Venture
Group, LLC in Federal District Court in Pennsylvania. Shore Venture is the
defendant in an action commenced by Berwyn Capital. The third party complaint
alleges a claim for breach of contract and seeks indemnification. We moved to
dismiss the third party complaint and the motion is currently pending before the
Court. Management believes that the claim will not have a material adverse
impact on our financial condition, results of operations, or cash flows.
We have also been advised of a claim by Shore Venture Group concerning
additional shares of the Common Stock of our subsidiary, Authentidate, Inc. We
are conducting settlement negotiations with Shore Venture and believe that the
claim will not have a material adverse impact on our financial condition,
results of operations, or cash flows.
We are engaged in no other litigation the effect of which would be
anticipated to have a material adverse impact on our financial condition,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Upon the effectiveness of our public offering on May 13, 1992, our
Common Stock commenced trading in the over-the-counter market and was listed on
the SmallCap Market of the Nasdaq Stock Market ("NASDAQ") under the symbol
"BTWS." On August 11, 1994, the Common Stock commenced trading on the Boston
Stock Exchange under the symbol BTW. On June 25, 1996, we withdrew our listing
on the Boston Stock Exchange. On April 24, 1996, our Common Stock commenced
trading on the Pacific Stock Exchange. In April, 2000 we commenced trading on
the National Market of the NASDAQ. On February 2, 2001, we withdrew our listing
on the Pacific Stock Exchange. Our Common Stock currently trades under the
symbol "ADAT."
The following is the range of high and low closing prices for our
Common Stock on the Nasdaq National Market for the periods indicated below:
High Low
---- ---
Common Stock
Fiscal Year 2001
1st Quarter....................................................................... $6.688 $3.875
2nd Quarter....................................................................... $6.0625 $3.25
3rd Quarter....................................................................... $5.375 $2.938
4th Quarter....................................................................... $6.31 $3.93
Fiscal Year 2000
1st Quarter....................................................................... $1.46875 $.875
2nd Quarter....................................................................... $19.875 $1.125
3rd Quarter....................................................................... $18.25 $11.25
4th Quarter....................................................................... $13.6875 $5.875
Fiscal Year 1999
1st Quarter....................................................................... $1.50 $0.875
2nd Quarter....................................................................... $1.875 $0.4941
3rd Quarter....................................................................... $1.625 $0.875
4th Quarter....................................................................... $1.50 $0.9375
The above quotations represent prices between dealers and do not
include retail mark-ups, mark-downs, or commissions, and do not necessarily
represent actual transactions.
As of September 20, 2001, there were approximately 409 holders of
record of our Common Stock. We believe there are more than 500 beneficial
holders of our Common Stock.
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DIVIDEND POLICY
We have not paid any dividends upon our Common Stock since our
inception. We do not expect to pay any dividends upon our Common Stock in the
foreseeable future and plan to retain earnings, if any, to finance the
development and expansion of our business. Further, our Certificate of
Incorporation authorizes our Board of Directors to issue Preferred Stock with a
preferential right to dividends. We are obligated to pay dividends on certain of
our outstanding shares of preferred stock as follows:
- 44,000 shares of our Series B Preferred Stock which have the right to
receive dividends equal to an annual rate of 10% of the issue price
payable on a semi-annual basis; and
- 5,500 shares of our Series C Preferred Stock which have the right to
receive dividends equal to 4% of the issue price on an annual basis
payable in either cash or shares of our Common Stock, at our
discretion.
SALES OF UNREGISTERED SECURITIES
At the annual meeting of shareholders held on March 23, 2001, our
shareholders approved our proposal to acquire the outstanding minority interests
of our Authentidate, Inc. subsidiary in exchange for securities of our company
on a 1.5249:1 basis. This proposal was also recommended to our shareholders in
connection with the decision of our Board of Directors to focus on our
Authentidate business line. As of the date of this Form 10-K, security holders
owning an aggregate of 601,750 shares of Common Stock and an aggregate of
616,623 options and warrants of Authentidate, Inc. have accepted the exchange
offer and we have issued an aggregate of 917,608 shares of our Common Stock and
940,289 options and warrants to these security holders. The transactions
pursuant to which the securities were issued were exempt from registration under
the Section 4(2) of the Securities Act of 1933, as amended.
In May, 2001 we consummated two financings under Regulation S, which
resulted in our receipt of an aggregate of $5,500,000 in gross proceeds. In
these transactions we sold a total of 5,500 shares of our newly created Series C
Convertible Preferred Stock and warrants to purchase 114,000 shares of our
Common Stock. The Series C Preferred Stock is convertible into Common Stock at a
conversion price of $4.845 per share and the warrants are exercisable at $4.845
per share for a period of five years from the date of issuance. The conversion
price is not subject to any resets or adjustment for changes in the market price
of our Common Stock. The Series C Preferred Stock also pays an annual 4%
dividend, payable in cash or stock at our election, until conversion or
redemption. We initially reported these financings on our Form 10-Q for the
quarter ended March 31, 2001 and additional information regarding these
transactions is located elsewhere in this Form 10-K under the headings
"Description of Business - General Business Developments During the Previous
Fiscal Year" and "Management's Discussion and Analysis - Liquidity and Capital
Resources."
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We received approximately an aggregate of $5,200,000 in net proceeds
after payment of commissions and expenses. The proceeds of these transactions
will be used to increase the business development, marketing and sales efforts
for the Authentidate services, along with general working capital needs of the
Company.
The transactions were completed under Regulation S of the Securities
Act of 1933, as amended, and the securities sold in the offering are deemed
restricted securities under Regulation S. Accordingly these securities may not
be sold or transferred in the United States for a period of one year, except
pursuant to registration under the Securities Act or an exemption therefrom. We
have agreed to register for resale the shares of Common Stock which may be:
- issued upon the conversion of the Series C Preferred Stock;
- paid as dividends on the Series C Preferred Stock; and
- issued upon the exercise of the warrants.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements, including the related notes, and
"Managements' Discussion and Analysis of Financial Condition and Results of
Operations."
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
DATA:
Net Sales $ 17,860,544 $ 15,289,738 $ 17,094,765 $ 33,755,625 $ 53,109,469
Gross Profit 4,710,743 3,365,157 5,615,468 8,092,566 10,006,736
Net (Loss)/Net Income (9,340,103) (5,274,043) (3,166,488) (5,464,059) (2,143,159)
Basic and Diluted
Net(Loss)/Net Income
Per Common Share (0.63) (0.49) (0.43) (0.74) (0.30)
BALANCE SHEET DATA:
Current Assets 13,524,429 15,232,894 9,857,681 12,138,995 13,622,171
Current Liabilities 4,004,905 1,809,264 6,225,966 4,789,896 7,730,498
Working Capital 9,519,524 13,423,630 3,631,715 7,349,099 5,891,673
Total Assets 25,867,905 21,128,335 14,484,984 14,708,454 18,924,765
Total Long Term Liabilities 2,325,168 2,351,253 5,327,901(1) 3,975,000(2) 1,297
Stockholders' Equity 19,537,832 16,967,818 3,335,705 6,478,226 11,192,970
--------------------
(1) Long-term liabilities excluding discount of $404,588.
(2) Long-term liabilities excluding discount of $534,668.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW
We are involved in the development of security software technology,
document imaging products and systems integration services and products. Our
products include DocStar document imaging products, the Authentidate Enterprise
Edition and system integration services and products through our DJS subsidiary.
Revenues during the current fiscal have been primarily derived from systems
integration services and products and sales of our document imaging products.
In March 1996, we acquired DJS, a system integrator, and computer
reseller in Albany, New York. DJS is an authorized sales and support provider
for Novell, Microsoft Solutions and Lotus Notes. We established our Authentidate
subsidiary during the fiscal year ended June 30, 2000 to engage in the business
of providing end users with a service providing for the storage, confirmation
and authentication of electronic data and images. The Authentidate product was
released for sale in May, 2001. We contemplate that product integration
development work will be necessary for each application or customer. We are in
the process of selling this product and expect to record revenue during the
first half of the fiscal year ending June 30, 2002.
During our most recent fiscal year, we established Authentidate Sports
Edition, Inc., to develop an application of our Authentidate technology to the
field of signature authentication relating to sports memorabilia and
entertainment collectibles. We also organized WebCMN, Inc. during the fiscal
year ended June 30, 2001 in order to develop a business model to apply the
Authentidate technology to the medical supply business relating to the
automation and processing of Certificates of Medical Necessity.
We held our annual meeting of shareholders on March 23, 2001. At the
meeting our shareholders approved the proposal to change our name from Bitwise
Designs, Inc. to Authentidate Holding Corp. This name change was recommended by
our Board of Directors in connection with the Board's decision to focus on
developing our Authentidate business line. The name change became effective
March 23, 2001 and our trading symbol on the Nasdaq National Market was changed
from BTWS to ADAT on March 28, 2001.
At the annual meeting, our shareholders also approved the proposal to
acquire the outstanding minority interests of our Authentidate, Inc. subsidiary
in exchange for securities of our company on a 1.5249:1 basis. This proposal was
also recommended to our shareholders in connection with the decision of our
Board of Directors to focus on our Authentidate business line.
The following analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and notes contained elsewhere in this Form 10-K.
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RESULTS OF OPERATIONS
Fiscal Year 2001 Compared to Fiscal Year 2000
We realized a consolidated net loss of $9,340,103 ($.63 per share) and
$5,274,043 ($.49 per share) for the fiscal years ended June 30, 2001 and 2000,
respectively. Consolidated net sales totaled $17,860,544 and $15,289,738 for the
fiscal years ended June 30, 2001 and 2000, respectively.
The sales increase is due to an increase in sales from our DJS
Marketing, Inc. (DJS) subsidiary where sales increased by 20% from $9,699,764 to
$11,620,407. The sales increase is also due to improved sales in the DocStar
Division where sales increased 12% from $5,589,830 to $6,239,579. The
Authentidate subsidiary has not recognized significant sales through June 2001.
The consolidated net loss increase is mainly attributable to losses
incurred by our Authentidate subsidiary. Please see footnote 16, "Segment
Reporting" in the consolidated financial statements. The segment profit for DJS
improved from $231,357 to $385,283 and the segment loss for DocStar decreased
significantly from $1,177,239 to $295,680. The Authentidate subsidiary incurred
significant selling, general and administrative expenses in the process of
building a team of experienced managers and professionals. Major expenses
include compensation and benefits, professional fees, public relations,
amortization, rent, advertising and marketing. Authentidate expects to start
generating revenue during the first half of the fiscal year ending June 30,
2002. Corporate expenses also increased mainly due to non cash compensation
expenses resulting from the conversion of Authentidate, Inc. common shares into
Authentidate Holding Corp. common shares.
Consolidated gross profit for the fiscal years ending June 30 ,2001 and
2000 was $4,710,743 and $3,365,157, respectively. This increase is due to the
sales increase of DocStar and DJS discussed above. The consolidated profit
margin was 26% and 22% for the years ending June 30, 2001 and 2000,
respectively. Gross profit margin is defined as gross profit as a percentage of
sales. The increase in gross profit margin is due to DocStar which realized a
gross profit margin of 39% for the current fiscal year compared to 26% last
year. The increase is due to sales volume increases, cost reductions and fewer
sales discounts compared to 2000.
Selling, general and administrative expenses (S,G&A) consist of all
other of our expenses except product development expenses and interest. S,G&A
expenses amounted to $11,950,719 and $8,016,192 for the twelve months ended June
30, 2001 and 2000, respectively. The increase is mainly due to Authentidate
which has been building a staff for several months and incurred significant
payroll, consulting, selling and advertising expenses. DJS S,G&A expenses
increased during the same period as selling expenses increased as a result of an
increase in sales. DocStar S,G&A expenses remained about the same. The parent
company also incurred a corporate non-cash expense of $862,934 for stock
compensation expense as a result of the stock conversion to Authentidate Holding
Corp. As a percentage of sales, S,G&A costs were 67% and 52% for the years ended
June 30, 2001 and 2000, respectively.
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Interest expense was $124,816 and $299,994 for the years ended June 30,
2001 and 2000, respectively. The decrease is due to the conversion of
convertible debt to common stock and the payoff of our line of credit during the
prior fiscal year.
Product development expenses, excluding capitalized costs and including
amortization of capitalized costs, relate to software development for
Authentidate and for DocStar. These costs totaled $2,255,284 and $665,533 for
the years ended June 30, 2001 and 2000, respectively. The increase is due to
product development of the Authentidate software product. We have a policy of
capitalizing qualified software development costs after technical feasibility
has been established and amortizing those costs over three years as product
development expense.
Fiscal Year 2000 Compared to Fiscal Year 1999
We realized a consolidated net loss of $5,274,043 ($.49 per share)
compared to a consolidated net loss of $3,166,488 ($.43 per share) for the
fiscal years ended June 30, 2000 and 1999, respectively. Consolidated net sales
totaled $15,289,738 and $17,094,765 for the fiscal years ended June 30, 2000 and
1999, respectively.
The consolidated sales decrease is due to a decrease in sales of the
DocStar product line for the year ended June 30, 2000 to $5,589,830, compared to
$7,674,451 for the year ended June 30, 1999. Sales for DJS increased from
$9,536,994 for the fiscal year ended June 30, 1999 to $9,949,707 for the fiscal
year ended June 30, 2000.
Our net loss increase is due to losses incurred by our new subsidiary,
Authentidate, Inc., which incurred significant development, marketing and
start-up costs. Even though the sales of the DocStar product line decreased, our
operating loss decreased substantially, as we instituted cost cutting measures
in an effort to reduce the breakeven point. DJS operating profits decreased
slightly due to competitive pressures.
Consolidated gross profit for the fiscal years ended June 30, 2000 and
1999 was $3,365,157 and $5,615,468 respectively. This reduction is due to the
reduction in DocStar sales. The consolidated profit margin was 22.0% and 32.8%
for the fiscal years ended June 30, 2000 and 1999, respectively. Gross profit
margin is defined as gross profit as a percentage of sales. The decrease in
gross profit margin is due to decreases in DocStar sales and competitive
pressures.
Selling, general and administrative expenses (S,G&A) consist of all
other of our expenses except product development costs and interest. S,G&A
expenses amounted to $8,016,192 and $7,765,234 for the fiscal years ended June
30, 2000 and 1999, respectively. S,G&A expenses increased as a result of
Authentidate marketing and general start-up costs.
As a percentage of sales, S,G&A costs increased from 45.4% in 1999 to
52.4% in 2000 as a result of Authentidate's S,G&A expenditures.
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Interest expense totaled $299,994 and $630,396 for fiscal years ended
June 30, 2000 and 1999, respectively. The decrease is due to the conversion of
long-term debt to equity and the payoff of our line of credit. Interest rates
increased during the fiscal year ended June 30, 2000 compared to the prior year.
Product development expenses, excluding capitalized costs and including
amortization of capitalized costs relate to software development for the
DocStar, Authentidate and Authentigraph product lines. These costs increased
from $248,801 to $665,533 for the fiscal years ended June 30, 1999 and 2000,
respectively. We have a policy of capitalizing qualified software development
costs and amortizing those costs over three years as product development
expense.
Fourth Quarter Adjustments
During the fourth quarter of 1999, we recorded an adjustment increasing
our net loss for sales made with the right of return by approximately $1,350,000
for which income will not be recognized until sale of the product by the
customer. Additionally, a reserve of approximately $186,000 was recorded for
claims arising from the sale of SST.
Fiscal Year 1999 Compared to Fiscal Year 1998
We realized a consolidated net loss of $3,166,488 ($.43 per share)
compared to a consolidated net loss of $5,464,059 ($.74 per share) for the
fiscal years ended June 30, 1999 and 1998, respectively. Consolidated net sales
totaled $17,094,765 and $33,755,625 for the fiscal years ended June 30, 1999 and
1998, respectively.
The consolidated sales decrease is due to the sale of one of our
subsidiaries, System Solutions Technology, Inc. (SST) in June 1998 and
reductions in DocStar sales. SST had sales of $13,915,029 for the fiscal year
ended June 30, 1998. Our sales of the DocStar product line were $7,674,451 and
$9,002,203 for fiscal years ended June 30, 1999 and 1998, respectively. In
addition, We had returnable sales of $3,829,052 which were not recognized as
sales. These returnable sales will be recognized when the customers accept the
sales as final. Our subsidiary DJS Marketing Group, Inc. (DJS) sales were
$9,536,994 and $11,219,497 for the fiscal years ended June 30, 1999 and 1998,
respectively.
Our net loss improvement was due to a combination of a reduction in our
operating costs and increase in profits from DJS. DJS realized a reduction in
sales, however profits increased due to an increase in gross profit margins as
DJS shifted its business from hardware sales to a business model that produced
more service revenue such as network and Internet services in addition to
hardware sales. DJS was also able to reduce operating costs.
Consolidated gross profit for the fiscal years ended June 30, 1999 and
1998 was $5,615,468 and $8,092,566, respectively. This reduction is mainly due
to the sale of SST in June 1998. The consolidated profit margin was 32.8% and
24.0% for the fiscal years ended June 30, 1999 and 1998, respectively. Gross
profit margin is defined as gross profit as a percentage of sales. The increase
in
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gross profit margin is due to the sale of SST. AHC and our DocStar product have
significantly higher gross profit margins than products and services provided by
both SST and DJS.
Selling, general and administrative expenses (S,G&A) consist of all
other of our expenses except product development costs and interest. S,G&A
expenses amounted to $7,765,234 and $12,251,515 for the fiscal years ended June
30, 1999 and 1998, respectively. S,G&A expenses decreased as a result of the
sale of SST, which incurred S,G&A expenses of $2,891,409 for the fiscal year
ended June 30, 1998. The remainder of the decrease is due to cost cutting by AHC
and DJS.
As a percentage of sales, S,G&A costs increased from 36.3% in 1998 to
45.4% in 1999. This increase is due to the sale of SST. We historically have had
higher S,G&A expenses than any of the subsidiary companies because of our
organization structure which includes sales, training and service personnel
stationed around the country to serve the national dealer network. This has
resulted in high payroll and travel and living expenses. In addition, we incur
significant advertising and marketing costs to market DocStar nationally. The
subsidiaries typically sell in a localized area and only employ personnel in
their local region and incur minimal advertising and marketing costs.
Interest expense totaled $630,396 and $939,595 for fiscal years ended
June 30, 1999 and 1998, respectively. The decrease is due to the sale of SST
which incurred $202,198 of interest expense during the fiscal year ended June
30, 1998. The decrease was also due to lower borrowing levels for DJS offset by
higher borrowing levels for AHC. Interest rates decreased during the fiscal year
ended June 30, 1999 compared to the prior year.
Product development expenses, excluding capitalized costs and including
amortization of capitalized costs relate to software development for the DocStar
product line incurred by AHC. These costs increased from $230,652 to $248,801
for the fiscal years ended June 30, 1998 and 1999, respectively. We have a
policy of capitalizing qualified software development costs and amortizing those
costs over three years as product development expense.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds to date have been the issuance of equity
and the incurrence of third party debt. The principal balance of all long-term
debt at June 30, 2001 totaled $1,350,441 all of which relates to a mortgage loan
on our principle office located in Schenectady, New York.
Our DJS subsidiary used a wholesale inventory line of credit during the
year to fund inventory purchases. This line was terminated by the lender and DJS
paid it off in full prior to June 30, 2001. DJS has secured additional credit
limits from its vendors and is not expected to be affected by the elimination of
this wholesale inventory facility which had a limit of $625,000.
Property, plant and equipment expenditures totaled $893,181 and
capitalized software development expenditures totaled $2,764,678 for the twelve
months ended June 30, 2001. There are no significant purchase commitments
outstanding.
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We previously disclosed in our Supplement to the Proxy Statement dated
March 13, 2001, that we received notice of a potential claim from a minority
shareholder of Authentidate, Inc. relative to the conversion of Authentidate,
Inc. stock into Authentidate Holding Corp. stock. We dispute these claims and
will vigorously oppose them and we will assert various counter-claims in any
such action. However, in the event that we are unsuccessful in any proceeding
commenced to adjudicate this issue, then we may be required to issue additional
shares of our common stock and may record a non-cash expense, the amount of
which cannot be presently estimated.
Our cash balance at June 30, 2001 was $9,040,466 and total assets were
$25,867,905. We believe existing cash and short-term investments should be
sufficient to meet our operating requirements for the next twelve months.
However, we intend to spend significant effort and resources (monetary and
otherwise) to expand the Authentidate business and may seek to obtain additional
equity financing to accelerate that expansion.
At our annual meeting of shareholders, held on March 23, 2001, our
shareholders approved a proposal to acquire the outstanding minority interests
of our Authentidate, Inc. subsidiary in exchange for securities of our company
on a 1.5249:1 basis. This proposal was also recommended to our shareholders in
connection with the decision of our Board of Directors to focus on our
Authentidate business line. Security holders owning an aggregate of 601,750
shares of Common Stock and an aggregate of 616,623 options and warrants of
Authentidate, Inc. have accepted the exchange offer and we have issued an
aggregate of 917,608 shares of our Common Stock and 940,289 options and warrants
to these security holders.
In May, 2001 we consummated two financings under Regulation S, which
resulted in our receipt of an aggregate of $5,500,000 in gross proceeds. In
these transactions we sold a total of 5,500 shares of our newly created Series C
Convertible Preferred Stock and warrants to purchase 114,000 shares of our
Common Stock. The Series C Preferred Stock is convertible into Common Stock at a
conversion price of $4.845 per share and the warrants are exercisable at $4.845
per share for a period of five years from the date of issuance. The conversion
price is not subject to any resets or adjustment for changes in the market price
of our Common Stock. The Series C Preferred Stock also pays an annual 4%
dividend, payable in cash or stock at our election, until conversion or
redemption.
We received approximately an aggregate of $5,200,000 in net proceeds
after payment of commissions and expenses. The proceeds of these transactions
will be used to increase the business development, marketing and sales efforts
for the Authentidate services, along with general working capital needs of the
Company.
The transactions were completed under Regulation S of the Securities
Act of 1933, as amended, and the securities sold in the offering are deemed
restricted securities under Regulation S. Accordingly these securities may not
be sold or transferred in the United States for a period of one year, except
pursuant to registration under the Securities Act or an exemption therefrom. We
have agreed to register for resale, within 180 days from the closing, the shares
of Common Stock which may be:
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- issued upon the conversion of the Series C Preferred Stock;
- paid as dividends on the Series C Preferred Stock; and
- issued upon the exercise of the warrants.
In October and November 1999, we Company completed three private equity
offerings for approximately $2,100,000 (approximately $1,900,000 after
expenses). The investment was structured as follows. In the first offering we
sold 740,000 units for $740,000, each unit consisting of two shares of common
stock and two Series B Common Stock Purchase Warrants. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of $1.375 for
five years.
In the second offering we sold 50,000 shares of Series B Convertible
Cumulative Preferred Stock for $1,250,000. Dividends on the Series B Preferred
Shares are payable at the rate of 10% per annum, semi-annually. Each of the
shares of the Series B Preferred Stock is convertible into such number of shares
of our common stock as shall equal $25 divided by the conversion price of $1.875
per shares, subject to adjustment in certain circumstances.
In November 1999, we completed the third offering by selling a 20%
interest for $100,000 in its new subsidiary, Authentidate, Inc. In addition, we
issued to the purchasers 999,999 Series C Common Stock Purchase Warrants. The
Series C Warrants are divided into three classes of 333,333 warrants per class
which have varying exercise prices, starting at $1.50 per common share and
increasing over time to $3.75 after the effectiveness of a registration
statement covering the underlying shares, subject to adjustment for stock splits
and corporate reorganizations. The registration statement was declared effective
by the Commission on February 14, 2000.
In March 2000, Authentidate formed a joint venture known as
Authentidate International Holdings, AG, with a German company, Windhorst New
Technologies, Agi.G.,to market Authentidate in countries outside of the
Americas, Japan, Australia, New Zealand and India. Authentidate retained the
rights to market the service in these territories. We invested DM 250,000, which
is equal to approximately $124,000 and also granted a license of the
Authentidate technology to the joint venture vehicle. Additionally, we issued
250,000 Common Stock Purchase Warrants to Windhorst in connection with the joint
venture. Windhorst contributed DM 3,000,000 to the joint venture. Authentidate,
Inc. owns 39% of the joint venture and Windhorst owns 60% of the joint venture.
The joint venture will be accounted for under the equity method of accounting by
Authentidate.
EFFECTS OF INFLATION AND CHANGING PRICES
The impact of general inflation on our operations has not been
significant to date and we believe inflation will continue to have an
insignificant impact on us. However, price deflation in the major categories of
components we purchase has been substantial and is anticipated to continue
through fiscal 2001. Typically, new components such as new generations of
microprocessors and new optical disk drive technologies etc. are introduced at
premium prices, by its vendors. During this period, we earn lower margins on our
products. As the life cycle progresses competitive
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pressures could force vendor prices down and thus improve our profit margins. We
do not believe that competitive pressures will require us to lower our DocStar
selling price. Because much of DJS's business is service-related, price
deflation has less of an impact on DJS's profits.
NEW ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues clarifies the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 was effective July 1,
2000, but certain conclusions in FIN 44 cover specific events that occurred
after either December 15, 1998 or January 12, 2000. We have applied the
applicable provisions of FIN 44, which did not have a material effect on our
financial condition, results of operations or cash flows.
On June 29, 2001, Statement of Financial Accounting Standards (SFAS)
No. 141, "Business Combinations," was approved by the Financial Accounting
Standards Board (FASB). SFAS No. 141 requires the purchase method of accounting
to be used for all business combinations initiated after June 30, 2001. We do
not expect the adoption of this Standard to have a material effect on our
financial condition, results of operations or cash flows.
One June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was approved by the FASB. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. We plan to adopt SFAS No. 142 effective July 1,
2001. We are currently assessing, but have not yet determined the entire impact
of SFAS 142 on our financial position, results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that any of our financial instruments have
significant risk associated with market sensitivity. We are not exposed to
financial market risks from changes in foreign currency exchange rates and are
only minimally impacted by changes in interest rates. However, in the future, we
may enter into transactions denominated in non-U.S. currencies or increase the
level of our borrowings, which could increase our exposure to these market
risks. We have not used, and currently do not contemplate using, any derivative
financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements and Supplementary Data Schedule are annexed
hereto.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
Our executive officers and directors are as follows:
NAME AGE OFFICE
---- --- ------
John T. Botti 38 President, Chief Executive Officer and Chairman of
the Board
Robert Van Naarden 54 Director and Chief Executive Officer of Authentidate,
Inc.
Ira C. Whitman 38 Senior Vice-President--Research and Development,
Secretary and Director
Steven A. Kriegsman 58 Director
J. Edward Sheridan 64 Director
Charles C. Johnston 65 Director
Dennis H. Bunt 47 Chief Financial Officer
Thomas Franceski 37 Vice President, Technology Products Group and
President, DJS Marketing and DocStar division.
All directors hold office until the next annual meeting of shareholders
or until their successors are elected and qualify. Officers are elected annually
by, and serve at the discretion of, the Board of Directors. There are no
familial relationships between or among any of our officers or directors.
In connection with our private placement through Whale Securities Co.,
L.P. ("Whale"), completed in December 1995, we granted Whale the right to
nominate one person to our Board of Directors, or in the alternative, a person
to attend meetings of the Board of Directors. Whale has selected Steven
Kriegsman as its representative on the Board.
John T. Botti, a co-founder, has served as President, Chief Executive
Officer and Director since our incorporation in August 1985. Mr. Botti graduated
from Rensselaer Polytechnic Institute ("RPI") with a B.S. degree in electrical
engineering in 1994 with a concentration in computer systems design and in 1996
earned a Master of Business Administration degree from RPI.
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Robert Van Naarden joined AHC in July 2000. Mr. Van Naarden has more
than 34 years experience in general management, marketing, sales and engineering
with computer related companies. Most recently he was Vice President of Sales,
Marketing, Business Development and Professional Services with Sensar, Inc. He
has also held senior positions with Netframe, Firepower Systems, Supermac
Technology and Digital. Mr. Van Naarden was also a founder of Stardent and
Convergent Technologies. He has a M.S. in Electrical Engineering from
Northeastern University and a B.S. in Physics from the University of Pittsburgh.
Ira C. Whitman, a co-founder, is Senior Vice-President of Research and
Development and a Director of AHC since our incorporation in August 1985. Mr.
Whitman graduated from RPI in 1984 with a B.S. in Computer and Systems
Engineering and in 1990 he earned a Masters in Engineering from RPI.
J. Edward Sheridan joined the Board of Directors in June, 1992. From
1985 to the present, Mr. Sheridan served as the President of Sheridan Management
Corp. From 1975 to 1985, Mr. Sheridan served as the Vice President of Finance
and Chief Financial Officer of AMF. From 1973 to 1975, he was Vice President and
Chief Financial Officer of Fairchild Industries. From 1970 to 1973 he was the
Vice President, Corporate Finance of F.S. Smithers. From 1967 to 1970 Mr.
Sheridan was the Director of Acquisitions of Westinghouse Electric. From 1964 to
1967 he was employed by Corporate Equities, Inc., a venture capital firm, Mr.
Sheridan holds an M.B.A. from Harvard University and a B.A. from Dartmouth
College.
Steven A. Kriegsman joined the Board of Directors in December, 1997. In
1989, Mr. Kriegsman founded The Kriegsman Group, a private financial consulting
services firm and has served as its President since such time. In 1981 Mr.
Kriegsman co-founded ANA Financial Services, Inc., a holding company engaged,
through its subsidiaries, in securities brokerage, financial planning and
investment advisory services and franchising of certified public accountants.
Mr. Kriegsman served as Chairman and Chief Executive Officer of ANA Financial
until 1989. Mr. Kriegsman is a former Certified Public Accountant. Mr. Kriegsman
holds a B.S. from New York University.
Charles C. Johnston joined the Board of Directors in December, 1997.
Mr. Johnston has been the Chairman of Ventex Technology, Inc., a privately-held
neon light transformer company. since July 1993. Mr. Johnston has also served as
Chairman of AFD Technologies, a private corporation since 1994 and J&C Resources
a private corporation, a position that he has held since 1987. Mr. Johnston
serves as a Trustee of Worcester Polytechnic Institute ("WPI") and earned his
B.S. degree from WPI in 1957.
Dennis H. Bunt has been our Chief Financial Officer since September
1992. Mr. Bunt has more than 25 years of financial management experience,
primarily with high-technology companies, including Mechanical Technology, Inc.
and General Electric. Mr. Bunt is a certified public accountant and worked for
the Boston office of KPMG Peat Marwick from 1976 to 1979. Mr. Bunt received his
M.B.A. from Babson College in 1979 and received his B.S. in Accounting from
Bentley College in 1976.
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Thomas Franceski was a founder of DJS Marketing Group in 1993 and has
served as President and Chief Financial Officer since its acquisition by
Authentidate Holding Corp. in 1996. Prior to joining DJS, Mr. Franceski served
as Chief Financial Officer of Automated Dynamics Corp., a technology based
company focused on materials science technologies where his responsibilities
were capital acquisition and operations. Mr. Franceski holds a B.S. degree from
LeMoyne College and began his career with KPMG Peat Marwick.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three Committees: Audit, Compensation and
Executive Committee.
Audit Committee. The members of the Audit Committee are J. Edward
Sheridan, Steven Kriegsman and Charles Johnston. The Audit Committee acts to:
(i) acquire a complete understanding of our audit functions; (ii) review with
management the finances, financial condition and our interim financial
statements; (iii) review with our independent auditors the year-end financial
statements; and (iv) review implementation with the independent auditors and
management any action recommended by the independent auditors. During the fiscal
year ended June 30, 2001, the Audit Committee met on one occasion.
Executive Committee. The members of the Executive Committee are John
Botti and Ira C. Whitman. The Executive Committee has all of the powers of the
Board of Directors except it may not; (i) amend the Certificate of Incorporation
or Bylaws; (ii) enter into agreements to borrow money in excess of $250,000;
(iii) to grant security interests to secure obligations of more than $250,000;
(iv) authorize private placements or public offerings of our securities; (v)
authorize the acquisition of any major assets or business or change our
business; or (vi) authorize any employment agreements in excess of $75,000. The
Executive Committee meets when actions must be approved in an expedient manner
and a meeting of the Board of Directors cannot be convened. During Fiscal 2001,
the Executive Committee did not deem it necessary to meet but voted by unanimous
written consent on two occasions.
Compensation Committee. The members of the Compensation Committee are
Steven Kriegsman, J. Edward Sheridan and Charles C. Johnston. The Compensation
Committee functions include administration of our 2000 Employee Stock Option
Plan, 1992 Employee Stock Option Plan and Non-Executive Director Stock Option
Plan and negotiation and review of all employment agreements of our executive
officers. During the fiscal year ended June 30, 2001, the Compensation Committee
held no meetings and voted by unanimous written consent on one occasion.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee and the Board of Directors have established
the following ongoing principles and objectives for determining the compensation
of our executive officers:
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- provide compensation opportunities that will help attract, motivate and
retain highly motivated qualified managers and executives.
- link executive total compensation to our performance and individual job
performance.
- provide a balance between incentives based upon annual business
achievements and longer term incentives linked to increases in
shareholder value.
During the last fiscal year, the compensation of the Chief Executive
Officer of Authentidate, Inc. was reviewed and approved by the Compensation
Committee in connection with the Compensation Committee's approval of the terms
of the employment agreement entered into with Mr. Van Naarden in July, 2000.
Similarly, the Compensation Committee reviewed and approved the approved the
compensation terms offered to our Chief Financial Officer in connection with the
employment agreement entered into between AHC and Mr. Bunt in October, 2000.
Compensation paid to our Chief Executive Officer and Chief Technology Officer
during the fiscal year ended June 30, 2001 was pursuant to the employment
agreements entered into by such officers during the fiscal year ended June 30,
2000 and was reviewed and approved by the Compensation Committee at that time.
The Compensation Committee authorized the grant of stock options to our
Chief Executive Officer and Chief Technology Officer and to the Chief Executive
Officer of our Authentidate subsidiary in connection with the acquisition by AHC
of the outstanding securities of Authentidate, Inc. The options held by these
officers to purchase shares of Authentidate common stock were exchanged for
options to purchase shares of AHC common stock. For more information about this
transaction, see "Description of Business - General Business Developments During
the Previous Fiscal Year." The Compensation Committee also authorized the grant
of stock options to our Chief Financial Officer and to our Vice President,
Technology Products Group, during the last fiscal year as appearing in the
Option Grants Table appearing in this Report on Form 10-K. The Compensation
Committee determined that the options awarded to theses officers were warranted
due to the efforts of these officers in connection with our internal management
and the performance of our DJS subsidiary.
No cash bonuses were awarded to these executives during the last fiscal
year.
The Compensation Committee
J. Edward Sheridan Steven Kriegsman Charles C. Johnston
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no compensation committee interlocks between the members of
our compensation committee and any other entity. At present, J. Edward Sheridan,
Steven Kriegsman and Charles C. Johnston are the members of the compensation
committee. None of the members of the Board's compensation committee (a) was an
officer or employee of AHC during the last fiscal year; (b) was
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formerly an officer of AHC or any of its subsidiaries; or (c) had any
relationship with AHC requiring disclosure under Item 404 of Regulation S-K.
MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended June 30, 2001, our Board of Directors met
on seven occasions and voted by unanimous written consent on three occasions. No
member of the Board of Directors attended less than 50% of the aggregate number
of (i) the total number of meetings of the Board of Directors or (ii) the total
number of meetings held by all Committees of the Board of Directors.
CERTAIN REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our Directors and officers, and persons who own, directly or
indirectly, more than 10% of a registered class of our equity securities, to
file with the Securities and Exchange Commission ("SEC") reports of ownership
and reports of changes in ownership of common stock and other equity securities
we issue. Officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish us with copies of all Section 16(a) forms that they
file. Based solely on review of the copies of such reports received by us, we
believe that all Section 16(a) filing requirements applicable to officers,
directors and 10% shareholders were complied with during the 2001 fiscal year
except that Ira C. Whitman, our Executive Vice President and a director,
inadvertently failed to report a sale of an aggregate of 495 shares during the
fiscal quarter ended December 31, 2000. This failure was inadvertent, and the
sales were subsequently reported on a Form 4 filed on January 8, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information concerning all Plan
and Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-K) compensation
awarded to, earned by, we paid during the years ended June 30, 2001, 2000 and
1999 to each of the named executive officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
LONG TERM
COMPENSATION AWARDS
-------------------------------
NO. OF
RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK UNDERLYING
POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS
-------- ---- ------ ----- ------------ -------- -------------
John Botti 2001 $265,005 $0 $3,187(1) 0 (2) 444,668(6)
Chairman, President and 2000 $203,665 $60,000 $1,702 0 890,000
Chief Executive Officer 1999 $132,794 $0 $1,702 0 0
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Nicholas Themelis (3) 2001 $204,519 $ 0 $ 533(4) 0(8) 109,868(6)
Vice-President, Chief 2000 $ 71,923(3) $ 0 $ 5,000(3) 0 220,000
Technology Officer
and Director
Robert Van Naarden 2001 $317,733 $ 0 $ 426(4) 0 547,397(7)
Director and Chief
Executive Officer of
Authentidate, Inc.
Dennis H. Bunt, 2001 $105,605 $ 0 $ 798(5) 0(9) 86,849(10)
Chief Financial
Officer
Thomas Franceski, 2001 $ 98,125 $ 30,000 $ 0 0 105,000(10)
Vice President,
(1) Includes: (i) for 2001, an automobile and expenses of $2,985 and
payment of premiums on term life insurance of $202; (ii) for 2000, an
automobile and expenses of $1,500 and the payment of premiums on term
life insurance policy of $202; and (iii) for 1999, an automobile and
expenses of $1,500 and the payment of premiums on a term life insurance
policy of $202.
(2) No restricted stock awards were granted to Mr. Botti in fiscal 2001.
Mr. Botti, however, owned 409,391 restricted shares of our Common Stock
on June 30, 2001, the market value of which was $4.50 per share on such
date, without giving effect to the diminution in value attributed to
the restriction on such shares.
(3) Represents salary earned by the employee and paid by the Company during
the fiscal year ended June 30, 2001. Mr. Themelis terminated his
employment with the Company on May 31, 2001and resigned as a Director
of the Company on August 8, 2001. The Company also contributed $5,000
towards a life insurance policy for Mr. Themelis during the fiscal year
ended June 30, 2000.
(4) Represents commuting expenses.
(5) Represents automobile expenses.
(6) Represents options we granted pursuant to the employee's acceptance of
our offer to exchange securities of Authentidate, Inc. held by such
person for like securities of AHC.
(7) Represents 200,000 options granted pursuant to the terms of the
employment agreement entered into between us and Mr. Van Naarden and
347,397 options granted pursuant to the employee's acceptance of our
offer to exchange securities of Authentidate, Inc. held by such person
for like securities of AHC.
(8) No restricted stock awards were granted to Mr. Themelis in fiscal 2001.
Mr. Themelis, however, owned 7,500 restricted shares of our Common
Stock on June 30, 2001, the market value of which was $4.50 per share
on such date, without giving effect to the diminution in value
attributed to the restriction on such shares.
(9) No restricted stock awards were granted to Mr. Bunt in fiscal 2001. Mr.
Bunt, however, owned 883 restricted shares of our Common Stock on June
30, 2001, the market value of which was $4.50per share on such date,
without giving effect to the diminution in value attributed to the
restriction on such shares.
(10) Represents options granted during the fiscal year ended June 30, 2001.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK
PRICE APPRECIATION FOR ALTERNATIVE TO
OPTION (f) AND (g)
INDIVIDUAL GRANTS TERM GRANT DATE VALUE
-------------------------------------------------------------------------------------- -------------------------- ----------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTION/EXERCISE OF
UNDERLYING SARS GRANTED GRANT DATE
OPTION/SARS TO EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) IN FISCAL YEAR (S/SH) DATE 5% ($) 10% ($) VALUE $
(a) (b) (c) (d) (e) (f) (g) (h)
----------------- --------- ------------ ------- ------- --------- --------- ----------
John T. Botti 444,668(2) 19.3% $ 1.52 3/23/06 1,948,892 2,636,263
Robert Van 347,397(2) 15.1% $ 4.625 3/23/06 443,905 980,913
Naarden
Robert Van 200,000(3) 8.7% $6.3125 7/10/05 348,805 770,769
Naarden
Nicholas Themelis 109,868(2) 4.8% $ 4.625 3/23/06 140,390 310,224
Dennis H. Bunt 86,849 3.3% $ 4.625 3/23/06 110,976 245,228
Thomas Franceski 105,000 4.5% $ 4.625 3/23/06 134,196 296,479
------------------
(1) No Stock Appreciation Rights were granted to any of the named executive
officers during the last fiscal year.
(2) Represents options granted pursuant to the employee's acceptance of our
offer to exchange securities of Authentidate, Inc. held by such person
for like securities of AHC.
(3) Represents 200,000 options granted pursuant to the terms of the
employment agreement entered into between us and Mr. Van Naarden.
No Stock Appreciation Rights were granted to any of the named executive
officers during the last fiscal year.
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AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table contains information with respect to the named
executive officers concerning options held as of the year ended June 30, 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
VALUE OF UNEXERCISED IN-THE- MONEY
SHARES NUMBER OF UNEXERCISED OPTIONS
ACQUIRED VALUE OPTIONS AS OF JUNE 30, 2001 AT JUNE 29, 2001(1)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
John T. Botti 0 $0 1,287,334/222,334 633,375/324,608
Nicholas Themelis 0 $0 132,401/177,467 0/0
Robert Van Naarden 0 $0 0/547,597 0/0
Dennis H. Bunt 0 $0 119,425/43,424 0/0
Thomas Franceski 0 $0 55,000/50,000 0/0
------------------------
(1) Based upon the closing bid price ($4.50 per share) of our Common Stock on
June 29, 2001 less the exercise price for the aggregate number of shares subject
to the options.
EMPLOYMENT AGREEMENTS
In January, 2000, we entered into a new three year employment agreement
with our Chief Executive Officer, expiring on January 1, 2003. The agreement
provides for (i) a base salary of $250,000 in the first year of the agreement,
increasing by 10% in each year thereafter; (ii)a bonus equal to 3% of our
pre-tax net income, with such additional bonuses as may be awarded in the
discretion of the Board of Directors; (iii)certain insurance and severance
benefits; and (iv) automobile and expenses.
In July 2000, Authentidate entered into an employment agreement with
its new Chief Executive Officer for a three year term. The employment agreement
provides for (i) annual salary of $250,000; (ii) an annual bonus of up to
$200,000, with a minimum bonus of $80,000 during the first year; (iii) a
severance agreement equal to twelve months salary in the event employment
agreement is terminated without cause; (iv) the award of such number of shares
of common stock of Authentidate as shall equal 5% of the shares outstanding on
the date of the employment agreement, vesting in equal amounts over a four year
period, commencing one year from the date of the agreement; and (v) the award of
employee stock options to purchase 200,000 shares of common stock of AHC,
vesting in equal amounts over a four year period, at an exercise price of
$6.3125 per share.
In October 2000, we entered into an employment agreement with our Chief
Financial Officer which provides (i) an annual salary of $100,000 increasing to
$110,000 on January 1, 2001; (ii) annual increases every October to be
determined by the Compensation Committee of the Board of
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Directors; (iii) eligibility for annual bonuses at the discretion of the
Compensation Committee of the Board of Directors; (iv) a severance agreement
equal to twelve months salary; (v) the award of Authentidate, Inc. stock options
equal to 1.25% of the outstanding stock, convertible into AHC stock options upon
the approval of such conversion by our shareholders.
COMPENSATION OF DIRECTORS
Directors were compensated for their services during the last fiscal
year in the amount of $5,000 annually. The Directors receive options to purchase
10,000 shares for each year of service under the Non-Executive Director Stock
Option Plan ("Stock Options") and are reimbursed for expenses incurred in order
to attend meetings of the Board of Directors. Directors also receive 20,000
Stock Options upon being elected to the Board.
STOCK OPTION PLANS
In March 2001, our shareholders approved the 2000 Employees Stock
Option Plan (the "2000 Plan") which provides for the grant of options to
purchase up to 5,000,000 shares of our Common Stock. In July 2001, we filed a
registration statement with the SEC to register the shares issuable upon
conversion of the options granted or which may be granted under the 2000 Plan.
Our shareholders were asked to adopt the 2000 Plan since there were no
additional shares available for issuance under the 1992 Plan and the 1992 Plan
is to expire in April 2002 and shareholder approval would have been required to
increase the number of shares subject to the 1992 Plan.
In April 1992, we adopted the 1992 Employees Stock Option Plan (the
"1992 Plan") which provided for the grant of options to purchase up to 600,000
shares of the Company's Common Stock. On January 26, 1995, our stockholders
approved an amendment to the 1992 Plan to increase the number of shares of
Common Stock available under the 1992 Plan to 3,000,000 shares.
Under the terms of the 2000 Plan and the 1992 Plan, options granted
thereunder may be designated as options which qualify for incentive stock option
treatment ("ISOs") under Section 422 of the Code, or options which do not so
qualify ("Non-ISOs"). As of June 30, 2001, there were outstanding an aggregate
of 4,184,705 options under the 2000 Plan and 1992 Plan combined, with exercise
prices ranging from $1.25 to $11.25.
The 2000 Plan and the 1992 Plan are administered by the Compensation
Committee designated by the Board of Directors. The Compensation Committee has
the discretion to determine the eligible employees to whom, and the times and
the price at which, options will be granted. Whether such options shall be ISOs
or Non-ISOs; the periods during which each option will be exercisable; and the
number of shares subject to each option, shall be determined by the Committee.
The Board or Committee shall have full authority to interpret the 1992 Plan and
to establish and amend rules and regulations relating thereto.
Under both the 2000 Plan and the 1992 Plan, the exercise price of an
option designated as an ISO shall not be less than the fair market value of the
Common Stock on the date the option is
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granted. However, in the event an option designated as an ISO is granted to a
ten percent stockholder (as defined in the 2000 Plan and the 1992 Plan) such
exercise price shall be at least 110% of such fair market value. Exercise prices
of Non-ISOs options may be less than such fair market value. The aggregate fair
market value of shares subject to options granted to a participant which are
designated as ISOs which become exercisable in any calendar year shall not
exceed $100,000. The "fair market value" will be the closing NASDAQ bid price,
or if our Common Stock is not quoted by NASDAQ, as reported by the National
Quotation Bureau, Inc., or a market maker of our Common Stock, or if the Common
Stock is not quoted by any of the above, by the Board of Directors acting in
good faith.
The Compensation Committee may, in its sole discretion, grant bonuses
or authorize loans to or guarantee loans obtained by an optionee to enable such
optionee to pay any taxes that may arise in connection with the exercise or
cancellation of an option.
In April, 1992, the Board of Directors adopted the Non-Executive
Director Stock Option Plan (the "Director Plan") which was approved by the
Company's stockholders in May, 1992. With the approval of the shareholders, the
Director Plan was amended in December, 1997. Options are granted under the
Director Plan until April, 2002 to (i) non-executive directors as defined and
(ii) members of any advisory board established by the Company who are not
full-time employees of the Company or any of its subsidiaries. The Director Plan
provides that each non-executive director will automatically be granted an
option to purchase 20,000 shares, upon joining the Board of Directors, and
10,000 shares on each September 1st thereafter, provided such person has served
as a director for the 12 months immediately prior to such September 1st. Each
eligible director of an advisory board will receive, upon joining the advisory
board, and on each September 1st thereafter, an option to purchase 5,000 shares
of our Common Stock, providing such person has served as a director of the
advisory board for the previous 12 month period.
As of June 30, 2001, there are outstanding 140,000 options under the
Director Plan with exercise prices from $0.84 to $4.81.
The exercise price for options granted under the Director Plan is 100%
of the fair market value of the Common Stock on the date of grant. The "fair
market value" is the closing NASDAQ bid price, or if the Company's Common Stock
is not quoted by NASDAQ, as reported by the National Quotation Bureau, Inc., or
a market maker of the Company's Common Stock, or if the Common Stock is not
quoted by any of the above by the Board of Directors acting in good faith. Until
otherwise provided in the Stock Option Plan the exercise price of options
granted under the Director Plan must be paid at the time of exercise, either in
cash, by delivery of shares of our Common Stock or by a combination of each. The
term of each option commences on the date it is granted and unless terminated
sooner as provided in the Director Plan, expires five years from the date of
grant. The Director Plan is administered by a committee of the board of
directors composed of not fewer than three persons who are our officers (the
"Committee"). The Committee has no discretion to determine which non-executive
director or advisory board member will receive options or the number of shares
subject to the option, the term of the option or the exercisability of the
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option. However, the Committee will make all determinations of the
interpretation of the Director Plan. Options granted under the Director Plan are
not qualified for incentive stock option treatment.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the total cumulative return
on our common stock and the Nasdaq Composite Index and a Software Index
(assuming reinvestment of dividends). Our common stock is listed for trading in
the Nasdaq National Market under the trading symbol ADAT.
Cumulative Total Shareholder Return
[LINE GRAPH]
Listed below is the value of a $10,000 investment at each of our last 5 year
ends:
CUMULATIVE TOTAL SHAREHOLDER RETURN
Date AHC NASDAQ Composite Index NASDAQ Software Index
---- --- ---------------------- ---------------------
6/30/97 $10,000 $10,000 $10,000
6/30/98 $ 5,979 $13,139 $14,306
6/30/99 $ 3,197 $18,627 $23,353
6/30/00 $19,381 $27,503 $39,484
6/30/01 $14,845 $14,982 $18,255
--------------
Footnotes:
(1) Assumes $10,000 was invested at June 30, 1997 in AHC and each Index
presented.
(2) The comparison indices were chosen in good faith by management. Most of
our peers are divisions of large multi-national companies therefore a
comparison is not meaningful. In addition, we are involved in three
distinct businesses: document imaging software, authentication/security
software and computer systems integration, for which there is no peer
comparison. Therefore we have chosen the NASDAQ Computer and Data
Processing Index, which is primarily comprised of software companies.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 20,
2001 with respect to (i) each director and each executive officer, (ii) all
directors and officers as a group, and (iii) the persons (including any "group"
as that term is used in Section l3(d)(3) of the Securities Exchange Act of
l934), known by the Corporation to be the beneficial owner of more than five
(5%) percent of our Common Stock and Series A Preferred Stock.
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENTAGE
TYPE OF CLASS BENEFICIAL HOLDER OWNERSHIP (1) OF CLASS (*)
------------- ----------------- ------------- ------------
Common John T. Botti 1,696,725 (2) 9.71%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Ira C. Whitman 404,386 (3) 2.46%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Steven Kriegsman 40,000 (4) 0.25%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Dennis Bunt 103,591 (5) 0.64%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common J. Edward Sheridan 50,000 (8) 0.31%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Charles Johnston 118,570 (6) 0.73%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
Common Robert Van Naarden 50,000(7) 0.31%
c/o Authentidate, Inc.
2 World Financial Center
225 Liberty St., 43rd Floor
New York, NY 10281
Common Thomas Franceski 55,000(9) 0.34%
c/o Authentidate Holding Corp.
2165 Technology Drive
Schenectady, NY 12308
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Common Gateway Network, LLC 840,600(11) 5.1%
and Affiliates
165 EAB Plaza
Uniondale, NY 11556
Series A John T. Botti 100 (10) 100%
Preferred c/o Authentidate Holding Corp.
Stock Designs
2165 Technology Drive
Schenectady, NY 12308
Directors/Officers as a group 2,518,272 13.99%
(2)(3)(4)(5)(6)(7)(8)(9)
--------------------
(1) Unless otherwise indicated below, each director, officer and 5%
shareholder has sole voting and sole investment power with respect to
all shares that he beneficially owns.
(2) Includes vested stock options to purchase 1,287,334 shares of Common
Stock and excludes non-vested option to purchase 222,334 shares of
Common Stock.
(3) Includes vested stock options to purchase 225,000 shares of Common
Stock.
(4) Includes vested options to purchase 40,000 shares of Common Stock.
(5) Includes vested options to purchase 102,758 shares of Common Stock and
excludes nonvested options to purchase 60,091 shares of Common Stock.
(6) Includes vested options to purchase 70,000 shares of Common Stock.
(7) Includes vested options to purchase 50,000 shares of Common Stock and
excludes 497,397 non-vested options.
(8) Includes vested options to purchase 50,000 shares of Common Stock.
(9) Includes vested options to purchase 55,000 shares of Common Stock and
excludes 50,000 non-vested options. Also excludes non-vested options to
purchase 100,000 shares of Common Stock granted subsequent to the
fiscal year end covered by this Report on Form 10-K.
(10) See footnote (2). Each share of Series A Preferred Stock is entitled to
ten (10) votes per share.
(11) As of August 31, 2001. Includes 300,000 shares of common stock issuable
upon exercise of Series B Warrants and 106,665 shares of common stock
issuable upon the conversion of shares of Series B Preferred Stock.
* Based on 16,180,426 shares of Common Stock outstanding as of September
20, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as disclosed herein, we have not entered into any material
transactions or series of similar transactions with any director, executive
officer or any security holder owning 5% or more of our Common Stock.
On October 10, 2000, we entered into a Letter of Intent with the
Company and Internet Venture Capital, LLC, to enter into a Joint Venture
Agreement and License Agreement providing for the development of a business plan
and to market a service to authenticate and record signatures on sports and
entertainment memorabilia. One of the members of Internet Venture Capital is
affiliated with the "groups" (as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) listed in this Report on Form 10-K as owning
more that 5% of our outstanding common stock, see "Voting Securities and
Security Ownership of Certain Beneficial Owners and Management." Although the
transaction contemplated by the Letter of Intent was terminated by the mutual
consent of the parties, on May 24, 2001, AHC, Internet Venture Capital, LLC
and Nicholas Themelis a former director and executive officer of AHC entered
into an agreement to
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govern the operation of Authentidate Sports Edition, Inc. and to develop the
service offering of this new company, which is to apply the Authentidate
technology to the field of sports and entertainment memorabilia.
On January 5, 2001, we agreed to loan John T. Botti, our Chief
Executive Officer, the amount of $317,000 and entered into a Pledge and Security
Agreement of the same date, which grants us a second-priority security interest
in the shares of our Common Stock held by Mr. Botti to secure the loan.
For information concerning employment agreements with, and compensation
of, our executive officers and directors, see "MANAGEMENT -- Executive
Compensation."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following Financial Statements of AHC are included in Part II, Item
8 of this report:
- Report of Independent Accountants
- Consolidated Balance Sheets as of June 30, 2001 and
2000
- Consolidated Statements of Operations for the years
ended June 30, 2001, 2000 and 1999
- Consolidated Statements of Shareholders' Equity for
the years ended June 30, 2001, 2000 and 1999
- Consolidated Statements of Cash Flows for the years
ended June 30, 2001, 2000 and 1999
- Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
The following consolidated financial statement schedule for each of the
three years in the period ended June 30, 2001 is included pursuant to item 14
(d):
Schedule II, Valuation and Qualifying Accounts
(b) Reports on Form 8-K
During the quarter ended June 30, 2001 we filed the following reports:
None
(c) Exhibits
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The exhibits designated with an asterisk (*) are filed herewith. All
other exhibits have been previously filed with the Commission and, pursuant to
17 C.F.R. Section 230.411, are incorporated by reference to the document
referenced in brackets following the descriptions of such exhibits. Certain
portions of exhibits marked with the symbol (++) have been granted confidential
treatment by the Securities and Exchange Commission. Such portions were omitted
and filed separately with the Securities and Exchange Commission.
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation of Bitwise Designs, Inc.-Delaware
(Exhibit 3.3.1 to Registration Statement on Form S-18, File
No. 33-46246-NY)
3.1.1 Certificate of Designation of Series B Preferred Stock
(Exhibit 3.2.1 to Form 10- KSB dated October 4, 1999)
3.1.2 Certificate of Amendment to Certificate of Incorporation
(filed as Exhibit 3 to Definitive Proxy Statement dated
February 16, 2001 as filed with the Securities and Exchange
Commission).
3.1.3 Certificate of Designations, Preferences and Rights and Number
of Shares of Series C Convertible Preferred Stock (Exhibit 4.1
to Form 10-Q dated May 14, 2001).
3.1.4* Certificate of Amendment of Certificate of Designations,
Preferences and Rights and Number of Shares of Series C
Convertible Preferred Stock
3.2 By-Laws (Exhibit 3.2 to Registration Statement on Form S-18,
File No. 33-46246- NY)
4.1 Form of Common Stock Certificate (Exhibit 4.1 to Registration
Statement on Form S-18, File No. 33-46246-NY)
4.2 Form of Series A Preferred Stock Certificate (Exhibit 4.2 to
Registration Statement on Form S-18, File No. 33-46246-NY)
4.3 Form of Series B Preferred Stock Certificates (Exhibit 4.5 to
the Registration Statement on form SB-2, File No. 33-76494)
4.4 Form of Note and Warrant Purchase, Paying and
Conversion/Exercise agency agreement dated as of August 8,
1997 between the Company and Banca del Gottardo (Exhibit 4.7
to the Company's Form 10-KSB dated June 30, 1997).
4.5 Terms of Warrants and Global Warrant expiring August 11, 2002
(Exhibit 4.9 to the Company's Form 10-KSB dated June 30,
1997).
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4.6 Form of Warrant issued to Windhorst New Technologies, Agi.G
and PFK Development Group I, LLC (Exhibit 4.10 to the
Company's Form 10-KSB dated June 30, 2000)
4.7* Form of Warrant issued to certain individuals in fiscal year
ended June 30, 2001 (S-3 2001).
4.8* Form of Warrant issued in connection with Series C Preferred
Stock Offering (Exhibit 4.2 to Form 10-Q dated May 14, 2001).
4.9* Form of Series C Preferred Stock Certificate.
10.1 1992 Employee stock option plan (Exhibit 10.10 to Registration
Statement on Form S-18, File No. 33-46246-NY)
10.2 1992 Nonexecutive Directors stock option plan (Exhibit 10.11
to Registration Statement on Form S-18, File No. 33-46246-NY)
10.3 Agreement with Prime Computer, Inc. (Exhibit 10.14 to
Registration Statement on Form S-18, File No. 33-46246-NY)
10.4 Agreement with Mentor Computer Graphics Ltd. (Exhibit 10.15 to
Registration Statement on Form S-18, File No. 33-46246-NY)
10.5 Agreement and Plan of Merger by and among Bitwise Designs,
Inc., Bitwise DJS, Inc., certain individuals and DJS Marketing
Group, Inc. dated March 6, 1996 (Exhibit 2 to Form 8-K dated
March 22, 1996)
10.6 Form of Warrant Agency Agreement between the Company and Banca
del Gottardo dated as of August 8, 1997 (Exhibit to Form
10-KSB dated June 30, 1997).
10.7 Employment Agreement between John Botti and the Company dated
January 1, 2000 (Exhibit 10.27 to the Company's Form 10-KSB
dated June 30, 2000).
10.8 Employment Agreement between Nicholas Themelis and the Company
dated February 28, 2000 (Exhibit 10.28 to the Company's Form
10-KSB dated June 30, 2000)
10.9 Employment Agreement between Robert Van Naarden and
Authentidate.com, Inc. dated July 5, 2000 (Exhibit 10.29 to
the Company's Form 10-KSB dated June 30, 2000).
49
53
10.10++ Joint Venture Agreement between The Company, Authentidate,
Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.30 to
the Company's Form 10-KSB dated June 30, 2000)
10.11++ Technology License Agreement between The Company,
Authentidate, Inc. and Windhorst New Technologies, Agi.G
(Exhibit 10.31 to the Company's Form 10- KSB dated June 30,
2000)
10.12 Series C Preferred Stock and Warrant Purchase Agreement
between Authentidate Holding Corp. and purchasers of Series C
Preferred Stock (Exhibit 10.1 to Form 10- Q dated May 14,
2001).
10.13 Registration Rights Agreement between Authentidate Holding
Corp. and purchasers of Series C Preferred Stock (Exhibit 10.2
to Form 10-Q dated May 14, 2001).
10.14 2000 Employee Stock Option Plan (filed as Exhibit 2 to
Definitive Proxy Statement dated February 16, 2001 as filed
with the Securities and Exchange Commission).
10.15* Form of Security Exchange Agreement entered into between
Authentidate Holding Corp., Authentidate, Inc. and certain
security holders of Authentidate, Inc.
10.16** Agreement dated May 24, 2001 between Authentidate Holding
Corp., Authentidate, Inc., Internet Venture Capital, LLC and
Nicholas Themelis.
10.17* Underlease Agreement of Authentidate, Inc. for a portion of
the 43rd Floor at 2 World Financial Center.
21* Subsidiaries of Registrant
23* Consent of Pricewaterhouse Coopers, LLP
** Portions of exhibit omitted and request for confidential treatment filed with
the Commission.
50
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AUTHENTIDATE HOLDING CORP.
By: /s/John T. Botti
John T. Botti
President, Chairman of the Board
and Chief Executive Officer
Dated: September 26, 2001
Pursuant to the requirements of the Securities Act of 1933, this Report
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature Capacity Date
--------- -------- ----
/s/John T. Botti President, Chairman September 26, 2001
John T. Botti of the Board and Chief
Executive Officer
/s/Ira C. Whitman Senior Vice President September 26, 2001
Ira C. Whitman and Director
/s/Robert Van Naarden Director and September 26, 2001
Robert Van Naarden Chief Executive Officer
Of Authentidate, Inc.
/s/Steven A. Kriegsman Director September 26, 2001
Steven A. Kriegsman
/s/J. Edward Sheridan Director September 26, 2001
J. Edward Sheridan
/s/Charles C. Johnston Director September 26, 2001
Charles C. Johnston
/s/Dennis H. Bunt Chief Financial September 26, 2001
Dennis H. Bunt Officer and Principal
Accounting Officer
/s/ Thomas Franceski Vice President- September 26, 2001
Thomas Franceski Technology Products Group
51
55
EXHIBIT INDEX
Item No. Description
-------- -----------
3.1 Certificate of Incorporation of Bitwise Designs, Inc.-Delaware
(Exhibit 3.3.1 to Registration Statement on Form S-18, File
No. 33- 46246-NY)
3.1.1 Certificate of Designation of Series B Preferred Stock
(Exhibit 3.2.1 to Form 10-KSB dated October 4, 1999)
3.1.2 Certificate of Amendment to Certificate of Incorporation
(filed as Exhibit 3 to Definitive Proxy Statement dated
February 16, 2001 as filed with the Securities and Exchange
Commission).
3.1.3 Certificate of Designations, Preferences and Rights and Number
of Shares of Series C Convertible Preferred Stock (Exhibit 4.1
to Form 10-Q dated May 14, 2001).
3.1.4* Certificate of Amendment of Certificate of Designations,
Preferences and Rights and Number of Shares of Series C
Convertible Preferred Stock
3.2 By-Laws (Exhibit 3.2 to Registration Statement on Form S-18,
File No. 33-46246-NY)
4.1 Form of Common Stock Certificate (Exhibit 4.1 to Registration
Statement on Form S-18, File No. 33-46246-NY)
4.2 Form of Series A Preferred Stock Certificate (Exhibit 4.2 to
Registration Statement on Form S-18, File No. 33-46246-NY)
4.3 Form of Series B Preferred Stock Certificates (Exhibit 4.5 to
the Registration Statement on form SB-2, File No. 33-76494)
4.4 Form of Note and Warrant Purchase, Paying and
Conversion/Exercise agency agreement dated as of August 8,
1997 between the Company and Banca del Gottardo (Exhibit 4.7
to the Company's Form 10-KSB dated June 30, 1997).
4.5 Terms of Warrants and Global Warrant expiring August 11, 2002
(Exhibit 4.9 to the Company's Form 10-KSB dated June 30,
1997).
4.6 Form of Warrant issued to Windhorst New Technologies, Agi.G
and PFK Development Group I, LLC (Exhibit 4.10 to the
Company's Form 10-KSB dated June 30, 2000)
4.7* Form of Warrant issued to certain individuals in fiscal year
ended June 30, 2001 (S-3 2001).
4.8* Form of Warrant issued in connection with Series C Preferred
Stock Offering (Exhibit 4.2 to Form 10-Q dated May 14, 2001).
4.9* Form of Series C Preferred Stock Certificate.
10.1 1992 Employee stock option plan (Exhibit 10.10 to Registration
Statement on Form S-18, File No. 33-46246-NY)
10.2 1992 Nonexecutive Directors stock option plan (Exhibit 10.11
to Registration Statement on Form S-18, File No. 33-46246-NY)
10.3 Agreement with Prime Computer, Inc. (Exhibit 10.14 to
Registration Statement on Form S-18, File No. 33-46246-NY)
10.4 Agreement with Mentor Computer Graphics Ltd. (Exhibit 10.15 to
Registration Statement on Form S-18, File No. 33-46246-NY)
10.5 Agreement and Plan of Merger by and among Bitwise Designs,
Inc., Bitwise DJS, Inc., certain individuals and DJS Marketing
Group, Inc. dated March 6, 1996 (Exhibit 2 to Form 8-K dated
March 22, 1996)
10.6 Form of Warrant Agency Agreement between the Company and Banca
del Gottardo dated as of August 8, 1997 (Exhibit to Form
10-KSB dated June 30, 1997).
10.7 Employment Agreement between John Botti and the Company dated
January 1, 2000 (Exhibit 10.27 to the Company's Form 10- KSB
dated June 30, 2000).
10.8 Employment Agreement between Nicholas Themelis and the Company
dated February 28, 2000 (Exhibit 10.28 to the Company's Form
10-KSB dated June 30, 2000)
52
56
10.9 Employment Agreement between Robert Van Naarden and
Authentidate.com, Inc. dated July 5, 2000 (Exhibit 10.29 to
the Company's Form 10-KSB dated June 30, 2000).
10.10++ Joint Venture Agreement between The Company, Authentidate,
Inc. and Windhorst New Technologies, Agi.G (Exhibit 10.30 to
the Company's Form 10-KSB dated June 30, 2000)
10.11++ Technology License Agreement between The Company,
Authentidate, Inc. and Windhorst New Technologies, Agi.G
(Exhibit 10.31 to the Company's Form 10-KSB dated June 30,
2000)
10.12 Series C Preferred Stock and Warrant Purchase Agreement
between Authentidate Holding Corp. and purchasers of Series C
Preferred Stock (Exhibit 10.1 to Form 10-Q dated May 14,
2001).
10.13 Registration Rights Agreement between Authentidate Holding
Corp. and purchasers of Series C Preferred Stock (Exhibit 10.2
to Form 10-Q dated May 14, 2001).
10.14 2000 Employee Stock Option Plan (filed as Exhibit 2 to
Definitive Proxy Statement dated February 16, 2001 as filed
with the Securities and Exchange Commission).
10.15* Form of Security Exchange Agreement entered into between
Authentidate Holding Corp., Authentidate, Inc. and certain
security holders of Authentidate, Inc.
10.16** Agreement dated May 24, 2001 between Authentidate Holding
Corp., Authentidate, Inc., Internet Venture Capital, LLC and
Nicholas Themelis.
10.17* Underlease Agreement of Authentidate, Inc. for a portion of
the 43rd Floor at 2 World Financial Center.
21* Subsidiaries of Registrant
23* Consent of PricewaterhouseCoopers, LLP
** Portions of exhibit omitted and request for confidential treatment filed with
the Commission.
53
57
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
VALUATIONS AND QUALIFYING ACCOUNTS SCHEDULE II
Column A Column B Column C Column D Column E
Balance at Additions Additions Charged
Beginning Charged To to Other Accounts Balance At End
Description of Period Expense (a) Deductions (b) Of Period
Allowance for doubtful accounts
Year ended June 30:
2001 . . . . . . . 410,761 152,711 (31,231) 532,241
2000 . . . . . . . 421,018 175,799 (186,056) 410,761
1999 . . . . . . . 480,229 145,983 (205,194) 421,018
Reserve for slow moving or
obsolete inventory
Year ended June 30:
2001 . . . . . . . 736,926 314,937 (263,712) 788,151
2000 . . . . . . . 275,634 593,001 (131,709) 736,926
1999 . . . . . . . 714,385 258,854 (697,605) 275,634
--------------------------
(a) Additions related to acquisition of subsidiaries
(b) Deductions due to writedowns and sales of subsidiaries
58
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (AND REPORT OF INDEPENDENT ACCOUNTANTS)
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
59
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONTENTS
--------------------------------------------------------------------------------
PAGE(S)
-------
REPORT OF INDEPENDENT ACCOUNTANTS ..................................... 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets ................................................. 2
Statements of operations ....................................... 3
Statements of shareholders' equity ............................. 4
Statements of cash flows ....................................... 5
Notes to consolidated financial statements ..................... 6-28
60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Authentidate Holding Corp.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Authentidate Holding Corp. and its subsidiaries at June
30, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2001 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Albany, New York
September 7, 2001, except for Note 19, as to
which the date is September 11, 2001
61
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
--------------------------------------------------------------------------------
ASSETS 2001 2000
Current assets
Cash and cash equivalents $ 9,040,466 $ 7,965,496
Accounts receivable, net of allowance for doubtful accounts of
$532,241 and $410,761 at June 30, 2001 and 2000 3,574,728 4,274,148
Due from related parties 14,825 7,866
Inventories 800,404 2,352,387
Income taxes receivable -- 15,471
Prepaid expenses and other current assets 94,006 617,526
------------ ------------
Total current assets 13,524,429 15,232,894
Property and equipment, net 3,562,372 3,033,864
Other assets
Software development costs, net of accumulated amortization of
$1,469,531 and $435,885 on June 30, 2001 and 2000 1,905,613 167,059
Excess of cost over net assets of companies acquired, net 5,276,136 1,254,952
Investment in affiliated companies 1,440,854 1,350,775
Patent costs, net 86,422 44,077
Other assets 72,079 44,714
------------ ------------
Total assets $ 25,867,905 $ 21,128,335
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,765,606 $ 1,228,618
Current portion of long-term debt 32,926 29,515
Accrued expenses and other current liabilities 1,200,770 448,091
Due to related parties -- 103,040
Current portion of obligations under capital leases 4,970 --
Income taxes payable 633 --
------------ ------------
Total current liabilities 4,004,905 1,809,264
Long-term debt, net 1,317,515 1,351,253
Deferred grant 1,000,000 1,000,000
Obligations under capital leases, net of current portion 7,653 --
------------ ------------
Total liabilities 6,330,073 4,160,517
------------ ------------
Commitments and contingencies
Shareholders' equity
Preferred stock $.10 par value, 5,000,000 shares authorized:
Series A - 100 shares issued and outstanding at June 30, 2001
and 200 shares issued and outstanding at June 30, 2000 10 20
Series B - 48,000 shares issued and outstanding at June 30, 2001
and 50,000 shares issued and outstanding at June 30, 2000 4,800 5,000
Series C - 5,500 shares issued and outstanding at June 30, 2001 550 --
Common stock, $.001 par value; 40,000,000 shares authorized; 16,114,093
shares issued at June 30, 2001 and 14,421,758 shares issued at
June 30, 2000 16,114 14,422
Additional paid-in capital 51,634,783 38,740,271
Accumulated deficit (31,283,665) (21,715,176)
------------ ------------
20,372,592 17,044,537
Less cost of 28,082 shares of common stock in treasury at June 30, 2000 -- (76,719)
Other equity (834,760) --
------------ ------------
Total shareholders' equity 19,537,832 16,967,818
------------ ------------
Total liabilities and shareholders' equity $ 25,867,905 $ 21,128,335
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
2
62
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
2001 2000 1999
Net sales $ 17,860,544 $ 15,289,738 $ 17,094,765
Cost of goods sold 13,149,801 11,924,581 11,479,297
------------ ------------ ------------
Gross profit 4,710,743 3,365,157 5,615,468
------------ ------------ ------------
Selling, general and administrative expenses 11,950,719 8,016,192 7,765,234
Product development expenses 2,255,284 665,533 248,801
------------ ------------ ------------
Total operating expenses 14,206,003 8,681,725 8,014,035
------------ ------------ ------------
Loss from operations (9,495,260) (5,316,568) (2,398,567)
------------ ------------ ------------
Other income (expense):
Interest and other income 399,996 311,493 107,208
Interest expense (124,816) (299,994) (630,396)
Loss on sale of subsidiary -- -- (249,568)
Equity in net loss of affiliated companies (104,023) (5,715) --
------------ ------------ ------------
171,157 5,784 (772,756)
------------ ------------ ------------
Loss before income taxes (9,324,103) (5,310,784) (3,171,323)
Income tax expense (benefit) 16,000 (102) (4,835)
------------ ------------ ------------
Loss before minority interest (9,340,103) (5,310,682) (3,166,488)
Minority interest -- 36,639 --
------------ ------------ ------------
Net loss $ (9,340,103) $ (5,274,043) $ (3,166,488)
============ ============ ============
Per share amounts:
Basic and diluted loss per common share $ (.63) $ (.49) $ (.43)
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
63
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
Preferred Stock Common Stock
---------------------- ------------------------
Number of $.10 Par Number of $.001 Par Paid-in
Shares Value Shares Value Capital
--------- -------- ---------- --------- ------------
Balance, June 30, 1998 200 $ 20 7,410,745 $ 7,411 $ 19,822,159
Warrants issued for non-employee services 23,967
Net loss
--------- -------- ---------- --------- ------------
Balance, June 30, 1999 200 20 7,410,745 7,411 19,846,126
Warrants issued for non-employee services 390,221
Private equity offering 50,000 5,000 1,480,000 1,480 1,890,466
Conversion of debt to equity 1,223,075 1,223 3,384,484
Exercise of stock warrants 3,753,922 3,754 10,780,447
Warrants issued for interest in Authentidate
International AG 1,119,814
Stock issued for non-employee services 72,750 73 105,641
Exercise of stock options 481,266 481 1,297,559
Investment in Authentidate, Inc. 98,861
Costs of registration (79,945)
Dividends (93,403)
Net loss
--------- -------- ---------- --------- ------------
Balance, June 30, 2000 50,200 5,020 14,421,758 14,422 38,740,271
Exercise of stock warrants 459,516 459 1,584,087
Exercise of stock options 316,626 317 198,775
Retire treasury shares (28,082) (28) 28
Convert preferred stock to common (2,000) (200) 26,667 26 174
Purchase of an equity interest in
Authentidate Inc. 917,608 918 4,243,019
Private equity offerings 5,500 550 5,204,308
Retire preferred shares (100) (10) 10
Warrants for non-employee services 204,042
Costs of registration (32,474)
Stock option compensation 1,380,694
Warrants issued to JV partner 111,849
Dividends
Loan to shareholder
Net loss
--------- -------- ---------- --------- ------------
Balance June 30, 2001 53,600 $ 5,360 16,114,093 $ 16,114 $ 51,634,783
========= ======== ========== ========= ============
Accumulated Other Treasury
Deficit Equity Stock Total Shareholders Equity
------------- ---------- ---------- -------------------------
Balance, June 30, 1998 $ (13,274,645) $ $ (76,719) $6,478,226
Warrants issued for non-employee services 23,967
Net loss (3,166,488) (3,166,488)
------------- ---------- ---------- -----------
Balance, June 30, 1999 (16,441,133) (76,719) 3,335,705
Warrants issued for non-employee services 390,221
Private equity offering 1,896,946
Conversion of debt to equity 3,385,707
Exercise of stock warrants 10,784,201
Warrants issued for interest in Authentidate
International AG 1,119,814
Stock issued for non-employee services 105,714
Exercise of stock options 1,298,040
Investment in Authentidate, Inc. 98,861
Costs of registration (79,945)
Dividends (93,403)
Net loss (5,274,043) (5,274,043)
------------- ---------- ---------- -----------
Balance, June 30, 2000 (21,715,176) (76,719) 16,967,818
Exercise of stock warrants 1,584,546
Exercise of stock options 199,092
Retire treasury shares (76,719) 76,719 --
Convert preferred stock to common --
Purchase of an equity interest in
Authentidate Inc. 4,243,937
Private equity offerings 5,204,858
Retire preferred shares --
Warrants for non-employee services 204,042
Costs of registration (32,474)
Stock option compensation (517,760) 862,934
Warrants issued to JV partner 111,849
Dividends (151,667) (151,667)
Loan to shareholder (317,000) (317,000)
Net loss (9,340,103) (9,340,103)
------------- ---------- ---------- -----------
Balance June 30, 2001 $ (31,283,665) $ (834,760) $ -- $19,537,832
============= ========== ========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
64
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
--------------------------------------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities
Net loss $ (9,340,103) $ (5,274,043) $ (3,166,488)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,814,278 916,532 637,186
Provision for doubtful accounts receivable 152,711 175,799 (60,694)
Equity in net loss of affiliated companies 104,023 -- --
Loss on sale of subsidiary -- -- 249,568
Non-cash compensation and consulting expenses 1,066,976 173,405 --
Changes in operating assets and liabilities
Accounts receivable and due from related parties 539,750 731,458 (470,349)
Inventories 1,551,983 1,472,000 (613,519)
Prepaid expenses and other current assets 516,000 (122,928) 7,409
Accounts payable, accrued expenses
and other current liabilities 2,186,627 (3,147,656) 1,561,217
Income taxes 16,104 (3,341) (8,839)
Other -- 100 --
------------ ------------ ------------
Net cash used in operating activities (1,391,651) (5,078,674) (1,864,509)
------------ ------------ ------------
Cash flows from investing activities
Purchases of property and equipment (893,181) (358,554) (2,402,661)
Trademarks acquired (27,114) (23,331) (2,500)
Patent costs (47,985) (30,796) (17,105)
Software development costs (2,764,678) (485,293) (156,293)
Investment in affiliated companies (250,000) (230,961) --
Other (4,149) -- 13,609
------------ ------------ ------------
Net cash used in investing activities (3,987,107) (1,128,935) (2,564,950)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from private equity offering 5,204,858 1,896,946 --
Stock warrants exercised 1,584,546 10,784,201 --
Stock options exercised 199,092 1,298,040 --
Dividends (151,667) (93,403) --
Outside investment in Authentidate, Inc. -- 98,861 --
Costs of conversion of debt to equity -- (10,000) --
Principal payments on obligations under capital leases (3,300) -- --
Loan to shareholder (317,000) -- --
Payment of registration costs (32,474) (79,945) --
Net payments under line of credit -- (1,274,779) (398,496)
Proceeds from borrowings on long-term debt -- 165,152 1,234,493
Principal payments on long-term debt (30,327) (18,876) --
Receipt of deferred revenue from economic development grant -- 857,811 142,189
------------ ------------ ------------
Net cash provided by financing activities 6,453,728 13,624,008 978,186
------------ ------------ ------------
Net increase in cash and cash equivalents 1,074,970 7,416,399 (3,451,273)
Cash and cash equivalents, beginning of period 7,965,496 549,097 4,000,370
------------ ------------ ------------
Cash and cash equivalents, end of period $ 9,040,466 $ 7,965,496 $ 549,097
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
5
65
AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BUSINESS CONTINUITY
Authentidate Holding Corp. (AHC) and its subsidiaries Authentidate, Inc.,
Authentigraph.com, Inc., DJS Marketing Group, Inc. (DJS), and WebCMN,
Inc., collectively referred to as the "Company", are engaged in the
manufacture and distribution of document imaging systems, as well as
providing authentication software services. The Company, through DJS also
markets network integration services, internet services and related
computer hardware. AHC was formerly known as Bitwise Designs, Inc. The
name change was approved by the shareholders in March 2001.
In June 1999, AHC established a majority owned subsidiary Authentidate,
Inc. (Authentidate), to engage in a new business line of providing end
users with a service which will (a) provide a technology that can verify
the authenticity of digital images by employing a secure clock that will
date stamp the images when received providing proof of time, date and
content, (b) accept and store e-mail from networks and personal computers
throughout the world and from different operating systems via the
internet, (c) allow for confirmation of acceptance of all e-mails sent to
the system, (d) produce confirmation of receipt of e-mail. To date,
Authentidate's operations have been primarily limited to developing the
technology for its services and to develop a Retail Version and a
Business to Business Version (B to B). The Retail Version, which may be
accessed over the Internet, was in large part developed to generate
interest and to publicize the B to B version. Sales of the Retail Version
were not significant in fiscal 2001. The B to B Version is being marketed
directly to business customers and is currently available. In January
2000, Bitwise established another subsidiary, Authentigraph.com, Inc.
(Authentigraph) to provide similar authentication services to the
collectibles and sports memorabilia industries.
In 2001, the Company formed a subsidiary named WebCMN, Inc., to develop
and provide authentication software services in the medical supply
industry, for the processing of Certificates of Medical Need.
In March 2000, Authentidate, Inc. formed a joint venture known as
Authentidate International Holdings, AG, with a German company, Windhorst
New Technologies, Agi.G., to market Authentidate in countries outside of
the Americas, Japan, Australia, New Zealand and India. Authentidate
retained the rights to market the service in these territories. The
Company invested DM 250,000, which is equal to approximately $124,000 and
also granted a license to the Authentidate technology to the joint
venture vehicle. Additionally, the Company issued 250,000 Common Stock
Purchase Warrants to Windhorst in connection with the joint venture.
Windhorst contributed DM 3,000,000 to the joint venture. Authentidate,
Inc. owns 39% of the joint venture and Windhorst owns 60% of the joint
venture. The joint venture is being accounted for under the equity method
of accounting by Authentidate. In connection with this investment,
Authentidate recorded an excess of cost over the underlying equity in the
net assets which is included in investments in affiliated companies on
the balance sheet in the amount of approximately $727,000, which is being
amortized over a period of five years. In fiscal year ended 2001,
warrants issued to Windhorst with a value of $111,849 resulted in
additional excess of cost over the underlying equity in net assets.
Amortization expense for the year ended June 30, 2001 and 2000
approximated $167,000 and $-0-, respectively. The Company's share of net
losses in this joint venture approximated $99,000 and $6,000 in 2001 and
2000, respectively.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BUSINESS CONTINUITY
In May 2001, the Company became a 50% owner in a joint venture known as
Authentidate SE (SE) with outside partners to provide the same services
as Authentigraph was intended to provide. As a result, Authentigraph, a
nominally capitalized wholly-owned subsidiary, will be phased out. The
Company contributed $250,000, while the outside partners contributed in
the aggregate $250,000 of equipment and other consideration to SE. The
Company is required to contribute an additional $750,000 subject to
certain conditions being met as defined in the joint venture agreement.
The Company is accounting for the activities of the joint venture under
the equity method of accounting. The Company's share of net losses in
this joint venture in 2001 approximated $5,000.
During the fiscal year ended June 30, 2001 the Company incurred a net
loss of $9,340,103, and cash used in operating activities totaled
$1,396,219. The Company's available cash balance at June 30, 2001 totaled
approximately $9,000,000. To date, the Company has been largely dependent
on its ability to sell additional shares of its common stock or other
financing to fund its operating deficits. Under its current operating
plan to obtain a national acceptance of the DocStar product line and to
introduce the new Authentidate technology, the Company's ability to
improve operating cash flow is highly dependent on the market acceptance
of its products and the Company's ability to reduce overhead costs. If
the Company is unable to attain projected sales levels for Authentidate,
DocStar and other products, or is unable to implement cost reduction
strategies, it may be necessary to raise additional capital to fund
operations and meet its obligations. There is no assurance that such
funding will be available, if needed.
PURCHASE MINORITY INTEREST OF AUTHENTIDATE, INC.
In fiscal year ended June 30, 2001, the Company issued 917,608 shares of
Authentidate Holding Corp. common stock (valued at approximately
$4,200,000) to acquire approximately 25% of the outstanding shares not
owned by AHC of Authentidate, Inc. As of June 30, 2001, the Company owns
approximately 98% of Authentidate, Inc. The acquisition of the minority
interest has been accounted under the purchase method of accounting. The
excess purchase price which approximates $4,200,000 was being amortized
over a 5-year period. Beginning July 1, 2001, the Company will no longer
be amortizing goodwill (see "New accounting pronouncements").
In connection with the aforementioned transaction, the Company's CEO was
granted options to acquire 444,668 shares of Company common stock with an
intrinsic value of approximately $1,380,000. The intrinsic value is being
amortized over the 12 month vesting period. At June 30, 2001, the
unearned compensation balance, which approximated $518,000, is classified
as a reduction to shareholders' equity under the caption "Other equity"
in the consolidating balance sheet.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AHC and its
subsidiaries. The accounts of the subsidiaries have been consolidated
since the acquisition date. All material intercompany balances and
transactions have been eliminated in consolidation.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities not exceeding three months to be cash equivalents. At June 30,
2001 and 2000, cash equivalents were composed primarily of investments in
commercial paper and overnight interest bearing deposits.
INVENTORIES
Inventories are stated at the lower of average cost or market. In the
prior fiscal year, the Company increased its reserve for obsolescence by
$405,817 in the fourth quarter of the year ended June 30, 2000 due to
DocStar model upgrades and improvements which raised the uncertainty of
marketability of certain outdated DocStar components.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are determined using the straight-line method. Estimated useful lives of
the assets range from three to seven years.
Repairs and maintenance are charged to expense as incurred. Renewals and
betterments are capitalized. When assets are sold, retired or otherwise
disposed of, the applicable costs and accumulated depreciation or
amortization are removed from the accounts and the resulting gain or
loss, if any, is recognized.
DEFERRED LICENSING COSTS
Costs incurred in connection with the licensing of the Company's products
by the Federal Communications Commission are reported net of accumulated
amortization and are amortized using the straight-line method over the
products' estimated life of three years.
SOFTWARE DEVELOPMENT COSTS
Software development and modification costs incurred subsequent to
establishing technological feasibility are capitalized and amortized
based on anticipated revenue for the related product with an annual
minimum equal to the straight-line amortization over the remaining
economic life of the related products (generally three years). However,
because of market uncertainty the software development costs related to
the Authentidate Retail Version were fully amortized during the fourth
quarter of the fiscal year ended June 30, 2000. Software development
costs capitalized during 2001 and 2000 amounted to $2,772,200 and
$522,903, respectively. Amortization expense related to software
development costs for the years ended June 30, 2001, 2000 and 1999 was
$1,033,646, $485,837 and $114,692, respectively. These expenses are
included in product development expenses.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EXCESS OF COST OVER NET ASSETS OF COMPANIES ACQUIRED
Excess of cost over net assets of companies acquired (goodwill) is being
amortized on a straight-line basis over periods ranging from 5 to 20
years through June 30, 2001. However, beginning in the fiscal year ending
June 30, 2002, the Company will apply SFAS No. 142 (see new accounting
pronouncements under footnote 1).
The Company periodically reviews goodwill to assess recoverability, and
impairments would be recognized in operating results if a permanent
diminution in value were to occur. The amortization charged against
earnings in 2001, 2000 and 1999 was $222,753, $86,287 and $81,287,
respectively. Accumulated amortization at June 30, 2001 and 2000 was
$758,789 and $368,289, respectively.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
REVENUE RECOGNITION AND WARRANTY PROVISIONS
Revenue from the sale of products is recognized when persuasive evidence
of an arrangement exists, delivery has occurred, the selling price is
fixed and collectibility is reasonably assured. Service revenue is
recognized as it is earned. The Company provides a one year warranty on
products it manufactures. On products distributed for other
manufacturers, the original manufacturer warranties the product. Warranty
expense was not significant to any of the years presented.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. The Company adopted SFAS
No. 133 on July 1, 2001. Since the Company has not yet entered into any
derivative instruments, the adoption of this standard is not expected to
have a material effect on the Company's financial condition, results of
operations or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), "Revenue Recognition in Financial Statements." SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company
adopted SAB 101 in the quarter ended June 30, 2001, such adoption did not
have a material effect on the Company's financial condition, results of
operations or cash flows.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation - an interpretation of APB Opinion No. 25."
FIN 44 clarifies the application of APB Opinion No. 25 and, among other
issues clarifies the definition of an employee for purposes of applying
APB Opinion No. 25, the criteria for determining whether a plan qualifies
as a non-compensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards,
and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The Company has applied the
applicable provisions of FIN 44 which did not have a material effect on
the Company's financial condition, results of operations or cash flows.
On June 29, 2001, Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations," was approved by the Financial Accounting
Standards Board (FASB). SFAS No. 141 requires the purchase method of
accounting to be used for all business combinations initiated after June
30, 2001. The Company does not expect the adoption of this Standard to
have a material effect on its financial condition, results of operations
or cash flows.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of this statement. The Company
plans to adopt SFAS No. 142 effective July 1, 2001. The Company is
currently assessing, but has not yet determined the entire impact of SFAS
142 on its financial position, results of operations or cash flows.
ADVERTISING EXPENSES
The Company recognizes advertising expenses as incurred. Advertising and
promotion expense for 2001, 2000 and 1999 was approximately $835,000,
$1,363,000 and $331,000, respectively. Included in prepaid expenses and
other current assets are approximately $250,000 at June 30, 2000, related
to prepaid advertising costs.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
RECLASSIFICATIONS
It is the Company's policy to reclassify, where appropriate, prior year
financial statements to conform to the current year presentation.
FOURTH QUARTER ADJUSTMENTS DURING FISCAL YEAR ENDED JUNE 30, 1999
During the fourth quarter of 1999, the Company recorded an adjustment
increasing its net loss for sales made with the right of return by
approximately $1,350,000 for which income will not be recognized until
sale of the product by the customer. Additionally, a reserve of
approximately $186,000 was recorded for claims arising from the sale of
SST.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
COMPREHENSIVE INCOME
No statement of comprehensive income has been included in the
accompanying financial statements since the Company does not have any
comprehensive income to report.
2. LOSS PER SHARE
The following is basic and diluted loss per common share information:
2001 2000 1999
Net loss $ (9,340,103) $ (5,274,043) $ (3,166,488)
Preferred stock dividends (151,667) (93,403) --
------------ ------------ ------------
Net loss applicable to common
shareholders $ (9,491,770) $ (5,367,446) $ (3,166,488)
============ ============ ============
Weighted average shares 15,013,135 10,953,284 7,410,745
Basic and diluted loss per
common share (.63) (.49) (.43)
Options, warrants and convertible preferred stock were antidilutive to
the calculation of dilutive loss per share, and were accordingly excluded
from the calculation.
3. INVENTORIES
Inventories at June 30, 2001 and 2000 consist of:
2001 2000
Purchased components and raw materials $ 520,915 $1,608,034
Finished goods 279,489 744,353
---------- ----------
$ 800,404 $2,352,387
========== ==========
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4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2001 and 2000 consist of the
following:
ESTIMATED
USEFUL LIFE
2001 2000 IN YEARS
Building $ 1,614,611 $ 1,611,325 40
Land 698,281 698,281 N/A
Machinery and equipment 2,478,377 1,682,716 3-6
Demonstration and rental computers 125,732 188,792 5-6
Furniture and fixtures 229,882 262,599 5-7
Leasehold improvements 17,613 11,198 5
Vehicles 15,090 15,090 5
----------- ------------
5,179,586 4,470,001
Less accumulated depreciation and
Amortization (1,617,214) (1,436,137)
----------- ------------
$ 3,562,372 $ 3,033,864
=========== ============
In June 1999, the Company completed construction of a new
office/production facility in Schenectady, New York for approximately
$2,300,000. The Company was awarded a grant totaling $1,000,000 from the
Empire State Development Corporation (an agency of New York State) to be
used towards the construction of the facility. The funding was received
in stages as costs are incurred and submitted for reimbursement. The
grant stipulates that the Company is obligated to achieve certain annual
employment levels at the new site between January 1, 2002 and January 1,
2005 or some or all of the grant will have to be repaid. As of June 30,
2000, $1,000,000 had been received and is recorded as deferred revenue.
The remainder of the financing for the new facility, totaling
approximately $1,400,000, was provided by a local financial institution
in the form of a mortgage loan (See Note 6).
Depreciation and amortization expense on property and equipment for the
years ended June 30, 2001, 2000 and 1999 was $377,832, $274,148 and
$230,127, respectively.
5. LINE OF CREDIT
The Company's subsidiary DJS had a line of credit in the amount of
$625,000, of which $-0- and $602,293 was outstanding at June 30, 2001 and
2000. This facility which was a wholesale inventory credit facility was
cancelled during the year ended June 30, 2001. DJS secured additional
credit limits from its vendors and is not expected to be affected by this
cancellation. The line was non-interest bearing and payment terms were
net 40. The line was collateralized by all assets of DJS. This facility
is included with accounts payable on the balance sheet on June 30, 2000.
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6. LONG-TERM DEBT
Long-term debt at June 30, 2001 and 2000 consists of the following:
2001 2000
Mortgage payable with Central National Bank in the
original amount of $1,400,000 with interest,
adjusted every five years, equal to the five-year
Treasury Bill rate plus 2.5%, not to be less than
8.25% (8.25% at June 30, 2001), payable in monthly
installments through October 2019. The mortgage is
collateralized by a first mortgage lien on the
Company's headquarters. $ 1,350,441 $ 1,380,768
Less current portion (32,926) (29,515)
----------- -----------
Long-term debt, net of current portion $ 1,317,515 $ 1,351,253
=========== ===========
The aggregate principle maturities of long-term debt for each of the
subsequent five years and thereafter are as follows:
2002 $ 32,926
2003 35,747
2004 38,810
2005 42,136
2006 45,747
Thereafter 1,155,075
--------------
$ 1,350,441
==============
7. INCOME TAXES
Income tax expense (benefit) for the years ended June 30, 2001 and 2000
consists of currently payable state and local income taxes.
At June 30, 2001, the Company has federal net operating loss
carryforwards for tax purposes approximating $28,085,000. The years in
which the net operating loss carryforwards expire are as follows:
2002-$48,000; 2003-$3,000; 2004-$6,000; 2008-$1,568,000; 2009-$867,000;
2011-$2,762,000; 2012-$686,000, 2013-$3,197,000, 2019-$1,350,000,
2020-$7,698,000, and 2021 - $9,900,000.
Because of significant changes in ownership during the year, the use of
net operating loss carryforwards may be subject to limitation.
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7. INCOME TAXES, CONTINUED
The following table reconciles the expected tax benefit at the federal
statutory rate of 34% to the effective tax rate.
2001 2000 1999
Computed expected tax benefit $(3,170,195) $(1,805,666) $(1,078,250)
Increase in valuation allowance 3,008,814 1,550,443 1,198,438
Nondeductible goodwill amortization 136,770 27,638 27,638
Adjustment to prior years' taxes 24,871 220,104 (167,436)
State income taxes, net of federal benefit 10,560 (67) (3,191)
Other nondeductible expenses 9,180 7,446 17,966
----------- ----------- -----------
$ 16,000 $ (102) $ (4,835)
=========== =========== ===========
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of June 30, 2001, 2000 and 1999
are presented below:
2001 2000
Deferred income tax asset:
Allowance for doubtful accounts $ 180,162 $ 139,659
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 and inventory reserves 363,784 202,715
Other liabilities 214,235 165,802
Deferred revenue 15,786 53,607
Net operating loss carryforward 9,548,781 6,182,781
------------ ------------
Total gross deferred tax assets 10,323,548 6,744,564
Less valuation allowance (9,654,531) (6,645,717)
------------ ------------
Net deferred tax asset 669,017 98,847
Deferred income tax liability:
Software development costs (647,908) (79,438)
Equipment, principally due to differences in
depreciation methods (21,109) (19,409)
------------ ------------
Net deferred income taxes $-0- $-0-
============ ============
The Company has recorded a full valuation allowance against its deferred
tax asset since it believes it is more likely than not that such deferred
tax asset will not be realized.
The valuation allowance for deferred tax assets as of July 1, 2001 and
2000 was $9,654,531 and $6,645,717, respectively. The net change in the
total valuation allowance for the years ended June 30, 2001 and 2000 was
an increase of $3,008,814 and $1,550,443, respectively.
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8. LEASE COMMITMENTS
The Company is obligated under operating leases and capital leases for
certain equipment and facilities expiring at various dates through the
year 2006.
As of June 30, 2001, future minimum payments by year, and in the
aggregate, noncancelable operating leases with initial terms of one year
or more consist of the following:
CAPITAL OPERATING
LEASES LEASES
Fiscal year ending June 30:
2002 $ 6,242 $ 351,073
2003 6,242 301,834
2004 2,081 315,766
2005 -- 308,175
2006 -- 229,474
----------- -----------
14,565 $ 1,506,322
===========
Amounts representing interest (1,942)
-----------
Present value of net minimum lease payments 12,623
Less current portion (4,970)
-----------
Long-term portion $ 7,653
===========
Rental expense was approximately $272,000, $69,000 and $216,000 for the
years ended June 30, 2001, 2000 and 1999, respectively.
9. PREFERRED STOCK
The Board of Directors is authorized to issue shares of preferred stock,
$.10 par value per share, from time to time in one or more series. The
Board may issue a series of preferred stock having the right to vote on
any matter submitted to shareholders including, without limitation, the
right to vote by itself as a series, or as a class together with any
other or all series of preferred stock. The Board of Directors may
determine that the holders of preferred stock voting as a class will have
the right to elect one or more additional members of the Board of
Directors, or the majority of the members of the Board of Directors. The
Board of Directors has designated a series of preferred stock which has
the right to elect a majority of the Board of Directors. The holders of
preferred stock which have the right to elect a majority of the Board of
Directors are therefore able to control the Company's policies and
affairs.
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9. PREFERRED STOCK, CONTINUED
The Board of Directors has designated 200 shares of preferred stock as
Series A Preferred stock, of which 100 shares have been issued to the
chairman/chief executive officer of the Company. The holder of the Series
A Preferred Stock have the right to elect a majority of the Board of
Directors as long as the holder remains, subject to certain conditions,
an officer, director and at least 5% shareholder of the Company. To date,
the holder of the Series A Preferred Stock has not exercised such right.
The holder of the Series A Preferred Stock has a preference on
liquidation of $1.00 per share and no dividend or conversion rights. See
Footnote 17.
10. STOCK OPTION PLANS AND STOCK WARRANTS
A) 2000 AND 1992 EMPLOYEES STOCK OPTION PLANS
In March 2001, the shareholders approved the 2000 Employees Stock Option
Plan ("the 2000 Plan") which provided for the grant of options to
purchase up to 5,000,000 shares of the Company's Common Stock. The
Company's shareholders were asked to adopt the 2000 Plan since there were
no additional shares available for issuance under the 1992 Plan and the
1992 will expire in 2002 and shareholder approval would have been
required to increase the number of shares subject to the 1992 Plan. In
2001, the Company filed a registration statement with the SEC to register
the shares issued under the 2000 Plan.
The 1992 Employees Stock Option Plan (the "1992 Plan") provided for the
grant of options to purchase 3,000,000 shares of the Company's common
stock.
Under the terms of the two Plans, options granted thereunder may be
designated as options which qualify for incentive stock option treatment
("ISO") under Section 422 of the Internal Revenue Code, or options which
do not so qualify ("non-ISOs").
The Plans are administered by a Compensation Committee designated by the
Board of Directors. The Board or the Committee, as the case may be, has
the discretion to determine eligible employees and the times and the
prices at which options will be granted, whether such options shall be
ISOs or non-ISOs, the period during which each option will be exercisable
and the number of shares subject to each option. Options generally begin
to vest one year after the date of grant. Vesting generally occurs
one-third per year over three years. The Board or the Committee has full
authority to interpret the Plans and to establish and amend rules and
regulations relating thereto. Under the two Plans, the exercise price of
an option designated as an ISO may not be less than the fair market value
of the Company's common stock on the date the option is granted. However,
in the event an option designated as an ISO is granted to a ten percent
shareholder, the exercise price shall be at least 110% of such fair
market value. The aggregate fair market value on the grant date of shares
subject to options which are designated as ISOs which become exercisable
in any calendar year, shall not exceed $100,000 per optionee.
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10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED
A) 2000 AND 1992 EMPLOYEES STOCK OPTION PLANS, CONTINUED
The Board or the Committee may in its sole discretion grant bonuses or
authorize loans to or guarantee loans obtained by an optionee to enable
such optionee to pay any taxes that may arise in connection with the
exercise or cancellation of an option.
Unless sooner terminated, the 1992 Plan will expire in May 2002 and the
2000 Plan will expire in the year 2010.
WEIGHTED
NUMBER OF AVERAGE OPTION
SHARES PRICE PER SHARE
---------- ---------------
Outstanding at July 1, 1998 2,338,870 $2.99
Options granted equal to market price 50,500 1.39
Options canceled or surrendered (404,500) 3.48
----------
Outstanding at July 1, 1999 1,984,870 2.99
Options granted equal to market price 1,337,000 1.39
Options exercised (801,529) 2.93
Options canceled or surrendered (334,168) 3.48
----------
Outstanding at June 30, 2000 2,186,173 5.67
Options granted equal to market price 1,863,532 4.93
Options granted lower than market price 444,668 1.52
Options exercised (61,733) 2.93
Options canceled or surrendered (247,935) 5.86
----------
Outstanding at June 30, 2001 4,184,705 4.93
==========
The following is a summary of the status of employee stock options at
June 30, 2001:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------- -------------------------
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
EXERCISE PRICE CONTRACTUAL AVERAGE EXERCISE
RANGE NUMBER LIFE EXERCISE PRICE NUMBER PRICE
-------------- --------- ----------- -------------- --------- --------
$1.25 - $5.00 2,724,705 4.0 $3.76 1,029,664 $2.95
$5.01 - $11.25 1,460,000 3.9 7.11 1,083,333 6.82
As of June 30, 2001 and 2000, 2,112,997 shares and 1,726,817 shares,
respectively, were exercisable under the 2000 and 1992 Employees Stock
Option Plan.
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10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED
B) NON-EXECUTIVE DIRECTOR STOCK OPTION PLAN
In April 1992, the Board of Directors adopted the Non-Executive Director
Stock Option Plan (the "Director Plan") which was approved by the
Company's stockholders in May 1992. With the approval of the
shareholders, the Director Plan was amended in December 1997. Options are
granted under the Director Plan until April 2002 to (i) non-executive
directors as defined and (ii) members of any advisory board established
by the Company who are not full-time employees of the Company or any of
its subsidiaries. The Director Plan provides that each non-executive
director will automatically be granted an option to purchase 20,000
shares upon joining the Board of Directors and 10,000 on each September
1st thereafter, provided such person has served as a director for the 12
months immediately prior to such September 1st. Each eligible director of
an advisory board will receive, upon joining the advisory board, and on
each September 1st thereafter, an additional option to purchase 5,000
shares of the Company's common stock, providing such person has served as
a director of the advisory board for the previous 12-month period.
The exercise price for options granted under the Director Plan is 100% of
the fair market value of the common stock on the date of grant. The "fair
market value" is the closing NASDAQ bid price, or if the Company's common
stock is not quoted by NASDAQ, as reported by the National Quotation
Bureau, Inc., or a market maker of the Company's common stock. If the
common stock is not quoted by any of the above the Board of Directors
acting in good faith will determine fair market value. Until otherwise
provided in the Stock Option Plan, the exercise price of options granted
under the Director Plan must be paid at the time of exercise, either in
cash, by delivery of shares of common stock of the Company (owned at
least 6 months) or by a combination of each. The term of each option
commences on the date it is granted and unless terminated sooner, as
provided in the Director Plan, expires five years from the date of grant.
The Director Plan is administered by a committee of the board of
directors composed of not fewer than three persons who are officers of
the Company (the "Committee"). The Committee has no discretion to
determine which non-executive director or advisory board member will
receive options or the number of shares subject to the option, the term
of the option or the exercisability of the option. However, the Committee
will make all determinations of the interpretation of the Director Plan.
Options granted under the Director Plan are not qualified for incentive
stock option treatment.
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10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED
B) NON-EXECUTIVE DIRECTOR STOCK OPTION PLAN, CONTINUED A schedule of
director stock option activity is as follows:
WEIGHTED
AVERAGE
NUMBER OPTION
OF PRICE
SHARES PER SHARE
-------- ---------
Outstanding June 30, 1998 140,000 3.67
Options granted equal to market price 50,000 1.00
Options cancelled or surrendered (60,000) 3.70
--------
Outstanding June 30, 1999 130,000 2.54
Options granted equal to market price 50,000 0.89
Options cancelled or surrendered (10,000) 5.13
Options exercised (40,000) 1.83
--------
Outstanding June 30, 2000 130,000 1.92
Options granted equal to market price 30,000 .84
Options exercised (20,000) .92
--------
Outstanding June 30, 2001 140,000 2.68
========
The options range in exercise price from $.84 to $4.81 per share and have
a weighted average remaining contractual life of 2.4 years.
19
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED
C) COMMON STOCK WARRANTS
A schedule of common stock warrant activity is as follows:
NUMBER WARRANT
OF PRICE
SHARES PER SHARE
Outstanding July 1, 1998 2,766,995 $4.07
Warrants granted equal to market price 232,000 3.02
Warrants cancelled or surrendered (100,000) 7.50
----------
Outstanding June 30, 1999 2,898,995 3.88
Warrants granted equal to market price 970,000 4.67
Warrants granted greater than market price 2,949,999 2.44
Warrants granted lower than market price 25,000 3.00
Warrants cancelled or surrendered (30,000) 5.00
Warrants exercised (3,788,517) 3.11
----------
Outstanding June 30, 2000 3,025,477 3.87
Warrants granted equal to market price 106,667 2.33
Warrants granted greater than market price 184,780 5.57
Warrants granted lower than market price 314,000 5.19
Warrants cancelled or surrendered (258,806) 4.60
Warrants exercised (463,668) 3.47
----------
Outstanding June 30, 2001 2,908,450 4.14
==========
In May 2001 the Company issued 114,000 common stock purchase warrants to
two foreign institutions and 150,000 common stock purchase warrants to
investment bankers as professional fees related to two private equity
financings further described in Footnote 17.
In October 1999, the Company issued 2,479,999 detachable common stock
purchase warrants in connection with a private equity financing further
described in Footnote 17. Other warrants issued during the years ended
June 30, 2001, 2000 and 1999 were generally to various firms and
individuals providing services to the Company.
The following is a summary of the status of common stock warrants at June
30, 2001:
OUTSTANDING WARRANTS EXERCISABLE WARRANTS
---------------------------------------------------------------------------- ----------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER CONTRACTUAL LIFE PRICE NUMBER PRICE
-------------------- --------- ---------------- ----------- ---------- --------
$1.37 - $4.00 1,648,003 3.2 $1.56 1,648,003 $1.50
$4.01 - $13.04 1,260,447 12.2 7.50 1,260,447 7.50
20
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
10. STOCK OPTION PLANS AND STOCK WARRANTS, CONTINUED
D) OPTION VALUATION
The weighted average fair value of each option granted under the
Company's option plans during fiscal 2001, 2000 and 1999 was $2.90, $5.21
and $2.79, respectively. These amounts were determined using the Black
Scholes option-pricing model, which values options based on the stock
price at the grant date, the expected life of the option, the estimated
volatility of the stock, expected dividend payments and the risk-free
interest rate over the expected life of the option. The dividend yield
was zero in 2001 and 2000. The expected volatility was based on the stock
prices for the period beginning in May 1992 when the Company completed
its first public offering. The expected volatility was 91.6% and 94.2%
for 2001 and 2000, respectively. The risk-free interest rate was the rate
available on zero coupon U.S. government issues with a term equal to the
remaining term for each grant. The risk free rate was 5.1% in 2001,
ranged from 6.3% to 6.5% in 2000 and ranged from 4.3% to 5.4% in 1999,
respectively. The expected life of the option was estimated based on the
exercise history from previous grants and is estimated to be five years.
The Company applies APB No. 25 in accounting for its stock option plans
and, accordingly, no compensation cost has been recognized in the
Company's financial statements for stock options under any of the stock
plans which on the date of grant the exercise price per share was equal
to or exceeded the fair value per share. However, compensation cost has
been recognized for warrants granted to non-employees for services
provided. If under SFAS No. 123, the Company determined compensation cost
based on the fair value at the grant date for its stock options, net loss
and loss per share would have been increased to the pro forma amounts
indicated below:
2001 2000 1999
Net loss
As reported $ (9,340,103) $ (5,274,043) $ (3,166,488)
Pro forma (12,869,273) (5,599,269) (3,372,745)
Basic and diluted loss per share
As reported $ (.63) $ (.49) (.43)
Pro forma (.86) (.51) (.46)
The effects of applying SFAS 123 on providing pro-forma disclosures are
not necessarily likely to be representative of the effects on reported
net income for future years.
11. COMMITMENTS - EMPLOYMENT AGREEMENTS AND CONTINGENCIES
In January, 2000, the Company entered into a new three year employment
agreement with its Chief Executive Officer, expiring on January 1, 2003.
The agreement provides for (i) a base salary of $250,000 in the first
year of the agreement increasing by 10% in each year thereafter; (ii) a
bonus equal to 3% of the Company's pre-tax net income, with such
additional bonuses as may be awarded in the discretion of the Board of
Directors, (iii) certain insurance and severance benefits; and (iv)
automobile and expenses.
21
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
11. COMMITMENTS - EMPLOYMENT AGREEMENTS AND CONTINGENCIES, CONTINUED
In July 2000, Authentidate, Inc. entered into an employment agreement
with its new Chief Executive Officer for a three year term. The
employment agreement provides for (i) annual salary of $250,000, (ii)
annual bonus up to $200,000 with a minimum bonus of $80,000 paid with the
regular payroll during the first year, (iii) a severance agreement equal
to 12 months salary in the event the Company terminates this agreement
without cause, (iv) the award of Authentidate common shares equal to 5%
of the shares outstanding on the date of the employment agreement,
vesting in equal amounts over a four-year period commencing one year from
the date of the agreement, and (v) the award of employee stock options to
purchase 200,000 Authentidate Holding Corp. common shares vesting in
equal amounts over a four-year period, at an exercise price of $6.3125
per share.
In October 2000, the Company entered into an employment agreement with
its Chief Financial Officer which provides for (i) annual salary of
$100,000 increasing to $110,000 on January 1, 2001 (ii) annual increases
every October to be determined by the Compensation Committee (iii)
eligible for annual bonuses at the discretion of Compensation Committee
(iv) a severance agreement equal to 12 months' salary and (v) the award
of Authentidate Inc. stock options equal to 1.25% of the stock
outstanding convertible in AHC stock options at such time that the
shareholders approve such conversion.
The Company is in a contractual dispute with a former service provider
who is also a shareholder. Included in accrued expenses and other current
liabilities is management's estimate of the approximate cost to settle
the contractual dispute.
The Company is the defendant in a third party complaint filed by Shore
Venture Group, LLC, a shareholder, in federal District Court in
Pennsylvania. Shore Venture is the defendant in an action commenced by
Berwyn Capital. The third party complaint alleges a claim for breach of
contract and seeks indemnification. The Company moved to dismiss the
third party complaint and the motion is currently pending before the
Court. The Company believes that the claim will not have a material
adverse impact on its, financial condition, results of operations or
cash flows.
12. CASH FLOWS - SUPPLEMENTAL INFORMATION
CASH FLOWS
The Company paid interest in the amounts of $115,323, $364,954 and
$451,387 for the years ended June 30, 2001, 2000 and 1999, respectively.
Income taxes paid aggregated $230, $133 and $4,304 for the years ended
June 30, 2001, 2000 and 1999, respectively.
NONCASH INVESTING AND FINANCING ACTIVITIES
During the fiscal year ended June 30, 2000, the Company issued 1,223,075
common shares of the Company's stock pursuant to the conversion of
$3,975,000 of convertible debt into common stock.
During the fiscal year ended June 30, 2001, the Company issued 917,608
shares of its common stock with a value approximating $4,200,000, to
acquire a portion of the remaining minority interest of Authentidate,
Inc. In addition, the Company entered into capital lease obligations
totaling $15,923. Furthermore, the Company issued 28,082 shares of common
stock out of treasury (totaling $76,719) in connection with preferred
stock being converted into common stock.
22
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
13. EMPLOYEE BENEFIT PLAN
Effective July 1, 1993, the Company implemented a qualified defined
contribution 401(k) profit sharing plan for all eligible employees. The
Company can make contributions in percentages of compensation, or amounts
as determined by the Company. The Company contributed $111,869, $25,878
and $0 to the plan during the years ended June 30, 2001, 2000 and 1999,
respectively.
14. SALE OF BUSINESS
In June 1999, the Company sold SST in a stock sale. The Company received
approximately $3.6 million in cash and approximately $400,000 in accounts
receivable and inventory. In 2000, the Company received certain claims
from the buyer of SST for indemnification under the agreements governing
its sale. A settlement was negotiated and the Company agreed to pay the
buyer $341,000 to be paid monthly over fifteen months accruing interest
at 6%. This required an additional reserve of approximately $250,000
which was recorded in 1999 related to these claims. The Company realized
a loss of approximately $505,000 on the sale. In March 2000, the Company
agreed to pay off the settlement in full for a $10,000 discount off the
original settlement of $341,000.
15. FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to concentrations of
credit risk consist of cash and cash equivalents and trade accounts
receivable. To reduce credit risk, the Company places its temporary cash
investments with high credit quality financial institutions. The
Company's credit customers are not concentrated in any specific industry
or business. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
At June 30, 2001, accounts receivable from one customer approximated 31%
of total accounts receivable.
FAIR VALUE
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value.
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses and other current liabilities
approximates fair value because of the short maturity of these
instruments.
LONG-TERM DEBT
The remaining balance of long-term debt approximates fair value based on
its discounted face amount. Consequently, the carrying value of the
borrowings under long-term debt approximates fair value.
23
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
16. SEGMENT REPORTING
SFAS 131 establishes standards for reporting financial and descriptive
information about an enterprise's operating segments in its annual
financial statements and selected segment information in interim
financial reports.
The Company has four reportable segments: Bitwise, a document imaging
company, DJS Marketing Group, Inc. (DJS), a computer systems integrator,
Authentidate, Inc., an Internet authentication company, and
Authentigraph.com, Inc., a collectibles authentication company. Bitwise
produces a product called DocStar which is a document storage and
retrieval business and DJS markets computer services including network
services, internet services and software installation and integration. In
addition, DJS sells a complete line of personal computers and peripheral
equipment. Authentidate and Authentigraph market digital authentication
services over the Internet.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.
The Company's reportable segments are separate divisions which are
managed separately. Included in the All Other column in the year ended
June 30, 2001 are the Company's other three subsidiaries, Authentidate,
Authentigraph, and WebCMN. Included in the All Other column for the year
ended June 30, 2000 are Authentidate and Authentigraph. The corporate
expenses are non-operating expenses which include all public company type
expenses and applies to all of the Company's operating segments and
therefore should be segregated.
Segment Information: DOCSTAR DJS ALL OTHER TOTALS
------------ ------------ ------------ ------------
2001
Revenues from external customers $ 6,239,579 $ 11,620,407 $ 558 $ 17,860,544
Intersegment revenues 428,488 428,488
Interest and other revenue 397,644 2,352 399,996
Interest expense 112,784 12,032 124,816
Depreciation and amortization 412,217 58,468 1,120,840 1,591,525
Segment profit/(loss) (295,680) 385,283 (4,954,729) (4,865,126)
Segment assets 18,777,015 3,372,212 3,746,305 25,895,532
2000
Revenues from external customers $ 5,589,830 $ 9,699,764 $ 144 $ 15,289,738
Intersegment revenues 249,943 249,943
Interest and other revenue 313,084 87 313,171
Interest expense 292,600 7,394 299,994
Depreciation and amortization 358,478 48,858 124,867 532,203
Segment profit/(loss) (1,177,239) 231,357 (2,342,198) (3,288,080)
Segment assets 16,675,343 2,637,368 1,827,971 21,140,682
1999
Revenues from external customers $ 7,674,451 $ 9,420,314 $ $ 17,094,765
Intersegment revenues 116,680 116,680
Interest and other revenue 107,208 107,208
Interest expense 595,345 35,051 630,396
Depreciation and amortization 586,591 50,595 637,186
Segment profit/(loss) (2,178,372) 392,854 (1,785,518)
Segment assets 11,831,310 2,667,161 14,498,471
24
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
16. SEGMENT REPORTING, CONTINUED
RECONCILIATIONS 2001 2000 1999
---- ---- ----
Revenues
Total revenues for reportable segments $ 18,289,032 $ 15,539,681 $ 17,211,445
Elimination of intersegment revenues (428,488) (249,943) (116,680)
------------ ------------ ------------
Total consolidated revenues $ 17,860,544 $ 15,289,738 $ 17,094,765
============ ============ ============
Profit or (loss)
Total profit or loss for reportable segments $ (4,865,126) $ (3,288,080) $ (1,785,518)
Product development expenses (2,255,284) (665,533) (248,801)
Corporate expenses (2,188,413) (1,358,311) (903,356)
Loss on sale of subsidiary -- -- (249,568)
Elimination of intersegment profits (15,280) 1,140 15,920
------------ ------------ ------------
Loss before income taxes $ (9,220,080) $ (5,305,069) $ 3,171,323
============ ============ ============
Assets
Total assets for reportable segments $ 25,895,532 $ 21,140,682 $ 14,498,471
Elimination of intersegment profit (27,627) (12,347) (13,487)
------------ ------------ ------------
Consolidated total assets $ 25,867,905 $ 21,128,335 $ 14,484,984
============ ============ ============
17. PRIVATE EQUITY OFFERINGS
In 2001, the Company, in two separate transactions closed on the sale of
$5,500,000 of its securities to two foreign institutions pursuant to
Regulation S, promulgated under the Securities Act of 1933, as amended.
In the transactions, the Company sold 5,500 of its Series C Convertible
Preferred Stock, with a dividend rate of 4%, payable in either cash or
Company Common Stock to the foreign institutions convertible at $4.845
per share and five year warrants to purchase 114,000 shares of Common
Stock exercisable at $4.845 per share. The conversion price is not
subject to resets or adjustments for changes in the market price of the
Company's common stock. The right of conversion incorporated into the
Series C Preferred Stock constitutes a beneficial conversion feature
which was determined to have a value of approximately $1,465,000. The
beneficial conversion feature is being amortized as a preferred stock
dividend over a one year period commencing July 1, 2001 using the
effective interest method. The Company received net proceeds of
approximately $5,200,000 from the transaction after paying commissions
and expenses. The securities sold in this offering are restricted
securities under the terms of Regulation S and may not be transferred or
resold in the United States for a period of one year, except pursuant to
registration under the Securities Act or an exemption thereunder. The
Company has agreed to register the shares underlying the Series C
Preferred Stock and Warrants for public distribution in the United States
within 180 days from the closing. The Company intends to continue to seek
additional funds which may be raised through public or private financing
and may include debt or equity securities.
25
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
17. PRIVATE EQUITY OFFERINGS, CONTINUED
During fiscal 2000, the Company closed three concurrent private
offerings. In the first offering, the Company sold 740,000 units at an
aggregate offering price of $740,000, each unit consisting of two shares
of common stock and two Series B common stock purchase warrants (the
"Series B Warrants"). The Series B Warrants entitle the holder to
purchase one share of common stock at an exercise price of $1.375 per
share during the offering period commencing on the date of issuance and
terminating five years thereafter. The Series B warrants are redeemable
at any time commencing one year after issuance at the option of the
Company with not less than 30 nor more than 60 days written notice to the
registered holders at a redemption price of $.05 per warrant provided;
(i) The public sale of the shares of common stock issuable upon exercise
of the Series B warrants are covered by a tentative registration
statement; and (ii) During each of the immediately preceding 20
consecutive trading days ending within 10 days of the date of the notice
of redemption, the closing bid price of the Company's common stock is at
least $3.25 per share.
In the second offering, the Company sold 50,000 shares of a newly created
class of Series B convertible cumulative preferred stock (the "Series B
Preferred Stock"). The Series B preferred stock was sold at $25.00 per
share for an aggregate offering price of $1,250,000. Dividends on the
Series B Preferred Stock are payable at the rate of 10% per annum,
semi-annually in cash. Each share of Series B Preferred Stock is
convertible into shares of the Company's common stock or is converted
into such number of shares of the common stock as shall equal $25.00
divided by the conversion price of $1.875 per share subject to adjustment
under certain circumstances. Commencing three years after the closing,
the conversion price shall be the lower of $1.875 per share or the
average of the closing bid and asked price of the Company's common stock
for the 10 consecutive trading days immediately ending one trading day
prior to the notice of the date of conversion; provided, however, that
the holders are not entitled to convert more than 20% of the Series B
preferred shares held by such holder on the third anniversary of the date
of issuance per month. The Series B Preferred Stock is redeemable at the
option of the Company at any time commencing one year after issuance or
not less than 30 nor more than 60 days written notice at a redemption
price of $25 per share plus accrued and unpaid dividends provided; (i)
the public sale of the shares of common stock issuable upon conversion of
the Series B preferred Stock (the "Conversion Shares") are covered by an
effective registration statement or are otherwise exempt from
registration; and (ii) during the immediately preceding 20 consecutive
trading days ending within 10 days of the date of the notice of
redemption, the closing bid price of the Company's Common Stock is not
less than $3.75 per share.
Commencing 34 months after the Closing, the Series B Preferred Stock is
redeemable at the option of the Company without regard to the closing
price of the Company's Common Stock.
26
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
17. PRIVATE EQUITY OFFERING, CONTINUED
The Company also created a new subsidiary, Authentidate.Com, LLC through
which it will market its new Internet service which allows for the
verification of the authenticity of digital images. In connection with
the above offerings, the purchasers were granted the right to purchase
20% of Authentidate.Com, LLC for $100,000. In addition, the Purchasers
were issued an aggregate of 999,999 Series C common stock purchase
warrants (the "Series C Warrants"). The Series C Warrants are redeemable
at any time commencing six months after issuance, on not less than 30 nor
more than 60 days written notice to registered holders at a redemption
price equal to $.05 per Warrant, provided (i) the public sale of the
shares of common stock issuable upon exercise of the Series C Warrants
(the "Warrant Shares") are covered by an effective registration statement
or are otherwise exempt from registration; and (ii) during each of the
immediately preceding 20 consecutive trading days ending within 10 days
of the date of the notice of redemption, the closing bid price of the
Company's common stock is not less than 120% of the current exercise
price of the Series C Warrants.
The Series C Warrants were also divided into three classes (333,333
warrants per class) to provide for varying exercise prices. The exercise
price of the Series C Warrants is as follows:
Class I - $1.50 per share of Common Stock, increasing (i) $.75 per share
thirty days after the effective date of the registration statement
covering the underlying shares (the "Registration Statement"); (ii) an
additional $.75 per share seven months after the effective date of the
Registration Statement; and (iii) an additional $.75 per share 13 months
after the effective date of the Registration Statement, subject to
adjustment for stock splits and corporate reorganizations.
Class II - $1.50 per share of Common Stock, increasing (i) $.75 per share
sixty days after the effective date of the Registration Statement; (ii)
an additional $.75 per share seven months after the effective date of the
Registration Statement; and (iii) an additional $.75 per share 13 months
after the effective date of the Registration Statement, subject to
adjustment for stock splits and corporate reorganizations.
Class III - $1.50 per share of Common Stock, increasing (i) $.75 per
share ninety days after the effective date of the Registration Statement;
(ii) an additional $.75 per share seven months after the effective date
of the Registration Statement; and (iii) an additional $.75 per share 13
months after the effective date of the Registration Statement, subject to
adjustment for stock splits and corporate reorganizations.
The Company received gross proceeds of approximately $2,100,000,
approximately $1,900,000 after expenses. The Company utilized the
proceeds of the three offerings as follows: approximately $600,000 was
utilized to repay a portion of the Company's line of credit;
approximately $160,000 was utilized to make a past due interest payment
on the Company's outstanding 8% convertible notes, and the remainder was
reserved for working capital.
27
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AUTHENTIDATE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
18. LOAN - RELATED PARTY
During fiscal 2001, the Company loaned its CEO/shareholder $317,000 at 9%
per annum. The loan, which is due January 5, 2003, has been classified as
a reduction to shareholders' equity under the caption "Other equity" in
the consolidated balance sheet.
19. SUBSEQUENT EVENTS
On September 11, 2001 the World Trade Center (WTC) was attacked by
terrorists and destroyed. The Company's Authentidate subsidiary was
located in the World Financial Center which is located near the WTC. All
our employees safely exited the building the day of the crash. The
Company currently can not enter its offices in New York City and does not
know when the World Financial Center will be repaired and reopened. The
Company is currently searching for alternative space in the New York
Metropolitan area. The Authentidate Web hosting site is maintained by
AT&T and was not affected by these events and remained fully operational
and generating revenue the day of the disaster and its aftermath. The
Company believes it has sufficient insurance to cover all extra expenses
incurred as a result of this temporary relocation of personnel and does
not expect these events to materially affect its operations.
20. QUARTERLY DATA FINANCIAL (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Fiscal year ended June 30, 2001
Net sales $ 4,483,479 $ 4,034,523 $ 4,383,397 $ 4,959,145
Gross profit 1,307,177 1,168,192 1,046,232 1,189,142
Net loss (1,575,896) (1,623,016) (2,976,080) (3,165,111)
Loss per share (0.11) (0.11) (0.20) (0.21)
Fiscal year ended June 30, 2000
Net sales $ 3,071,766 $ 4,720,317 $ 3,731,227 $ 3,766,428
Gross profit 589,443 1,372,433 1,004,797 1,046,232
Net loss (1,107,490) (126,619) (1,141,412) (2,898,522)
Loss per share (0.15) (0.01) (0.09) (0.24)
28
EX-3.1.4
3
y53484ex3-1_4.txt
CERTIFICATE OFAMEND. OF CERTIFICATE OF DESIGNATION
1
EXHIBIT 3.1.4
AUTHENTIDATE HOLDING CORP.
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS AND NUMBER OF SHARES OF SERIES C
CONVERTIBLE PREFERRED STOCK
The undersigned President and Secretary, respectively, of AUTHENTIDATE
HOLDING CORP., a Delaware corporation (the "Corporation"), hereby certify that
pursuant to authority granted to and vested in the Board of Directors of the
corporation by the provisions of the Certificate of Incorporation and in
accordance with the provisions of Section 151, 228 and 242 of the General
Corporation Law of the State of Delaware, as follows:
FIRST: That the Board of Directors of said corporation by the unanimous
written consent of its members, filed with the minutes of the Board on May 16,
2001 duly adopted a resolution authorizing and directing the following
amendments to the Certificate of Designations, Rights and Preferences and Number
of Series C Convertible Preferred Stock (the "Certificate of Designation") of
said corporation:
RESOLVED, that the Certificate of Designation of Authentidate
Holding Corp be amended by (1) increasing the number of shares designated
as SERIES C CONVERTIBLE PREFERRED STOCK, from 4,000 shares to 9,000
shares; (2) changing the definition of "Conversion Price" set forth in
Article 1; and (3) changing Article 6(a) thereof so that, as amended the
definition of "Conversion Price" set forth in Article 1 and Article 6(a)
shall be and read as follows:
1. CERTAIN DEFINITIONS
Conversion Price: The term "Conversion Price" shall mean the price
at which shares of Common Stock shall be delivered upon the
conversion of the Series C Shares, which price shall be initially
$4.845, subject to the adjustments set out in Section 6 of this
Certificate of Designation.
6. CONVERSION RIGHTS
The Series C Preferred Stock shall be convertible into Common Stock
as follows:
(a) Voluntary Conversion. Subject to and upon compliance with
the provisions of this Section 6, unless previously redeemed by the
Corporation, the Holders have the right, at such Holder's option, at
any time, and from time to time, commencing on the earlier of (a)
one year from the Issue Date or (b) the effective
2
date of a registration statement filed with the Securities and
Exchange Commission covering the issuance and resale of the
Conversion Shares, to convert such Holder's shares of Series C
Preferred Stock into fully paid and nonassessable shares of Common
Stock. The number of shares of Common Stock issuable upon conversion
of each share of this Series C Preferred Stock shall be equal to the
Issue Price divided by the Conversion Price in effect at the time of
conversion, determined as hereinafter provided. The price at which
shares of Common Stock shall be delivered upon conversion shall be
initially $4.845 (subject to the adjustments set out in this Section
6). The right to convert shares called for redemption pursuant to
Section 5 shall terminate on the earlier of five years from the
Issue Date or the close of business on the date fixed for such
redemption unless the Corporation shall default in making payment of
the amount payable upon such redemption.
SECOND: That in lieu of a meeting and vote of the holders of the
outstanding shares of Series C Convertible Preferred Stock, the holders of such
shares of preferred stock have given their written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, this Certificate of Amendment has been made under the
seal of the Corporation and the hands of the undersigned on May 21, 2001.
/s/ John T. Botti
---------------------------------
Name: John T. Botti
Title: President
Attest:
/s/ Ira C. Whitman
----------------------------------
Name: Ira C. Whitman
Title: Secretary
2
EX-4.7
4
y53484ex4-7.txt
FORM OF WARRANT
1
EXHIBIT 4.7
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (I) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (II) UPON THE DELIVERY BY THE
HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ____, 2005
NO. ____ ______WARRANTS
BITWISE DESIGNS, INC.
COMMON STOCK PURCHASE WARRANT
This warrant certificate (the "Warrant Certificate") certifies that _____
(Holder), or registered assigns, is the registered holder of warrants to
purchase up to ______ fully-paid and non-assessable shares, subject to
adjustment in accordance with Article 6 hereof (the "Warrant Shares"), of the
common stock (the "Common Stock"), par value $.001 per share, of BITWISE
DESIGNS, INC., a Delaware corporation (the "Company"), subject to the terms and
conditions set forth herein. The warrants represented by this Warrant
Certificate and any warrants resulting from a transfer or subdivision of the
warrants represented by this Warrant Certificate shall sometimes hereinafter be
referred to, individually, as a "Warrant" and, collectively, as the "Warrants."
1. Exercise Period; Exercise Price; Exercise of Warrants.
1.1. Exercise Period. Each Warrant is exercisable at any time
commencing on ____, 2000 (the "Exercise Date") until 5:00 P.M. New York City
time on _____, 2005 (the "Expiration Date").
1.2. Initial and Adjusted Exercise Price. Each Warrant is initially
exercisable to purchase one Warrant Share at an initial exercise price equal to
$__ per share, subject to adjustment to prevent dilution. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 6 hereof. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price, depending upon the context.
1.3. Method of Exercise. The rights represented by this Warrant are
exercisable upon the terms and conditions set forth herein at the option of the
Holder in whole at any time and in
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part from time to time. The Exercise Price shall be payable in cash, by wire
transfer or by certified check to the order of the Company, any combination of
cash, wire transfer or certified check, or according to the terms of Paragraph
1.4. Upon surrender of this Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the Warrant Shares purchased, at the Company's
principal offices, 2165 Technology Drive, Schenectady, New York 12308 the
registered holder of the Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the Warrant Shares so
purchased. The purchase rights represented by this Warrant Certificate are
exercisable at the option of the Holder hereof, in whole or in part (but not as
to fractional shares of Common Stock). In the case of the purchase of less than
all the Warrant Shares purchasable under this Warrant Certificate, the Company
shall cancel this Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance of
the Warrant Shares purchasable hereunder.
1.4 Cashless Exercise. At any time during the Warrant Exercise Term, the
Holder may, at its option, exchange the Warrants represented by such Holder's
Warrant Certificate, in whole or in part (a "Warrant Exchange"), into the number
of fully paid and non-assessable Warrant Shares determined in accordance with
this Section 1.4, by surrendering such Warrant Certificate at the principal
office of the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrants (the "Total Share Number") to be exchanged and the date on which the
Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange, or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the Warrant Shares issuable upon
such Warrant Exchange and, if applicable, a new Warrant Certificate of like
tenor evidencing the balance of the Warrant Shares remaining subject to the
Holder's Warrant certificate, shall be issued as of the Exchange Date and
delivered to the Holder within three (3) days following the Exchange Date. In
connection with any Warrant Exchange, the Holder's Warrant certificate shall
represent the right to subscribe for and acquire (I) the number of Warrant
Shares (rounded to the next highest integer) equal to (A) the Total Share Number
less (B) the number of Warrant Shares equal to the quotient obtained by dividing
(i) the product of the Total Share Number and the then current Exercise Price
per Warrant Share by (ii) the current Market Price (as hereafter defined) of a
share of Common Stock.
As used herein, the phrase "Market Price" at any date shall be
deemed to be the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
preceding three trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or as reported in the Nasdaq National Market System, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on the Nasdaq National Market System, the last reported sale price as
furnished by the National Association of Securities Dealers, Inc. through Nasdaq
or similar organization if Nasdaq is no longer reporting such information, or if
the Common Stock is not quoted on Nasdaq, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the two days immediately preceding the Exchange
Date.
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2. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for the Warrant Shares purchased pursuant to such
exercise shall be made forthwith (and in any event within seven business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the initial issuance thereof, and
such certificates shall (subject to the provisions of Article 3 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid and shall have
established to the satisfaction of the Company that such transfer is in
compliance with all applicable securities laws.
The Warrant Certificates and, upon exercise of the Warrants, the
certificates representing the Warrant Shares shall be executed on behalf of the
Company by the manual or facsimile signature of those officers required to sign
such certificates under applicable law.
3. Restriction on Transfer of Warrants.
3.1. Agreement that Warrant Acquired for Investment. The Holder of this
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants and the Warrant Shares issuable upon exercise of the Warrants are being
acquired as an investment and not with a view to the distribution thereof and
that the Holder has no present intention of distributing or selling to others
any of such interest or granting any participation therein. The Holder also
understands that neither the Warrants nor the Warrant Shares have been
registered under the Securities Act of 1933, as amended (the "Act"). The Holder
further acknowledges that the Warrant is being issued, and the shares issuable
upon exercise of the Warrant will be issued, on the basis of the statutory
exemption provided by section 4(2) of the Securities Act relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance upon this statutory exemption is based in part upon the
representations made by the Holder contained herein.
Neither this Warrant nor any Warrant Share may be offered for sale or
sold, or otherwise transferred or disposed of in any transaction which would
constitute a sale thereof within the meaning of the Act, unless (i) such
security has been registered for sale under the Act and registered or qualified
under applicable state securities laws relating to the offer and sale of
securities, or (ii) exemptions from the registration requirements of the Act and
the registration or qualification requirements of all such state securities laws
are available and the Company shall have received an opinion of counsel
satisfactory to the Company that the proposed sale or other disposition of such
securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws, such counsel
and such opinion to be reasonably satisfactory to the Company.
3.2. Legend Requirement. This Warrant Certificate and, upon exercise
of the
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Warrants, in part or in whole, certificates representing the Warrant Shares
shall bear a legend substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and
may not be offered or sold except (i) pursuant to an effective
registration statement under the Act or (ii) upon the delivery by
the holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an exemption
from registration under such Act is available."
4. Registration Rights.
4.1 Piggyback Registration Rights. The Company shall advise the Holder of
this Warrant or of the Warrant Shares or any then Holder of Warrants or Warrant
Shares (such persons being collectively referred to herein as "Holders") by
written notice at least 30 days prior to the filing by the Company with the
Securities and Exchange Commission of any registration statement under the
Securities Act of l933 (the "Act") covering securities of the Company, except on
Forms S-4 or S-8 (or similar successor form), and upon the request of any such
Holder within ten days after the date of such invoice, include in any such
registration statement such information as may be required to permit a public
offering of the Warrant Shares. The Company shall supply such number of
prospectuses and other documents as the Holder may reasonably request in order
to facilitate the public sale or other disposition of the Warrant Shares,
qualify the Warrant Shares for sale in such states as any such Holder reasonably
designates and do any and all other acts and things which may be necessary or
desirable to enable such Holders to consummate the public sale or other
disposition of the Warrant Shares, and furnish indemnification in the manner as
set forth in Subsection 4.3 of this Section 4. Such Holders shall furnish
information and indemnification as set forth in Subsection 4.3 of this Section
4. For the purpose of the foregoing, inclusion of the Warrant Shares by the
Holder in a Registration Statement pursuant to this sub-paragraph 4.l under a
condition that the offer and/or sale of such Warrant Shares not commence until a
date not to exceed 90 days from the effective date of such registration
statement shall be deemed to be in compliance with this sub-paragraph 4.l.
4.2 Demand Registration Rights. At any time during the five-year period
that this Warrant Certificate is exercisable, the Holder shall have the right
(which right is in addition to the piggyback registration rights provided for
under Section 4.1 above), exercisable by written notice to the Company (the
"Demand Registration Request"), to have the Company prepare and file with the
SEC on one occasion, at the sole expense of the Holder, a Registration Statement
on Form S-1 or such other appropriate form (the "Demand Registration Statement")
and such other documents, including a prospectus, as may be necessary (in the
opinion of both counsel for the Company and counsel for such Holder), in order
to comply with the provisions of the Act, so as to permit the public trading of
the Warrant Shares pursuant thereto.
Once effective, the Company covenants and agrees to use its best efforts
to maintain the effectiveness of the Demand Registration Statement until the
earlier of (i) the date that all of the
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Warrant Shares have been sold pursuant to a Registration Statement or Rule 144
of the General Rules and Regulations promulgated under the Act ("Rule 144"), or
(ii) the date that the Holder(s) of the Warrant Shares receive an opinion of
counsel to the Company that all of the Warrant Shares may be freely traded
(without limitation or restriction as to quantity or timing and without
registration under the Act) pursuant to Rule 144 or otherwise, except that, the
Company may suspend the use of the Demand Registration Statement for a period
not to exceed 45 days in any 12-month period for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, public filings with the SEC, pending
corporate developments and similar events.
4.3 The following provisions of this Section 4 shall also be applicable to
the exercise of the registration rights granted under Sections 4.1 and 4.2:
(a) The foregoing registration rights shall be contingent on the
Holders furnishing the Company with such appropriate information (relating to
the intentions of such Holders) as the Company shall reasonably request in
writing. Following the effective date of such registration, the Company shall
upon the request of any owner of Warrants and/or Warrant Shares forthwith supply
such number of prospectuses meeting the requirements of the Act as shall be
requested by such owner to permit such Holder to make a public offering of all
Warrant Shares from time to time offered or sold to such Holder, provided that
such Holder shall from time to time furnish the Company with such appropriate
information (relating to the intentions of such Holder) as the Company shall
request in writing. The Company shall also use its best efforts to qualify the
Warrant Shares for sale in such states as such Holder shall reasonably
designate.
(b) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Subsection 4.l of this Section
4 notwithstanding that Warrant Shares subject to this Warrant may be included in
any such registration. Any Holder whose Warrant Shares are included in any such
registration statement pursuant to this Section 4 shall, however, bear the fees
of his own counsel and any registration fees, transfer taxes or underwriting
discounts or commissions applicable to the Warrant Shares sold by him pursuant
thereto.
(c) The Company shall indemnify and hold harmless each such Holder
and each underwriter, if any, within the meaning of the Act, who may purchase
from or sell for any such Holder any Warrant Shares from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereto or any registration statement
under the Act or any prospectus included therein required to be filed or
furnished by reason of this Section 3 or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to the Company by
such Holder or underwriter expressly for use therein, which indemnification
shall include each person, if any, who controls any such underwriter within the
meaning of such Act; provided, however, that the Company shall not be obliged so
to indemnify any such Holder or underwriter or controlling person unless such
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Holder or underwriter shall at the same time agree to indemnify the Company, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of such Act, from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished by
reason of this Section 4 or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading insofar as such losses, claims, damages or liabilities are caused
by any untrue statement or alleged untrue statement or omission based upon
information furnished in writing to the Company by any such Holder or
underwriter expressly for use therein.
(d) Subsequent to any registration of the Warrant Shares, the Holder
agrees that it will not publicly sell any of the Warrant Shares until June 6,
2000, at which time it shall be entitled to sell up to 50% of the Warrant
Shares. The Holder may publicly sell the balance of the Warrant Shares after
December 6, 2000.
(e) The Company may withdraw any registration statement filed
pursuant to Section 4.1 or 4.2 at any time.
5. Adjustments of Exercise Price and Number of Warrant Shares.
5.1. Dividends and Distributions. In case the Company shall at any time
after the date hereof pay a dividend in Common Stock or make a distribution in
Common Stock, then upon such dividend or distribution, the Exercise Price in
effect immediately prior to such dividend or distribution shall be reduced to a
price determined by dividing an amount equal to the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution
multiplied by the Exercise Price in effect immediately prior to such dividend or
distribution, by the total number of shares of Common Stock outstanding
immediately after such issuance or sale. No adjustments shall be made for any
cash dividends on shares issuable upon exercise of the Warrants. For purposes of
any computation to be made in accordance with the provisions of this Section
5.1, the shares of Common Stock issuable by way of dividend or distribution
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for determination of stockholders entitled to
receive such dividend or distribution.
5.2. Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased on the effective date of any subdivision
or increased on the effective date of any combination.
5.3. Reclassification, Consolidation, Merger. etc. In case of any
reclassification or change of the outstanding Common Stock (other than a change
in par value to no par value, or from no par value to par value, or as a result
of a subdivision or combination), or in the case of any consolidation of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
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which does not result in any reclassification or change of the outstanding
Common Stock, except a change as a result of a subdivision or combination of
such shares or a change in nominal value, as aforesaid), or in the case of a
sale or conveyance to another corporation of the property of the Company as an
entirety, the Holder shall thereafter have the right to purchase the kind and
number of shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance as if the
Holder were the owner of the Warrant Shares issuable upon exercise of the
Warrants immediately prior to any such events at a price equal to the product of
(x) the number of Warrant Shares issuable upon exercise of the Warrants and (y)
the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holder had exercised the Warrants.
5.4. Determination of Outstanding Shares. The number of the shares of
Common Stock at any one time outstanding shall include the aggregate number of
shares issued or issuable upon the exercise of outstanding options, rights,
warrants and upon the conversion or exchange of outstanding convertible or
exchangeable securities.
5.5 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price of the Warrants, pursuant to the provisions of this Section 6,
the number of shares issuable upon the exercise of the Warrants shall be
adjusted to the nearest full amount by multiplying a number equal to the
exercise prices in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon exercise of the Warrants immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Prices.
6. Exchange and Replacement of Warrant Certificates. This Warrant
Certificate is exchangeable without expense, upon the surrender hereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu thereof and any such lost, stolen, destroyed or mutilated warrant shall
thereupon become void.
7. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of the shares of Common Stock and
shall not be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up or down to the nearest whole
number of shares of Common Stock.
8. Reservation of Shares. The Company covenants and agrees that it will at
all times reserve and keep available out of its authorized share capital, solely
for the purpose of issuance
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upon the exercise of the Warrants, such number of shares of Common Stock as
shall be equal to the number of Warrant Shares issuable upon the exercise of the
then outstanding Warrants, for issuance upon such exercise, and that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all Warrant
Shares issuable upon issuance in accordance with the terms hereof shall be duly
and validly issued, fully paid, nonassessable and not subject to the preemptive
rights of any stockholder.
9. Rights of Warrant Holders. Nothing contained in this Agreement shall be
construed as conferring upon the Holder any rights whatsoever as a stockholder
of the Company, either at law or in equity, including without limitation, or
Holders the right to vote or to consent or to receive notice as a stockholder in
respect of any meetings of stockholders for the election of directors the right
to receive dividends or any other matter. Notwithstanding the foregoing, if at
any time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) The Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its Common Stock
any additional Common Stock or other shares of capital stock of the Company or
securities convertible into or exchangeable for Common Stock or other shares of
capital stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) A dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; or
(d) Reclassification or change of the outstanding Common Stock
(other than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), consolidation of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the outstanding
Common Stock, except a change as a result of a subdivision or combination of
such shares or a change in par value, as aforesaid), or a sale or conveyance to
another corporation of the property of the Company as an entirety is proposed;
or
(e) The Company or an affiliate of the Company shall propose to
issue any rights to subscribe for Common Stock or any other securities of the
Company or of such affiliate to all the stockholders of the Company; then, in
any one or more of said events, the Company shall give written notice of such
event at least fifteen (15) days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, options
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or warrants, or entitled to vote on such proposed dissolution, liquidation,
winding up or sale. Such notice shall specify such record date or the date of
closing the transfer books, as the case may be. Failure to give such notice or
any defect therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend or distribution,
or the issuance of any convertible or exchangeable securities or subscription
rights, options or warrants, or any proposed dissolution, liquidation, winding
up or sale.
10. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 1 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
11. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
12. No Recourse. No recourse shall be had for any claim based hereon or
otherwise in any manner in respect hereof, against any incorporator,
stockholder, officer or director, past, present or future, of the Company or of
any predecessor corporation, whether by virtue of any constitutional provision
or statute or rule of law, or by the enforcement of any assessment or penalty or
in any other manner, all such liability being expressly waived and released by
the acceptance hereof and as part of the consideration for the issue hereof.
13. No Waiver. No course of dealing between the Company and the Holder
hereof shall operate as a waiver of any right of any Holder hereof, and no delay
on the part of the Holder in exercising any right hereunder shall so operate.
14. Amendments. This Warrant may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Warrant, and all future Holders shall be bound thereby.
15. Headings. The headings of the Sections of this Warrant are inserted
for convenience only and shall not be deemed to constitute a part of this
Warrant.
16. Governing Law. The provisions of this Warrant shall in all respects be
constructed according to, and the rights and liabilities of the parties hereto
shall in all respects be governed by, the laws of the State of New York. This
Warrant shall be deemed a contract made under the laws of the State of New York
and the validity of this Warrant and all rights and liabilities hereunder shall
be determined under the laws of said State.
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17. Warrant Transferable. Subject to the transfer conditions referred to
in the legend endorsed hereon, this Warrant and all rights hereunder are not
transferable, except that Josephthal & Co. Inc. ("Josephthal") may transfer this
Warrant to any affiliate or employee of Josephthal in whole or in part, without
charge, upon surrender of this Warrant with a properly executed Assignment (in
the form of Assignment attached hereto and made a part hereof) at the principal
office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the ___ day of ____, 2000.
[SEAL] BITWISE DESIGNS, INC.
By: ___________________________________
John T. Botti, President
Attest:
_______________________________
Secretary
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ________ Warrant Shares and
herewith tenders in payment for such Warrant Shares cash or a check payable to
the order of Bitwise Designs, Inc. in the amount of $_________, all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Warrant Shares be registered in the name of ________________________ ,
whose address is______________________________________________________________
and that such certificate be delivered to ___________________ , whose address
is ____________________________________________________________.
Dated:______________________ Signature:___________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
_____________________________________
_____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
STATE OF ___________)
COUNTY OF __________) ss:
On this __ day of ___________, before me personally came ________, to me
known, who being by me duly sworn, did depose and say that he resides at
__________________, that he is the holder of the foregoing instrument and that
he executed such instrument and duly acknowledged to me that he executed the
same.
____________________________________
Notary Public
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[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED ________________________________ hereby sells,
assigns and transfers unto ___________________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________ ,
Attorney, to transfer the within Warrant Certificate on the books of Bitwise
Designs, Inc., with full power of substitution.
Dated:_____________________ Signature:________________________________
__________________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
____________________________________
____________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
EX-4.8
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y53484ex4-8.txt
FORM OF WARRANT
1
EXHIBIT 4.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED ("SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND HAS BEEN
OFFERED AND SOLD ONLY TO PERSONS OUTSIDE THE UNITED STATES PURSUANT TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY REGULATION S OF THE SECURITIES ACT. THE
HOLDER OF THIS WARRANT, DURING THE PERIOD OF TIME COMMENCING ON ____________ AND
EXPIRING ONE YEAR FROM SUCH DATE, MAY NEITHER OFFER, SELL, DELIVER, TRANSFER NOR
EXERCISE THIS WARRANT, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO ANY
U.S. PERSON, OR ON BEHALF OF ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN
REGULATION S), UNLESS SUCH ACTION IS PURSUANT TO (A) A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (B) OFFERS AND SALES
TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED SATES, WITHIN THE MEANING OF
REGULATION S, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF THE
SECURITIES ACT, OR (C) ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH CASE ONLY UPON THE DELIVERY OF
THE COMPANY OF SUCH OPINION OF COUNSEL, CERTIFICATES, AND/OR OTHER INFORMATION
REASONABLY REQUIRED BY THE COMPANY TO PROVE COMPLIANCE WITH THIS PARAGRAPH. THE
HOLDER OF THIS WARRANT FURTHER AGREES NOT TO ENGAGE IN HEDGING TRANSACTIONS
INVOLVING THESE SECURITIES, UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
WARRANT NO. AHC-G1 Warrant to Purchase _______ Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK
OF
AUTHENTIDATE HOLDING CORP.
VOID AFTER _________, 2006
This certifies that ______________________, for value received, is
entitled to purchase from Authentidate Holding Corp., a Delaware corporation
(the "Company"), having a place of business at 2165 Technology Drive,
Schenectady, New York 12308, _______ shares of Common Stock of the Company at
the Stock Purchase Price set forth in Section 1. The term "Common Stock" means
the common stock of the Company.
This Warrant is subject to the following terms and conditions:
1. Determination of Stock Purchase Price. The exercise price per share of this
Warrant is $4.845 per share of Common Stock (the "Stock Purchase Price").
2
2. Exercise; Issuance of Certificates; Payment for Shares. This Warrant shall be
exercisable at the option of the Holder, at any time or from time to time,
commencing on the earlier of one year from the Closing Date or on the effective
date of a registration statement covering the issuance and resale of the shares
of Common Stock issuable upon the exercise of this Warrant, before 5:00 p.m.
Eastern Standard Time on _____, 2006 (the "Expiration Date") upon surrender to
the Company, at its principal office or such other place as Company may
designate, of this Warrant, together with the Purchase Form (attached hereto)
fully completed and signed and accompanied by an opinion of counsel or other
information described in the Purchase Form, and payment in full, of the Stock
Purchase Price, by cashier's check or wire transfer. The Company agrees that the
shares of Common Stock purchased under this Warrant shall be and are deemed to
be issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered, together
with the completed, executed Purchase Form, opinion of counsel or other
information and payment in full. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder is
entitled upon such exercise, shall be delivered to the Holder by the Company at
the Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver to the Holder a new Warrant or Warrants of like
tenor for the balance of the shares purchasable under this Warrant within a
reasonable time.
3. Reservation of Shares. The Company covenants and agrees that all shares of
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance, be free of all taxes, liens and charges with
respect to the issuance thereof (other than income taxes and taxes in respect of
any transfer by Holder). The Company further covenants and agrees that during
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized and reserved a sufficient number
of shares of authorized but unissued Common Stock, or other appropriate
securities and property, when and as required to provide for the exercise of the
rights represented by this Warrant.
4. Adjustment of Stock Purchase Price and Number of Shares. The Stock Purchase
Price and the number of shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of the
events described in this Section 5.
4.1 Subdivision or Combination of Stock. If the Company at any time while
this Warrant or any portion of it remains outstanding and unexpired shall
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Stock Purchase Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Company shall be combined into a smaller number of
shares, the Stock Purchase Price in effect immediately prior to such combination
shall be proportionately increased.
4.2 Notice of Adjustment. Upon any determination or adjustment of the
Stock Purchase Price or in the conversion ratio of the Common Stock or any
increase or decrease in the number of shares purchasable upon the exercise of
this Warrant, the Company shall give written notice thereof to the registered
Holder of this Warrant as provided in Section 10. The notice shall be signed by
the Company's chief financial officer and shall state the Stock Purchase Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price
2
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upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
4.3 Other Notices. If at any time:
(A) the Company shall declare any cash dividend upon its Common
Stock;
(B) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock;
(C) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(D) there shall be any capital reorganization or reclassification of
the capital stock of the Company; or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to another corporation
then, in any one or more of said cases, the Company shall give to the registered
Holder of this Warrant at least 15 days prior written notice of the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger
or sale, so that the Holder may make a best efforts attempt to respond to such
notice by exercising his Warrant for Common Stock entitling him to the rights of
a holder of Common Stock.
5. Representations of Holder. The holder is not a U.S. person and the Warrant is
not being exercised on behalf of a U.S. person. The holder has obtained and
given to the Company an opinion of counsel or other information reasonably
required by the Company to prove that the delivery of the Warrant has been
registered under the Securities Act or is exempt from registration.
6. Restriction on Transfer of Warrant and Shares Issuable upon Exercise.
This Warrant and the Warrant Shares have not been registered under the
United States Securities Act of 1933, as amended (the "Securities Act"), or any
state securities laws and have been offered and sold only to persons outside the
United States pursuant to an exemption from registration provided by Regulation
S of the Securities Act. The holder of this certificate, during the period of
time commencing on the date certified by Banca del Gottardo that the
distribution of the Warrants is complete and expiring one year from such date,
may not offer, sell, deliver or transfer, directly or indirectly, in the United
States or to, or exercised by or on behalf of, any U.S. Person (as such terms
are defined in Regulation S under the Securities Act) unless such action is (A)
pursuant to a registration statement which has been declared effective under the
Securities Act, (B) pursuant to offers and sales to non-U.S. persons that occur
outside the United States within the meaning of Regulation S under the
Securities Act in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (C) pursuant to another available exemption from the
registration requirements of the Securities Act, and in each case only upon
delivery of the company of such opinion of counsel, certificates, and/or other
information reasonably required by the company to prove compliance with this
paragraph. The holder of this security further agrees not to engage in any
hedging transactions
3
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involving these securities, unless such transactions meet the requirements of
and are in compliance with the Securities Act.
6.1. Legend Requirement. The shares of common stock issuable upon exercise
of this Warrant shall bear a legend substantially similar to the following:
The shares represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws and have been
offered and sold only to persons outside the United States pursuant
to an exemption from registration provided by Regulation S of the
Securities Act. The holder of this certificate, during the period of
time commencing on _______, 2001 and expiring one year from such
date, may not offer, sell, deliver or transfer, directly or
indirectly, in the United States or to, or exercised by or on behalf
of, any U.S. Person (as such terms are defined in Regulation S under
the Securities Act) unless such action is (A) pursuant to a
registration statement which has been declared effective under the
Securities Act, (B) pursuant to offers and sales to non-U.S. persons
that occur outside the United States within the meaning of
Regulation S under the Securities Act in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (C) pursuant
to another available exemption from the registration requirements of
the Securities Act, and in each case only upon delivery of the
company of such opinion of counsel, certificates, and/or other
information reasonably required by the company to prove compliance
with this paragraph. The holder of this security further agrees not
to engage in any hedging transactions involving these securities,
unless such transactions meet the requirements of and are in
compliance with the Securities Act.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in
this Warrant shall be construed as conferring upon the Holder the right to vote
or to consent or to receive notice as a shareholder of the Company on any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
8. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
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5
9. Notices. All notices, demands and requests required or permitted by this
Agreement shall be in writing and, except as otherwise provided herein, shall be
deemed to have been given for all purposes (i) upon personal delivery, (ii) four
days after being sent, when sent by professional overnight courier service from
one country to another, (iii) eight days after having posting when sent by
international air mail, with postage prepaid, or (iv) on the date of
transmission when sent by confirmed facsimile; if directed to the person or
entity to which notice is to be given at his or its address set forth in this
Section or at any other address such person or entity has designated by notice.
10. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the covenants and
agreements of the Company shall inure to the benefit of any successor or assign
of the Holder which holds or has warrants to purchase at least 1,000 shares of
Common Stock.
11. No Recourse. No recourse shall be had for any claim based hereon or
otherwise in any manner in respect hereof, against any incorporator,
stockholder, officer or director, past, present or future, of the Company or of
any predecessor corporation, whether by virtue of any constitutional provision
or statute or rule of law, or by the enforcement of any assessment or penalty or
in any other manner, all such liability being expressly waived and released by
the acceptance hereof and as part of the consideration for the issue hereof.
12. No Waiver. No course of dealing between the Company and the Holder hereof
shall operate as a waiver of any right of any Holder hereof, and no delay on the
part of the Holder in exercising any right hereunder shall so operate.
13. Descriptive Headings and Governing Law. The description headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. The provisions of this
Warrant shall in all respects be constructed according to, and the rights and
liabilities of the parties hereto shall in all respects be governed by, the laws
of the State of New York. This Warrant shall be deemed a contract made under the
laws of the State of New York and the validity of this Warrant and all rights
and liabilities hereunder shall be determined under the laws of said State.
14. Lost Warrants. The Company represents and warrants to the Holder that upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant, the Company, at its expense, will make and deliver a new
Warrant, of like tenor, in lieu of the lost/stolen, destroyed or mutilated
Warrant.
15. Fractional Shares. No fractional shares shall be issued upon exercise of
this Warrant. The Company shall, in lieu of issuing any fractional share, pay to
the Holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the __ day of __________, 2001.
HOLDER: AUTHENTIDATE HOLDING CORP.
By:_________________________ By: _______________________________
Name: John Botti, President
Title:
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PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase _____ shares of
Common Stock evidence by the attached Warrant, according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares shall be issued in
the name set forth below.
The undersigned is not a U.S. person and the Warrant is not being
exercised on behalf of a U.S. person.
The undersigned has obtained and given to the Company an opinion of
counsel or other information reasonably required by the Company to prove that
the delivery of the Common Stock have been registered under the Securities Act
or is exempt from registration.
The undersigned acknowledges the resale and transfer of the Common Stock
issued pursuant to the exercise of this Warrant must comply with Regulations S
or another exemption from registration under the Securities Act of 1933.
DATED: [NAME OF HOLDER]
By______________________________
(Signature)
Name: __________________________
(Please print)
Address:
__________________________
__________________________
__________________________
Employer Identification No., Social
Security No. or other identifying
number:
________________________________
7
EX-4.9
6
y53484ex4-9.txt
FORM OF SERIES C PREFERRED STOCK CERTIFICATE
1
Exhibit 4.9
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
C 0
SEE REVERSE SIDE FOR CERTAIN
CONDITIONS AND RESTRICTIONS
AUTHENTIDATE HOLDING CORP.
9,000 SHARES SERIES C CONVERTIBLE PREFERRED STOCK
PAR VALUE $.10
SEE REVERSE SIDE FOR CERTAIN RESTRICTIONS.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO ANY SHAREHOLDER WHO SO REQUESTS
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
This is to Certify that ________________________________________ is the owner of
________________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE
SERIES C CONVERTIBLE PREFERRED STOCK OF
AUTHENTIDATE HOLDING CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated:
_________________________ _______________________
SECRETARY/TREASURER PRESIDENT
2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT --as tenants by the entireties -----------------------------
JT TEN --as joint tenants with right of
survivorship and not as tenants (Cust) (Minor)
in common under Uniform Gifts to Minors
Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
CONVERSION INSTRUCTIONS
To: Authentidate Holding Corp.
Office of President
2165 Technology Drive
FOR Schenectady, New York 12308
CONVERSION The undersigned hereby irrevocably exercises the right to
convert shares of the Series C Convertible Preferred
USE Stock, represented by this Certificate into shares of
Common Stock of the Corporation in accordance with the provisions
ONLY of the Certificate of Incorporation of the Corporation
Dated:
Signature
---------------------
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
NOTICE: The signature in these instructions
must correspond with the name as
written upon the face of the
Certificate in every particular,
without alteration or enlargement or
any change whatever.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
/ /
-------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
-------------------------------------------------------------------------------
Shares
-----------------------------------------------------------------------
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney
-----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------
-----------------------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE
NOTICE: NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed
By
----------------------
THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17A6-14.
The Shares represented by this certificate and the common stock issuable upon
conversion of this certificate have not been registered under the United States
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws and have been offered and sold only to persons outside the
United States pursuant to an exemption from registration provided by Regulation
S of the Securities Act. The holder of this certificate (and the common stock
issuable upon conversion), during the period of time commencing on ,
2001 and expiring one year from such date, may not offer, sell, deliver or
transfer such shares, directly or indirectly, in the United States or to, or
for the benefit of, any U.S. Person (as such terms are defined in Regulation S
under the Securities Act) unless such action is (A) pursuant to a registration
statement which has been declared effective under the Securities Act, (B)
pursuant to offers and sales to non-U.S. persons that occur outside the United
States within the meaning of Regulation S under the Securities Act in a
transaction meeting the requirements of Rule 904 under the Securities Act, or
(C) pursuant to another available exemption from the registration requirements
of Securities Act, and in each case only upon delivery of the company of such
opinion of counsel, certificates, and/or other information reasonably required
by the company to prove compliance with this paragraph. The holder of this
security further agrees not to engage in any hedging transactions involving
these securities, unless such transactions meet the requirements of and are in
compliance with the Securities Act.
EX-10.15
7
y53484ex10-15.txt
FORM OF SECURITY EXCHANGE AGREEMENT
1
EXHIBIT 10.15
SECURITY EXCHANGE AGREEMENT
Agreement entered into as of May 15, 2001, between Authentidate Holding
Corp. (f/k/a Bitwise Designs, Inc.), a Delaware corporation with its address at
2165 Technology Drive, Schenectady, New York, 12308 ("AHC"); Authentidate, Inc.,
a Delaware corporation with its address at Two World Financial Center, 43rd
Floor, New York, New York 10281 ("Authentidate"); and the undersigned holder of
securities of Authentidate whose name appears on the signature page annexed
hereto (the "Securityholder"). AHC, Authentidate and the Securityholders are
referred to collectively herein as the "Parties."
RECITALS:
WHEREAS, AHC owns approximately 82% of the outstanding shares of the
Common Stock of Authentidate; and
WHEREAS, AHC has determined that it is in the best interests of its
shareholders that AHC make an offer to acquire the remaining outstanding shares
of Common Stock, options and warrants to purchase Common Stock of Authentidate
(the "Transaction") from the holders thereof; and
WHEREAS, the Board of Directors of Authentidate has determined that it is
in the best interests of Authentidate and its shareholders that the Transaction
be conducted as proposed herein; and
WHEREAS, the undersigned Securityholder of Authentidate has determined it
to be in his best interests to accept the Transaction upon the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, and other good and valuable consideration, the
Parties agree as follows.
1. DEFINITIONS
For purposes of this Agreement:
"Authentidate Certificate" shall mean a certificate representing
Authentidate Shares or Authentidate Convertible Securities.
"Authentidate Convertible Security" shall mean all options, warrants and
other securities issued by Authentidate which are convertible into Authentidate
Shares.
"Authentidate Share" shall mean all shares of Common Stock of
Authentidate, par value $.001 per share, including any Authentidate Shares which
may be issued to any Authentidate Securityholder upon conversion of any
Authentidate Convertible Security.
2
"Authentidate Securities" means the Authentidate Shares and Authentidate
Convertible Securities.
"Authentidate Securityholder" shall mean the beneficial owner of any
Authentidate Shares or Authentidate Convertible Securities.
"AHC Shares" shall mean shares of Common Stock of AHC, par value $.001 per
share.
"AHC Convertible Security" shall mean all options, warrants, and other
securities issued by AHC which are convertible into AHC Shares which may be
issued to Authentidate Securityholders in exchange for the Authentidate
Convertible Securities held by such Authentidate Securityholders.
"Confidential Information" means any information which has been or is
concurrently herewith provided to an Authentidate Securityholder (i) in
connection with this Agreement, which is identified as, or should be reasonably
understood to be, confidential to Authentidate, and/or (ii) as a result of the
Authentidate Securityholder's investment in Authentidate or employment by
Authentidate (whether as an employee or consultant or otherwise), including, but
not limited to, trade secrets and confidential information disclosed to the
Securityholders or known by them as a consequence of their transactions with AHC
and/or Authentidate, whether or not pursuant to this Agreement, and not
generally known in the industry, concerning AHC's and Authentidate's business,
finances, methods, operations, know-how, trade secrets, data, technical
processes and formulas, source code, product designs, sales, cost and other
unpublished financial information, product and Business Plans, projections,
marketing data, information, research and development, customers, pricing and
information relating to proposed expansion and this Agreement and all exhibits
hereto.
"Exchange Ratio" has the meaning set forth in Section 2(a) herein.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due).
"Person" means an individual, a partnership, a corporation, a limited
liability company or partnership, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization, or a governmental entity
(or any department, agency, or political subdivision thereof).
"Released Claims" means any and all claims, suits, damages, losses, causes
of action, known or unknown, of the undersigned Securityholder and any heir,
affiliate, officer, director, successor, agent or employee of Securityholder
that Securityholder may have in the future or presently has against AHC or
Authentidate (and/or their respective officers, directors, employees, affiliates
and agents) related to, arising under, or out of: (i) Securityholder's purchase
and/or ownership of Authentidate Securities or any documents related thereto or
evidencing same; (ii) the formation and operation of Authenticate from its
inception to the date hereof; (iii) any and all shareholder derivative actions
or any other shareholder claims arising out of or under the Delaware General
2
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Corporation Law and (iv) any agreement or contract (written or oral) for the
performance of services existing between the Authenticate Securityholder and
Authenticate other than a written employment agreement between Authenticate and
its employees.
"Transfer" A Person shall be deemed to have effected a "Transfer" of a
security if such person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or any
interest in such security or (ii) enters into an agreement or commitment
providing for the sale of, pledge of, encumbrances of, grant of an option with
respect to, transfer of or disposition of such security or any interest therein.
2. OFFER TO EXCHANGE AUTHENTIDATE SECURITIES
(a) Basic Transaction. Subject to the terms and conditions of this
Agreement, AHC hereby offers, until 5:00 pm on May 10, 2001, to purchase from
the undersigned Authentidate Securityholder any and all Authentidate Securities
owned by the undersigned in exchange for:
(i) with respect to the Authentidate Shares, such number of AHC
Shares on a basis of 1.5249 AHC Shares for each Authentidate
Share (the "Exchange Ratio") as set forth in clause 2(d)
hereof; and
(ii) with respect to the Authentidate Convertible Securities, such
number of AHC Convertible Securities as adjusted by the
Exchange Ratio, as set forth in Clause 2(e) below.
All fractional AHC Shares or AHC Convertible Securities resulting from the
Transaction shall be rounded up or down to the nearest whole share.
(b) The Closing. The closing of the Transaction contemplated by this
Agreement (the "Closing") shall be deemed to take place at the offices of AHC,
at 5:00 p.m. local time on May 10, 2001 (the "Closing Date").
(c) Deliveries at the Closing. At or the prior to the Closing, (i) the
Securityholder will deliver to AHC the various certificates, instruments, and
documents as set forth below and (ii) AHC will deliver to the Securityholder the
various certificates, instruments, and documents as set forth below:
(i) On or before 5:00 pm on May 10, 2001, in order to accept this
offer, Securityholder shall deliver to AHC, an executed copy
of this Agreement and all original Authentidate Shares or
Authentidate Convertible Securities owned by Securityholder;
and
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(ii) Within 10 business days of receipt of the documents to be
delivered by the Securityholder in clause (i) above, AHC shall
deliver to the Securityholder the AHC Shares and/or AHC
Convertible Securities.
IF YOU HAVE NEVER RECEIVED A PHYSICAL CERTIFICATE FOR YOUR AUTHENTIDATE,
INC. SECURITIES, PLEASE CHECK THE BOX ON THE SIGNATURE PAGE.
(d) Conversion of Authentidate Shares. Upon delivery of the
Securityholder's Authentidate Shares to AHC together with an executed copy of
this Agreement, subject to AHC's acceptance thereof, the Authentidate Shares
owned by Securityholder will be deemed converted automatically into the right to
receive that number of AHC Shares determined according to the Exchange Ratio.
(e) Conversion of Authentidate Convertible Securities. Upon delivery of
the Securityholder's Authentidate Convertible Securities to AHC together with an
executed copy of this Agreement, the Authentidate Convertible Securities will be
converted automatically into the right to receive such number of AHC Convertible
Securities (and at such exercise or conversion price) as equals the number of
Authentidate Convertible Securities held by the Authentidate Securityholder
adjusted by the Exchange Ratio. The terms and conditions governing the holder's
right to receive AHC Shares pursuant to the AHC Convertible Securities shall be,
to the fullest extent possible, the same as governed such holder's right to
receive Authentidate Shares under the Authentidate Convertible Securities,
including the exercise term and registrations rights, if any, as are contained
in the Authentidate Convertible Securities. By way of example and not by
limitation, an Authentidate Convertible Security (such as a warrant) with an
exercise price of $3.00 per share for 100 shares with an exercise term of 3
years will be exchanged for a warrant to purchase 152 AHC Shares with an
exercise price of $1.97. The exercise term would remain at 3 years from the date
of original issuance. In the event that a holder of an option to purchase
Authentidate shares is not eligible under the AHC option plans to receive an AHC
option, then such person will receive an AHC warrant in replacement.
(f) If any certificate for AHC Shares or AHC Convertible Securities is to
be issued in a name other than the name in which the Authentidate Securities
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that (i) Authentidate Security so surrendered will be properly
endorsed and otherwise in proper form for transfer and accompanied by all other
documents required to evidence and effect such transfer and (ii) either (x) that
the Person requesting such exchange will have paid any transfer or other taxes
required by reason of the issuance of a certificate for AHC Shares or AHC
Convertible Securities in a name other than the name of the registered holder of
the Authentidate Security surrendered or (y) established to the satisfaction of
AHC, or any agent designated by AHC, that such tax has been paid or is not
applicable.
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5
(g) Notwithstanding anything to the contrary in this Agreement, neither
AHC nor Authentidate shall be liable to an Authentidate Securityholder that was
properly delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) AHC will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Authentidate
Shares or Authentidate Convertible Securities such amounts as AHC (or any
Affiliate thereof) shall determine in good faith they are required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code, or any provision of federal, state, local or foreign tax law. To the
extent that amounts are so withheld by AHC, such withheld amounts will be
treated for all purposes of this Agreement as having been paid to the holder of
Authentidate Shares or Authentidate Convertible Securities in respect of whom
such deduction and withholding were made by AHC.
(i) Additional Documents. Securityholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of AHC, to carry out the intent of this Agreement.
3. RESTRICTED STATUS OF AHC SHARES AND AHC CONVERTIBLE SECURITIES
(a) Securityholder understands that: (i) the AHC Shares and/or AHC
Convertible Securities have not been and are not being registered under the 1933
Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) they have been subsequently registered
thereunder, or (B) Securityholder shall have delivered to the Company an opinion
of counsel acceptable to the Company, in a generally acceptable form, to the
effect that such AHC Shares and/or AHC Convertible Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration.
(b) Securityholder understands that the certificates or other instruments
representing the AHC Shares and/or AHC Convertible Securities shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
4. NON-DISCLOSURE AND CONFIDENTIALITY.
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The undesigned Authentidate Securityholder covenants and agrees, on behalf
of itself its affiliates, parent, subsidiaries, directors, officers, employees,
agents, heirs, successors and assigns, that it shall not, at any time during or
after the termination of this Agreement, make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade secret or
other Confidential Information and not to use any such Confidential Information
for any purpose other than the purpose for which it was originally disclosed to
the receiving party. The undersigned acknowledges that the Confidential
Information is the property of Authentidate and AHC. This Section 4 shall
survive termination of this Agreement.
5. SECURITYHOLDER RELEASE.
Securityholder, on behalf of itself, its affiliates, parent, subsidiaries,
directors, officers, employees, agents, heirs, successors and assigns, hereby
releases and discharges in full all Released Claims, known and unknown, that he
may have existing as of the date hereof or in the future against AHC and/or
Authentidate and/or their respective affiliates, agents, officers, directors,
successors, assigns or employees. This Section 5 shall survive termination of
this Agreement. Securityholder's sole remedy and rights against AHC and
Authenticate after the date hereof shall be to enforce performance by AHC of
AHC's obligations under this Agreement.
Before signing my name to this Agreement, the undersigned Securityholder
confirms and states that the undersigned:
1. has read it and understands that important rights are being given
up.
2. means everything that is said; and
3. has signed it freely as the act and deed of the undersigned.
6. REPRESENTATIONS BY THE PARTIES.
(a) Representations of AHC
(i) AHC has the full right, power, legal capacity and authority to
enter into this Agreement and to complete the transactions herein contemplated
and this Agreement constitutes a valid and binding obligation of AHC, and is
enforceable against AHC in accordance with its terms.
(ii) The AHC Shares and AHC Convertible Securities to be issued to
the Authentidate Securityholders upon the consummation of the Transaction, when
delivered in accordance with this Agreement, shall be duly authorized, validly
issued, fully paid and nonassessable.
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(iii) The issuance of such AHC Shares and AHC Convertible
Securities in connection with this Agreement will be exempt from registration
under the Securities Act of 1933, as amended, and applicable state securities
laws. The AHC Shares and AHC Convertible Securities to be issued to the
Authentidate Securityholders pursuant to Transaction are restricted securities
under Rule 144 of the Securities Act of 1933 and shall bear an appropriate
legend as such.
(iv) AHC has delivered simultaneously herewith to the Authentidate
Securityholders a copy of the AHC (A) Proxy Statement dated as of February 16,
2001, as supplemented for its meeting of shareholders held on March 23, 2001,
(B) Annual Report for the fiscal year ended June 30, 2000 and (C) Reports on
Form 10Q for the quarters ended September 30, 2000 and December 31, 2000
(together such material being referred to as the "AHC Disclosure Documents"),
and such other material regarding the Transaction as may be necessary or
desirable to advise the Authentidate Securityholders of the terms and risks of
the Transaction
(b) Representations of Authentidate
(i) Authentidate has the full right, power, legal capacity and
authority to enter into this Agreement and to complete the transactions herein
contemplated and this Agreement constitutes a valid and binding obligation of
Authentidate, and is enforceable against Authentidate in accordance with its
terms.
(ii) All the issued and outstanding Authentidate Shares and
Authentidate Convertible Securities are validly issued, fully paid and
nonassessable.
(iii) As of the date of this Agreement, Authentidate has an
authorized capitalization of 20,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock. As of the date of this Agreement, there are 3,602,436
shares of Common Stock of Authentidate issued and outstanding and no shares of
Preferred Stock of Authentidate issued and outstanding. Further, as of the date
of this Agreement, Authentidate has issued options and warrants to purchase
714,676 shares of its Common Stock.
(c) Representations of the Securityholder
The Securityholder represents and warrants to AHC and Authentidate that
he:
(i) is the beneficial owner of the Authentidate Shares and
Authentidate Convertible Securities indicated on the Securityholder signature
page of this Agreement, free and clear of any liens, claims, options, rights of
first refusal, co-sale rights, charges or other encumbrances;
(ii) does not beneficially own any securities of Authentidate other
than the Authentidate Shares and Authentidate Convertible Securities indicated
on the Securityholder
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signature page of this Agreement;
(iii) has the full power and authority to make, enter into and carry
out the terms of this Agreement and this Agreement constitutes a valid and
binding obligation of the Securityholder;
(iv) acknowledges and understands: (a) that the issuance of such AHC
Shares and AHC Convertible Securities in connection with this Agreement will be
exempt from registration under the Securities Act of 1933, as amended, and
applicable state securities laws; and (b) that the AHC Shares and AHC
Convertible Securities to be issued to the Authentidate Securityholders pursuant
to Transaction are restricted securities under Rule 144 of the Securities Act of
1933 and shall bear an appropriate legend as such and (c) the AHC Shares and AHC
Convertible Securities are being acquired for his own account for investment and
not with a view to distribution, and with no present intention of distributing
the securities or selling the securities for distribution ;
(v) Securityholder has received a copy, together with this
Agreement, of the (A) Proxy Statement dated as of February 16, 2001, as
supplemented for its meeting of shareholders held on March 23, 2001, (B) Annual
Report for the fiscal year ended June 30, 2000 (C) Reports on Form 10Q for the
quarters ended September 30, 2000 and December 31, 2000 (the Proxy Statement,
Annual Report and Forms 10Q together being referred to as the "AHC Disclosure
Documents") and (D) Disclosure Statement dated as of the dated hereof, and such
other material regarding the Transaction as may be necessary or desirable to
advise the Authentidate Securityholders of the terms and risks of the
Transaction.
(vi) is an "accredited investor" as defined under Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended.
(vii) in the event that the Securityholder is a corporation or
similar entity, the person executing this Agreement on behalf of the
Securityholder has been duly authorized to so execute, and all corporate action
required to be taken to effectuate this Agreement has been completed.
(viii) The Securityholder has such knowledge and experience in
financial and business matters as is required for evaluating the merits and
risks of making this investment, and the Securityholder has received such
information requested by the Securityholder concerning the business, management
and financial affairs of the Company in order to evaluate the merits and risks
of accepting or not accepting the Exchange Offer. Further, the Securityholder
acknowledges that the Securityholder has had the opportunity to ask questions
of, and receive answers from, the officers of the Company concerning the terms
and conditions of this investment and to obtain information relating to the
organization, operation and business of the Company and of the Company's
contracts, agreements and obligations. No representation or warranty is made by
the Company to induce the Securityholder to accept or reject the Exchange
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Offer, and any representation or warranty not made herein is specifically
disclaimed
8. TERMINATION
(a) Termination of Agreement. AHC may terminate this Agreement at anytime
prior to May 15, 2001 without notice to the Securityholder.
(b) Effect of Termination. If this Agreement is terminated pursuant to
Section 8(a) above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party.
9. MISCELLANEOUS
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of AHC
and Authentidate; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure). Notwithstanding the foregoing,
Authentidate and the Securityholders have received the AHC Disclosure Documents.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of AHC and Authentidate.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (i) (and then
three business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, or (ii) sent by overnight courier service,
and addressed to the intended recipient as set forth below:
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If to AHC: If to Authentidate:
Authentidate Holding Corp Authentidate, Inc.
2165 Technology Drive Two World Financial Center, 43rd Floor
Schenectady, NY 12308 New York, NY 10281
Attn: John T. Botti Attn: Rob Van Naarden
With a copy to:
Goldstein & DiGioia LLP
369 Lexington Avenue
New York, New York 10017
Attn: Victor DiGioia, Esq.
If to the Securityholders:
At the addresses provided on the Securityholder signature page of this
Agreement
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
fax or ordinary mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any Party may change the address
to which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other Parties notice in the manner herein set
forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York. The Parties (a) agree that
any legal suit, action or proceeding arising out of or relating to this
Agreement shall be instituted exclusively in New York State Supreme Court,
County of New York, or in the United States District Court for the Southern
District of New York, (b) waives any objection which any Party may have now or
hereafter to the venue of any such suit, action or proceeding, and (c)
irrevocably consent to the jurisdiction of the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York in any such suit, action or procedure. Each of the Parties
further agrees to accept and acknowledge service of any and all process which
may be served in any suit, action or proceeding in the New York State Supreme
Court for the Southern District of New York, and agrees that service of process
mailed by certified mail to the recipients address as set forth on the signature
page hereto shall be deemed in every respect effective service of process in any
such suit, action or proceeding.
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(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) Construction. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) Incorporation of Exhibits, Annexes, and Schedules. The exhibits,
annexes, and schedules identified in this Agreement are incorporated herein
by reference and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, the Parties agree that AHC and/or
Authentidate shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
(o) Documents Delivered. Each Securityholder acknowledges receipt of
the AHC Disclosure Documents and the Disclosure Schedule.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
AUTHENTIDATE HOLDING CORP.
(f/k/a BITWISE DESIGNS, INC.)
By:____________________________
Name: John T. Botti
Title: Chief Executive Officer
AUTHENTIDATE, INC.
By:____________________________
Name: Rob Van Naarden
Title: Chief Executive Officer
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EX-10.16
8
y53484ex10-16.txt
AGREEMENT
1
EXHIBIT 10-16
AGREEMENT
This Agreement (the "Agreement") is made and entered into this __th day
of May 2001, by and between AUTHENTIDATE HOLDING CORP. (f/k/a BITWISE DESIGNS,
INC.), a Delaware corporation ("Holding"), AUTHENTIDATE, INC., a Delaware
corporation ("Authentidate"), and INTERNET VENTURE CAPITAL, LLC, a Delaware
limited liability company ("IVC"). Holding, Authentidate and IVC may be referred
to herein individually as a "Party" or collectively as the "Parties."
RECITALS
WHEREAS, Authentidate has created a service accessible through the
Internet allowing users to verify the date, time, content and authorship of
documents, digital files and other images;
WHEREAS, Holding is the holder of a majority of the outstanding shares
of Authentidate;
WHEREAS, Authentidate and Holding wish to develop and market a service
permitting the authentication and registration of autographed sports and
entertainment memorabilia;
WHEREAS, IVC has the ability to assist in the development and
implementation of a service permitting the authentication and registration of
autographed sports and entertainment memorabilia in the United States and
international markets; and
WHEREAS, the Parties desire to enter into this Agreement as the
definitive agreement governing the manner through which the Parties will develop
and market a service permitting the authentication and registration of
autographed sports and entertainment memorabilia;
NOW, THEREFORE, the Parties agree as follows.
ARTICLE I
DEFINITIONS
1.0 For the purposes of this Agreement:
"Affiliates" of any Party means any entity that controls, is controlled
by or is under common control with such Party. For purposes of this definition,
"control" will mean the possession, directly or indirectly, of a majority of the
voting power of such entity (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
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"Authentidate License" means the non-exclusive license or licenses to
the Authentidate Software to be granted to Newco by Authentidate to operate the
Service in the Territory.
"Authentidate Service" means the service provided by Authentidate
whereby data may be date and time stamped through application of the
Authentidate Software.
"Authentidate Software" means the computer-readable media incorporating
the Authentidate Technology.
"Authentidate Technology" means [* * *] ("Related Patents").
"Board of Directors" means the Board of Directors of Newco as defined
in Section 6.1 off this Agreement.
"Business Day" means any day on which the New York Stock Exchange
conducts regular trading activities.
"Business Plan" means the Business Plan developed by Newco to offer the
Service in the Territory through Newco pursuant to Section 5.1(a).
"Common Stock" means the shares of Newco Common Stock, par value $.001
per share.
"Improvements" means (i) all derivative works, discoveries and/or
inventions, whether patentable or not, made by Authentidate or a third-party,
acting alone or jointly, that constitutes a modification, enhancement, extension
or improvement of the Authentidate Technology and (ii) all Intellectual Property
developed by Authentidate or a third-party, acting alone or jointly, including
any and all applications or registrations therefor.
"Intellectual Property" means, wherever existing in the world, (i)
patents, whether in the form of utility patents or design patents, and all
pending patent applications for registration thereof, (ii) trademarks, trade
names, service marks, domain names, designs, logos, trade dress and trade
styles, whether or not registered, and all pending applications for registration
thereof, (iii) copyrights, whether or not registered, and all pending
applications for registration thereof, (iv) know-how, inventions, research
records, trade secrets, confidential information, product designs, engineering
specifications and drawings, technical information, formulas, customer lists,
supplier lists and market analyses, (v) computer software and programs, and
related flow charts, programmer notes, documentation, updates, and data, whether
in object or source code form, and (vi) all other similar intellectual property
rights, whether or not registered.
"Newco" means a C corporation to be organized by the Parties which will
serve as the vehicle through which the Parties will develop and market the
service permitting the authentication and registration of autographed sports and
entertainment memorabilia.
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"Service" means the authentication process developed, and to be
developed, by Newco to authenticate and register sports and entertainment
memorabilia.
"Territory" means all countries except as limited to the extent
necessary to avoid any conflict with the rights previously granted to
Authentidate International Holdings, A.G. and its subsidiaries, if any, pursuant
to the Joint Venture Agreement, dated March 2, 2000, between Holding,
Authentidate and Windhorst New Technologies, AGi.G.
"Transaction License" means a non-exclusive license granted by
Authentidate to use the Authentidate Service in accordance with the terms
therein.
"Transfer" means the direct or indirect sale, transfer, pledge,
assignment or other disposition of or mortgage, hypothecation, or other
encumbrance or permitting or suffering of any encumbrance of all or any part of
the equity interests in Newco.
ARTICLE II
PURPOSE AND SCOPE OF AGREEMENT
2.1 Condition Precedent
[* * *]
2.2 Purpose
(a) The Parties jointly undertake, within the Territory, and through
Newco to establish the Service permitting the authentication and registration of
sports, entertainment and other memorabilia. The Service is a multi-step process
whereby a unique code is dynamically generated for and attached to each item of
memorabilia and then registered and reserved on Newco's website. Newco's
customers will receive some form of a registration containing information about
the item, including an identification code. The registration record will be
administered by Newco so that only one such record will be valid at any given
time. The Service may evolve as required over time.
(b) Newco will initially establish the Service in the United States and
in such other countries located in the Territory as shall be determined by the
Board of Directors.
(c) Except as explicitly set forth in this Agreement, neither Holding,
Authentidate nor IVC, nor their respective Affiliates, shall have any obligation
to conduct business exclusively with the other Party, to offer other business
opportunities to any other Party, or refrain from competition in any manner
whatsoever regardless of whether the Parties are jointly engaged in (or may also
engage in) a related activity at any time.
2.3 No Partnership
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Nothing in this Agreement shall be construed as creating
between the Parties a partnership, fiduciary or other similar relationship or a
joint venture except as expressly provided for herein. Nothing in this Agreement
shall create or imply any exclusive relationship or any obligation to inform any
other Party, offer to any other Party or to include any other Party in any
opportunity which may be available to one of the Parities in the future except
as provided in the License.
ARTICLE III
CAPITALIZATION OF A-GRAPH
3.1 Initial Capitalization
(a) Upon its formation, Newco shall have an authorized capitalization
of 2,000,000 shares of Common Stock, par value $.001 per share, and 500,000
shares of Preferred Stock, par value $.10 per share.
(b) In consideration of the issuance of shares in Newco:
(i) [* * *];
(ii) Subject to Section 2.1 of this Agreement, [* * *].
3.2 Shares of Common Stock of Newco (the "Newco Shares")
The initial equity interests in Newco shall be held as
follows:
(a) Holding shall own [* * *] shares of the Common Stock
of Newco;
(b) IVC shall own [* * *] shares of the Common Stock of
Newco; and
(c) IVC shall deliver to Nicholas Themelis such number of
the Newco Shares owned by IVC as shall equal [* * *]
(the "Themelis Shares"). The Themelis Shares shall be
subject to such restrictions as specified in Article
V of this Agreement.
3.3 Representations Regarding Themelis Shares
Nicholas Themelis hereby represents and warrants that the
grant to him of the Themelis Shares is in consideration of his waiver to all
compensation due him pursuant to Article X(D) of his Employment Agreement with
Holding, dated February 28, 2000 and that neither Holding, Newco, nor any
subsidiary or affiliate of Newco has any further obligation to grant Themelis
compensation relating to the Themelis Shares. Themelis hereby, releases and
discharges Holding, Newco, their subsidiaries, affiliates, directors, officers,
successors, present employees, former employees, agents, representatives and
assigns (the "Released Persons") from
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any and all claims, demands or causes of action of any kind or nature whatsoever
which Themelis may have or could claim to have against the Released Persons,
from the beginning of the world up to the date of this Agreement arising out of
Article X(D) of the February 28, 2000 Employment Agreement.
3.4 Additional Capital
(a) Holding will not be under any obligation to contribute additional
capital to Newco or be responsible for any debts or obligations of Newco and all
current intercompany obligations between Newco and Holding outstanding as of the
date of this Agreement shall be applied against Holding's capital contribution.
(b) Subsequent to the execution of this Agreement, the Parties agree to
seek additional financing to support the Parties' purpose, as described in
Article II of this Agreement, in entering into this Agreement.
ARTICLE IV
CLOSING
4.1 Formation of Newco
(a) At or prior to the Closing, the Parties shall cause to be
formed under the laws of the State of the State of Delaware a new corporation
("Newco") whose corporate name shall be as follows:
(i) in the event that Authentidate and Holding are
able to secure the name AuthentiGraph from the owner
of the trademark "AuthentiGraph", then the name of
Newco shall be AuthentiGraph;
(ii) In the event Authentidate and Holding are unable
to secure the name AuthentiGraph, the name of Newco
shall be AuthentidateSE , Inc., or such other name
upon which the Parties mutually agree.
(b) Upon its formation, Newco shall execute an Agreement
whereby it consents to be bound to the terms of this Agreement applicable to it.
4.2 Closing
(a) The Closing shall occur at the offices of Goldstein &
DiGioia, LLP, 369 Lexington Ave., New York, NY 10017, or at such other place as
shall be agreeable to the parties, at 1:00 p.m. , Eastern Time, on May 18, 2001
or such other date as be agreeable to the parties.
(b) At the Closing the following actions shall be taken:
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(i) The certificates representing the number of Shares of
Common Stock issuable to Holding and IVC, as set forth in Section 3.1 of this
Agreement, shall be issued to Holding and IVC;
(ii) Authentidate shall deliver to Newco a non-exclusive
Transaction License Agreement governing Newco's use of the Authentidate Service;
(iii) The Themelis Shares shall be executed and delivered to
Nicholas Themelis; and
(iv) All agreements shall be executed by the parties
simultaneously at the Closing.
ARTICLE V
SHARE CERTIFICATES; TRANSFERS OF SHARES
5.1 Share certificates if issued by Newco shall be in registered form.
5.2 The following legends shall be placed on the certificate(s)
evidencing the Newco Shares:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR APPLICABLE STATE SECURITIES LAWS.
Transfer of the shares represented by this certificate is restricted by
the terms of a certain Agreement dated as of May 24, 2001, a copy of
which is on file at the office of the Company. No sale, assignment,
pledge, encumbrance or other transfer shall be effective unless and the
terms and conditions of the Agreement shall have been complied with in
full.
5.3 Right of First Refusal.
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(a) Subject to Section 5.4, whenever and as often as any Party desires
to sell any Newco Shares (referred to in Sections 5.3 and 5.4 as "Restricted
Stock"), such proposed sale must be for an aggregate consideration of at least
$100,000 and pursuant to a bona fide written offer to purchase such shares. In
such event, the Party desiring to sell Restricted Stock (the "Selling
Shareholder") shall give written notice to each other Party (for purposes of
Sections 5.3 and 5.4 each, an "Offeree" and collectively, the "Offerees") and
also to Newco to such effect, enclosing a copy of such offer and specifying the
number of shares of Restricted Stock that the Selling Shareholder desires to
sell, the name of the person or persons to whom the Selling Shareholder desires
to make such sale and the consideration per share of Common Stock that has been
offered in connection with such offer. In the event that such consideration
includes non-cash consideration, the dollar value of such non-cash consideration
shall be its fair market value, as reasonably determined by the Board of
Directors ("Fair Market Value").
(b) Upon receipt of the Notice, the Offerees shall initially have the
first right and option to purchase the shares proposed to be sold for the same
consideration, at the same purchase price and on the same terms as specified in
the Notice, pro rata on the basis of the number of shares of Common Stock then
held by them, exercisable for 20 Business Days after service of the Notice.
Failure of any Offeree to respond to the Notice within such 20-Business Day
period shall be deemed to constitute a notification to the Selling Shareholder
of such Offeree's decision not to exercise the first right and option to
purchase shares of Restricted Stock under this Section 5.3. If any Offeree fails
to exercise his, her or its first right and option, the Selling Shareholder
shall give written notice to each of the other Offerees who has elected to
purchase his, her or its pro rata share of the shares of Restricted Stock
proposed to be transferred, and each such Offeree shall have the right,
exercisable for a period of three days from the date of receipt of such notice,
to purchase the remaining shares of Restricted Stock, pro rata on the basis of
the number of shares of Common Stock then held by all such electing Offerees
exercising such right to purchase such remaining shares or in such other
proportions as they may agree. An Offeree may exercise his, her or its right and
option to purchase such Restricted Stock by giving written notice of exercise to
the Selling Shareholder and to the Company within the period or periods
specified above, specifying the date (not later than three days from the date of
expiration of all applicable first rights and options to purchase shares under
this paragraph) upon which payment of the purchase price for the shares
purchased pursuant to this paragraph shall be made. The Selling Shareholder
shall deliver to the Offeree(s) at Newco's principal office, at least one day
prior to the payment date, wire transfer instructions (if funds are to be wired)
and, prior to the close of business on the payment date specified in such
notice, the certificate or certificates representing the shares being purchased
by the Offeree(s), properly endorsed for transfer, free and clear of any
restrictions, Liens or claims, against payment of the purchase price therefor by
the Offeree(s) in immediately available funds.
(c) In the event that all of the shares of Restricted Stock proposed to
be transferred are not purchased by the Offerees, Newco shall have the right and
option to
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purchase the balance of the shares proposed to be transferred for the same
consideration, at the purchase price per share specified in the Notice and on
the same terms as specified in the Notice, exercisable for 15 Business Days
after expiration of the option period set forth in Section 5.3 (b). Failure of
Newco to respond to such Notice within such 15 day period shall be deemed to
constitute a notification to the Selling Shareholder of Newco's decision not to
exercise the right and option to purchase shares of Restricted Stock under this
Section 5.3. Newco may exercise its right and option to purchase such Restricted
Stock by giving written notice of exercise to the Selling Shareholder within
such 15-Business Day period, specifying the date (not later than three days from
the date of such notice) upon which payment of the purchase price for the shares
shall be made. The Selling Shareholder shall deliver to Newco's principal
office, at least one day prior to the payment date, wire transfer instructions
(if funds are to be wired) and, prior to the close of business on the payment
date specified in such notice, the certificate or certificates representing the
shares being purchased by Newco, properly endorsed for transfer, free and clear
of any restrictions, Liens or claims, against payment of the purchase price
therefor by Newco in immediately available funds.
(d) If all the shares of Restricted Stock proposed to be transferred
are not purchased by the Offerees and Newco in accordance with this Section 5.3,
the Selling Shareholder shall not be required to sell any of the shares of
Restricted Stock proposed to be transferred to the Offerees or to Newco, and,
during the 60-day period commencing on the expiration of the rights and options
provided for in this paragraph, may sell all (but not less than all) of such
shares to the transferee named in the Notice for a consideration equal to or
greater than the consideration specified in the Notice, free of the restrictions
contained in Section 5.3 (but subject to the other terms and conditions hereof).
(e) Notwithstanding the foregoing, any Party shall have the right to
transfer and sell up to 10% of the shares of Common Stock beneficially owned on
the date hereof.
(f) For the purposes of this Section 5.3, the term "Common Stock" shall
be deemed to include the Themelis Shares.
5.4 Co-Sale Rights.
(a) Whenever and as often as any Party shall receive a bona fide offer
to purchase any shares of Restricted Stock from a prospective purchaser that the
Selling Shareholder wishes to accept, each Offeree shall have the right, at his,
her or its option, either to exercise his, her or its rights under Section 5.3
or to participate in the sale to the prospective purchaser pursuant to this
Section 5.4. The Selling Shareholder shall use his, her or its best efforts to
arrange for the sale to the prospective purchaser of, in the aggregate, such
shares of Common Stock held by the Offerees as shall equal the number of shares
proposed to be sold by the Selling Shareholder. For purposes of this Section
5.4, an Offeree may elect to sell Common Stock at the purchase price per share
specified for the Common Stock in the Notice. If the prospective purchaser will
not purchase all of the shares of Restricted Stock and
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Common Stock that the Selling Shareholder and the electing Offerees wish to sell
pursuant to this Section 5.4, the number of Restricted Shares and shares of
Common Stock the Selling Shareholder and Offerees shall be entitled to sell
shall be reduced on a pro rata basis to an amount equal to the aggregate number
of Restricted Shares and shares of Common Stock the prospective purchaser is
willing to purchase. The number of shares each Offeree shall be entitled to sell
to such prospective purchaser shall be determined pro rata based on the relative
number of shares of Common Stock owned by each Offeree. An Offeree may exercise
his, her or its right under this paragraph by written notice given within seven
days after receipt of the Notice specifying the number of shares of Common Stock
that such Offeree wishes to sell.
(b) If none of the Offerees demand the purchase of any of their shares
of Common Stock as provided by subsection 5.4, then the Selling Shareholder
shall be free to transfer, in accordance and in full compliance with the terms
and provisions of this Agreement, and sell his shares of Restricted Stock not
purchased by any Offeree, but only to the transferee designated in the Notice
and upon the same terms and conditions stated in the Notice within 60 days of
the service of the Notice. Thereafter, any remaining shares of Restricted Stock
proposed to be transferred by any Party shall again be restricted by, and may
not be transferred without full compliance with, this Agreement.
(c) Notwithstanding the foregoing, any Party shall have the right to
transfer and sell up to 10% of the shares of Common Stock beneficially owned on
the date hereof.
(d) For the purposes of this Section 5.4, the term "Common Stock" shall
be deemed to include the Themelis Shares.
5.5 At the request of the underwriter in the initial public offering of
the Common Stock of Newco, holders of shares of Common Stock of Newco, including
the shares issuable upon exercise of the Themelis Options, agree to enter into a
Lock-up Agreement with the Underwriter for a period of time not to exceed twelve
months, or such other shorter period of time requested by the underwriter, from
the date of the initial public offering.
5.6 Family Gifts and Transfers to Affiliates. Notwithstanding the
rights granted to the Parties pursuant to sections 5.3 and 5.4 of this
Agreement, any Party at any time, may transfer any shares of Common Stock which
he may now or hereafter own to (a) any immediate family member or any trust or
custodial account for the sole benefit of himself or members of his immediate
family and (b) in accordance with applicable laws of descent and distribution,
provided, in each case, that the transferee of any such Shareholder agrees to
the terms of this Agreement. In addition, any Party may Transfer its interest in
Newco to an Affiliate of such Party, provided that such any such Affiliate
agrees to the terms of this Agreement.
5.7 Any Transfer by a Party of an interest in Newco shall be effective
only upon the execution and delivery by the transferor of an appropriate
irrevocable and unconditional guarantee to continue to be bound by the
provisions of this Agreement and the By-laws and
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Charter of Newco together with instruments of assumption under which the
Affiliate agrees to be bound by this Agreement and the By-laws and Charter of
Newco. An assignment or Transfer shall not release the transferor of any of its
obligations hereunder or under the By-laws and Charter of Newco.
5.8 Any Party may Transfer this Agreement and all of its rights and
obligations hereunder to any Party acquiring all or substantially all of the
business of such Party whether by merger, sale of assets or otherwise.
ARTICLE VI
BUSINESS PLAN OF A-GRAPH
6.1 Business Plan
(a) The individual appointed to be the Chief Executive Officer of Newco
will develop promptly the Business Plan for each of three fiscal years of Newco.
The Business Plan shall include, but not be limited to, a description of the
business, marketing, technology and operations of Newco.
(b) Newco shall initially draft the first Business Plan which shall
include a strategy for developing the Service in the United States during the
year 2001.
(c) No Party shall have the right to represent any other Party in any
negotiations with third parties nor enter into any agreement with a third party
for the account of the other Parties or their joint account, without the prior
written approval of the unrepresented Party. The Party engaging in such
unauthorized conduct and/or causing liability therefrom shall be in breach of
this Agreement and shall hold the other Parties harmless for any claims raised
by a third party.
ARTICLE VII
MANAGEMENT OF NEWCO
7.1 Board of Directors
(a) The business and affairs of Newco will be managed initially under
the direction of a seven person Board of Directors, consisting of the following
persons: two individuals to be nominated by IVC; two individuals to be nominated
by Holding; the individual elected to serve as the Chief Executive Officer of
Newco and two individuals selected by the five other individuals. The Parties
agree to vote their shares for such persons.
(b) The Board of Directors shall oversee strategic planning and the
implementation of the Business Plans.
(c) The consent of the IVC and Holding designees to the Board of
Directors shall be required to approve any transaction which will result in a
Change of Control of Newco. For the
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purposes of this section, a "Change of Control" of Newco shall be deemed to have
occurred if there shall be consummated (i) any consolidation or merger of the
Newco in which Newco is not the continuing or surviving corporation or pursuant
to which shares of Newco's Common Stock would be converted into cash, securities
or other property, other than a merger of Newco in which the holders of Newco's
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately after the
merger, or (ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the assets
of Newco, or (iii) the stockholders of Newco approve any plan or proposal for
the liquidation or dissolution of Newco, or (iv) any person (as such term is
used in Sections 13(d) and l3(d)(2) of the Securities Exchange Act of l934, as
amended (the "Exchange Act")), shall become the beneficial owner (within the
meaning of Rule l3d-3 under the Exchange Act) of 20% or more of Newco's
outstanding Common Stock, except in connection with a transaction approved by
the Board of Directors; or (v) during any period of two consecutive years,
individuals who at the beginning of such period constituted the entire Board of
Directors shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by Newco's stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
(d) With respect to the persons nominated by Holding and IVC to serve
on the Board of Directors, in the event that the position of a Director held by
such person becomes vacant, for any reason, the Parties agree to cause their
shares to be voted to elect as a replacement for such Director a person
nominated by either the party who nominated the Director whose position is
vacant.
7.2 Meetings of the Board of Directors
(a) Notwithstanding mandatory Delaware law, the following provisions
shall be applicable to the meetings of the Board of Directors, unless otherwise
determined by the Board of Directors of Newco:
(i) The Board of Directors shall hold at least one meeting per
quarter either in person or by conference call.
(ii) Any two members of the Board of Directors may at any time
call for a special meeting of the Board of Directors upon five (5) Business Days
prior notice to the Members of the Board of Directors, specifying the date and
agenda of the meeting. If the member required to specify the time and place of
the meeting fails to do so within twenty-four hours of receipt of a request
therefor, the member calling for the special meeting shall specify the time and
place within 24 hours thereafter. Such notice may be waived in writing before or
after such meeting or by attendance at such meeting. A member may propose an
agenda item for discussion at such meeting by written notice to the other
members, unless waived. In addition, any item which the
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members agree to discuss at a Board of Directors meeting shall be considered to
be an agenda item at such meeting.
(iii) Regular meetings of the Board of Directors shall be held
at the principal offices of Newco, unless the members establish any other place
for meetings by mutual agreement. Special meetings shall be held in the location
and at the time specified (in accordance with this subsection) by the member
which did not call the meeting.
(iv) Members of the Board of Directors may participate in such
meetings by means of a conference telephone or similar means of communication if
all persons participating in the meeting are able to hear one another, and any
such Director shall be deemed to be present at such meeting. Any action that may
be taken at a meeting may also be taken by unanimous written consent.
(v) Meetings of the Board of Directors may be attended by
guests invited by the members of the Board of Directors pursuant to the
unanimous approval of the Board of Directors.
7.3 Chief Executive Officer
(a) Until such time as a Chief Executive Officer of Newco is employed
by Newco pursuant to Section 7.3(b) of this Agreement, Mr. John T. Botti shall
act as the interim President and Chief Executive Officer of Newco
(b) As soon as possible after the execution and delivery of this
Agreement, the Board of Directors shall appoint the Chief Executive Officer of
Newco (the "Newco CEO") who shall have the following duties and
responsibilities:
(i) to prepare reports and recommendations for presentation to
the Board of Directors, including, without limitation, in respect of decisions
which require the approval of the shareholders of Newco;
(ii) to prepare necessary Business Plans for Newco for
approval by the Board of Directors as well as such overall strategic, marketing,
advertising and other general plans which require approval by the Board of
Directors;
(iii) to prepare proposals for investment by the Board of
Directors;
(iv) to implement the resolutions of the Board of Directors;
(v) to advise, supervise and coordinate the Newco business,
operations and management; and
(vi) to oversee all day to day operating aspects of the
business of Newco.
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(b) The Newco CEO shall report to the Board of Directors.
7.4 Accounting
(a) Newco shall keep all books of accounts and make all financial
reports in accordance with the standards prescribed by United States laws and
regulations and conform to Generally Accepted Accounting Principles in the
United States. Newco shall prepare (1) preliminary financial statements, within
thirty days after the end of each of the first three quarters of it's fiscal
year, followed by unaudited finalized versions thereof within five days
thereafter; (2) unaudited finalized financial statements, including without
limitation a balance sheet and income statement, within thirty days after the
end of the fourth quarter and its entire fiscal year; (3) audited financial
statements within sixty days of the end of its entire fiscal year; and (4) such
further reports as shall be required by the Board of Directors. Copies of all
such reports shall immediately be forwarded to IVC, Holding and Authentidate.
Newco shall provide any financial statement required by Holding to meet its
reporting requirements as a public company, including audited financial
statements within 60 days of Newco's the fiscal year end. Newco shall
additionally retain or employ a qualified accountant to prepare the quarterly
financial statements and maintain its accounting records on a weekly basis.
(b) Certified Public Accountants
Newco shall, at its expense, appoint a firm of certified public
accountants of good repute, and acceptable to the firm of accountants of
Holding, to audit its books of account for each accounting period. Said
certified public accountants shall issue an audit report before the regular
meeting of Shareholders, copies of which shall be forwarded to each Party. Each
audit report shall be in reasonable detail and shall be in conformance with
generally accepted accounting principles. Said accountants shall prepare all
Federal, state and local income tax returns according to the timetables
established by the tax authorities. Sales tax returns, if applicable, will be
prepared by Newco.
(c) Right of Inspection
At all times after Newco's incorporation, each Party shall have the
right by its duly authorized representative or accountant to inspect and have
full access to all properties, books of account, records and the like of Newco
and Newco shall furnish to the requesting Party all information concerning the
same which the requesting Party may reasonably require in connection with a
complete examination thereof, and the requesting Party shall have the right to
inspect and make copies from the books and records of Newco at all reasonable
times, upon reasonable notice.
(d) Fiscal Year
Newco shall initially adopt June 30 as the end of its fiscal year.
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ARTICLE VIII
ADDITIONAL OBLIGATIONS
8.1 Upon execution of this Agreement and in further consideration for
the issuance of the Newco Shares, IVC shall use its best efforts to obtain a
general release in favor of Holding, Authentidate, Newco and such other persons,
if any, as determined by the Board of Directors concerning the Parties' prior
business relationships with third parties..
(b) IVC hereby releases Holding, Authentidate, Newco, William McLean,
Siupeli Malamala and their affiliates, agents and employees, from any and all
liabilities owing to it and its affiliates arising out of any act or omission
prior to the date of this Agreement relating to any business or proposed
business activity of Newco, William Fleming, TracerCode, Total Sports Concepts,
Inc. and/or affiliated parties.
8.2 As soon as practicable after the Closing, Newco shall obtain
general liability insurance of not less than $1,000,000 and naming Holding and
IVC as additional insureds.
8.3 Upon or as soon as practicable after the Closing, Newco shall enter
into employment agreements with Siupeli Malamala and William McLean, in the form
annexed as Exhibits 8.3 (a) and (b) to this Agreement.
ARTICLE IX
OTHER RIGHTS
9.1 Newco Name; Trademarks and Other Rights
(a) Authentidate and Holding hereby covenant, at its cost, to be no
more than $25,000, to take all actions reasonably necessary to secure protection
for Newco of the name, Trademark and domain name AuthentiGraph, including to
undertake prosecution or defense of litigation to establish or protect Newco's
interest in the name AuthentiGraph. Newco will be responsible for the cost above
this limit. Newco recognizes that the domain name AuthentiGraph is currently
held by an unrelated third party and is not currently available.
(b) Authentidate acknowledges that the title to the research performed
by Cap Gemini of America, Inc. regarding the Service shall be transferred to
Newco.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
10.1 Mutual Representations and Warranties
(a) Representations and Warranties. Each Party represents and warrants
to each other Party that such Party has the full corporate right, power and
authority to enter into this
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Agreement and to perform the acts required of it hereunder; and the execution of
this Agreement by such Party, and the performance by such Party of its
obligations and duties hereunder, do not and will not violate or contravene any
applicable law or regulation or any agreement to which such Party is a party or
by which it is otherwise bound, and when executed and delivered by such Party,
this Agreement will constitute the legal, valid and binding obligation of such
Party, enforceable against such Party in accordance with its terms.
10.2 Representations and Warranties of Holding and Authentidate
(a) Holding and Authentidate represent and warrant that:
(i) to their knowledge, Authentidate is the sole and
exclusive owner of the Authentidate Sofware, free and
clear of any claims, liens, charges or encumbrances;
(ii) Authentidate has filed a patent application with
respect to Authentidate Technology with the United
States Patent and Trademark Office and Authentidate
is aware of no impediments to registration pending
oppositions thereto;
(iii) Holding has transferred to Authentidate such of its
interest in the Authentidate Technology as necessary
to protect Newco's interest as established by this
Agreement and covenants that it will transfer to
Authentidate any such future rights that it may
obtain in the Authentidate Technology;
(iv) Subject to the license granted to Authentidate
International Holdings, A.G., Authentidate and
Holding have neither licensed the Authentidate
Software to any other person or entity in a manner
which may interfere with the use thereof by Newco;
and
(v) to the best knowledge of Holding and Authentidate,
there are no restrictions, whether by contract,
operation of law, or otherwise, on their ability to
grant to Newco the Authentidate License, subject to
the License granted to Authentidate International
Holdings, A.G.
10.3 Representations and Warranties of IVC
IVC hereby represents and warrants that:
(a) It is an "Accredited Investor" as that term is defined in Section
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act").
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(b) IVC has conducted its own due diligence review of Holding,
Authentidate and Newco to the extent it deems necessary and has not relied on
the statements, advice or recommendations or any other person or entity in
connection with the transactions contemplated hereby.
(c) It has such knowledge and experience in finance, securities,
investments and other business matters so as to be able to protect its interests
in connection with this transaction.
(d) It understands the various risks of an investment in Newco as
proposed herein and can afford to bear such risks, including, but not limited
to, the risks of losing its entire investment.
(e) It acknowledges that no market for the shares of common stock of
Newco presently exists and none may develop in the future and that it may find
it impossible to liquidate its investment at a time when it may be desirable to
do so, or at any other time.
(f) It has been advised that the Newco Shares have not been registered
under the Securities Act, and that all the foregoing securities will be issued
on the basis of the statutory exemption provided by Section 4(2) of the
Securities Act and/or Regulation D promulgated thereunder relating to
transactions by an issuer not involving any public offering and under similar
exemptions under certain state securities laws; that this transaction has not
been reviewed by, passed on or submitted to any Federal or state agency or
self-regulatory organization where an exemption is being relied upon, and that
Newco's reliance thereon is based in part upon the representations made by IVC
in this Agreement. IVC acknowledges that it has been informed by Holding,
Authentidate and Newco, or is otherwise familiar with, the nature of the
limitations imposed by the Securities Act and the rules and regulations
thereunder on the transfer of securities. In particular, IVC agrees that no
sale, assignment or transfer of the Newco Shares shall be valid or effective,
and Newco shall not be required to give any effect to any such sale, assignment
or transfer, unless (i) the sale, assignment or transfer of the foregoing
securities are registered under the Securities Act, (ii) the foregoing
securities are sold, assigned or transferred in accordance with all the
requirements and limitations of Rule 144 under the Securities Act, it being
understood that Rule 144 is not available at the present time for the sale of
the foregoing securities, or (iii) such sale, assignment, or transfer is
otherwise exempt from registration under the Securities Act. IVC acknowledges
that the Newco Shares shall be subject to a stop transfer order and the
certificate or certificates evidencing any underlying shares shall bear the
legend set forth in Section 5.2.
(g) IVC will acquire the Newco Shares for its own account for
investment and not with a view to the sale or distribution thereof or the
granting of any participation therein, and that it has no present intention of
distribution or selling to others any of such interest or granting any
participation therein.
10.4 Limitation of Liability. EXCEPT AS PROVIDED IN THIS ARTICLE X, AND
EXCEPT FOR A LIABILITY ARISING AS A RESULT OF A CLAIM FOR BREACH OF, OR
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A DEFAULT IN, THIS AGREEMENT OR THE LICENSE, UNDER NO CIRCUMSTANCES WILL ANY
PARTY BE LIABLE TO ANY OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES), ARISING FROM ANY PROVISION OF THIS AGREEMENT OR
THE LICENSE, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS
OR LOST BUSINESS.
10.5 EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE X, AND EXCEPT FOR A
LIABILITY ARISING AS A RESULT OF A CLAIM FOR BREACH OF, OR A DEFAULT IN, THIS
AGREEMENT OR THE LICENSE, NO PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY
DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE
PRODUCTS AND SERVICES CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE
OF PERFORMANCE.
10.6 EXCLUSIVE REMEDIES. THE RIGHTS AND REMEDIES SET FORTH IN THIS
ARTICLE X AND THE LICENSE AGREEMENT CONSTITUTE THE ENTIRE OBLIGATIONS AND THE
EXCLUSIVE REMEDIES OF THE PARTIES CONCERNING INFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF THIRD PARTIES OR THIRD PARTY CLAIMS.
ARTICLE XI
TERM AND TERMINATION
11.1 Term. The term of this Agreement shall commence on the date of
execution and delivery of this Agreement (the "Effective Date"). This Agreement
shall expire when terminated:
(a) After a material breach by any Party in accordance with the
provisions of Section 11.2; or
(b) Upon the mutual written agreement of the Parties.
11.2 Termination
Any Party which is not in material breach of this Agreement shall have
the right to terminate this Agreement upon the occurrence of the events set
forth below:
(a) The other Party is in material breach of any material term,
condition or covenant of this Agreement and the breaching Party fails to cure
such breach within thirty (30) calendar days after the receipt of written notice
of such breach (unless such other Party commences the cure of such breach within
such 30 day period, which cure can be reasonably expected to be
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completed after the expiration of such 30 day period but within a reasonable
time, and is actually cured within a reasonable time); or
(b) An event of bankruptcy occurs with respect to the other Party. For
purposes of the foregoing, an event of bankruptcy with respect to a Party means
any of the following circumstances:
(i) the commencement by the Party of a voluntary case under
the United States Bankruptcy Code,
(ii) the commencement against the Party of an involuntary case
under the United States Bankruptcy Code if the case is not vacated within ninety
calendar days after commencement,
(iii) the entry of a final order by a court of competent
jurisdiction finding the Party to be bankrupt or insolvent, ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its general creditors or assuming custody of or appointing a
receiver or other custodian for all or a substantial part of its property and
such order shall not be vacated or stayed upon appeal or otherwise stayed within
ninety calendar days of issuance; or
(iv) the Party makes an assignment for the benefit of, or
enters into a composition with its creditors, or appoints or consents to the
appointment of a receiver or other custodian for all or a substantial part of
its property.
(c) Termination under subsection (a) shall be effective upon delivery
of notice of the expiration of the cure period or the expiration of a stated
time period, as the case may be and termination under subsection (b) will become
effective immediately upon written notice of termination at any time after the
occurrence of the event.
(d) This Agreement may be terminated at any time by the mutual written
consent of all the Parties hereto.
(e) This Agreement shall be terminated in the event that an event of
bankruptcy occurs with respect to Newco and the Parties cannot agree on a plan
of recapitalization.
(f) Upon termination, all Licenses granted by Authentidate shall
terminate and all of the Authentidate Software shall be the sole property of
Authentidate.
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ARTICLE XII
CONFIDENTIALITY
12.1 Confidentiality, Non-Disclosure
(a) Each of IVC, Holding, Authentidate and Newco covenants and agrees,
on behalf of themselves, their Affiliates, parents, subsidiaries, directors,
officers, employees, agents, successors and assigns, that they shall not, at any
time during or after the termination of this Agreement, except when acting on
behalf of and with the written authorization of the other Parties, make use of
or disclose to any person, corporation, or other entity, for any purpose
whatsoever, any trade secret or other Confidential Information of another Party
and not to use any such Confidential Information of another Party for any
purpose other than the purpose for which it was originally disclosed to the
receiving party. No Party will disclose the others' Confidential Information to
its employees and agents except on a "need-to-know" basis.
(b) Confidential Information means any information of a Party disclosed
to the other party in the course of this Agreement, which is identified as, or
should be reasonably understood to be, confidential to the disclosing Party,
including, but not limited to, trade secrets and confidential information
disclosed to the Parties or known by them as a consequence of their transactions
with IVC, Holding, Authentidate and/or Newco, whether or not pursuant to this
Agreement, and not generally known in the industry, concerning the business,
finances, methods, operations, know-how, trade secrets, data, technical
processes and formulas, source code, product designs, sales, cost and other
unpublished financial information, product and Business Plans, projections,
marketing data, information, research and development, customers, pricing and
information relating to proposed expansion and this Agreement and all exhibits
hereto. Confidential Information will not include information which: (a) is
known or becomes known to the recipient directly or indirectly from a
third-party source who obtained the information lawfully other than one having
an obligation of confidentiality to the providing party; (b) is or becomes
publicly available or otherwise ceases to be secret or confidential, except
through a breach of this Agreement by the recipient; or (c) is or was
independently developed by the recipient without use of or reference to the
providing party's Confidential Information, as shown by evidence in the
recipient's possession.
(c) The Parties acknowledge and agree that each may disclose
Confidential Information: (a) as required by law or the rules of the National
Association of Securities Dealers, Inc. or any applicable securities exchange or
any governmental authority required by law; (b) to their respective directors,
officers, employees, attorneys, accountants and other advisors, who are under an
obligation of confidentiality, on a "need-to-know" basis; (c) to investors or
joint venture partners, who are under an obligation of confidentiality, on a
"need-to-know" basis; or (d) in connection with disputes or litigation between
the parties involving such Confidential Information and each Party will endeavor
to limit disclosure to that purpose and to ensure maximum application of all
appropriate judicial safeguards (such as placing documents under seal). In the
event a Party is required to disclose Confidential Information as required by
law, such party will, to the extent practicable, in advance of such disclosure,
provide the disclosing
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party with prompt notice of such requirement. Such Party also agrees, to the
extent legally permissible, to provide the disclosing party, in advance of any
such disclosure, with copies of any information or documents such party intends
to disclose (and, if applicable, the text of the disclosure language itself) and
to cooperate with the disclosing party to the extent the disclosing Party may
seek to limit such disclosure.
12.2 General
(a) This Article XII shall survive the termination of this Agreement.
(b) The Parties acknowledge that damages alone may not be an adequate
remedy for any breach by any Party of this Article XII, and accordingly, each
expressly agrees that, in addition to any other remedies which each may have,
each shall be entitled to request injunctive relief in a court of competent
jurisdiction.
ARTICLE XIII
RESTRICTIVE COVENANT
13.1 Restrictive Covenant
(a) During the term of this Agreement and for a period of one year
after any termination of this Agreement, except for a termination based on a
default in or breach of this Agreement by any Party, the other Parties agree
that they will not, directly or indirectly enter into or become associated with
or engage in any other business (whether as a partner, officer, director,
shareholder, employee, consultant, or otherwise), which business is primarily
involved in the manufacture, development, distribution, marketing and/or sales
of technology to authenticate and register autographed sports and entertainment
memorabilia by means similar to those described in this Agreement in the
Territory or geographical areas of operation of Newco.
(b) During the term of this Agreement, Holding and Authentidate agree
that they will not, directly or indirectly enter into or become associated with
or engage in any other business in the Territory (whether as a partner, officer,
director, shareholder, employee, consultant, or otherwise), which business is
primarily involved in the manufacture, development, distribution, marketing
and/or sales of the Service.
(c) Nothing in this Article XIII shall be construed to prevent Holding
and Authentidate from developing, distributing, marketing or selling its own
products and services to other third parties in the Territory served by Newco
pursuant to this Agreement.
13.2 General
(a) The Parties acknowledge and agree that the covenants contained in
this Article XIII are fair and reasonable and of a special unique character
which gives them peculiar value
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and exist in order to protect the Parties and that the Parties would not have
entered into this Agreement without such covenants being made to it.
(b) If any court shall hold that the duration or geographic scope of
the non-competition clause, or any other restriction contained in this Article
XIII is unenforceable, it is our intention that same shall not thereby be
terminated but shall be deemed amended to delete therefrom such provision or
portion adjudicated to be invalid or unenforceable or in the alternative such
judicially substituted term may be substituted therefor.
(c) The Parties further acknowledge that damages alone will not be an
adequate remedy for any breach by any Party of the covenants contained in this
Article XIII, and accordingly, each expressly agrees that, in addition to any
other remedies which each may have, each shall be entitled to injunctive relief
in a court of competent jurisdiction.
(d) The Parties acknowledge that the covenants contained in this
Article XIII are separate and distinct from, and shall not be merged with, any
similar covenants made by IVC, Holding and Authentidate in any other agreement,
document or understanding.
(e) The provisions of this Article XIII shall survive the termination
of this Agreement.
ARTICLE XIV
INDEMNIFICATION
Each Party represents and warrants to the other Party that such Party
has the full corporate right, power and authority to enter into this Agreement
and to perform the acts required of it hereunder; and the execution of this
Agreement by such Party, and the performance by such Party of its obligations
and duties hereunder, do not and will not violate or contravene any applicable
law or regulation or any agreement to which such Party is a party or by which it
is otherwise bound, and when executed and delivered by such Party, this
Agreement will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms. Each Party agrees
to indemnify and hold harmless each other Party to this agreement for a breach
of the foregoing representations and warranties on such terms as set forth in
this Agreement.
ARTICLE XV
GENERAL
(a) Press Releases and Public Announcements. Except as provided by
Section 9.2, no Party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of the other Parties; provided, however, that any Party may
make any public disclosure it believes in good faith is required by applicable
law or any listing or trading agreement concerning its publicly-traded
securities (in
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which case the disclosing Party will use its reasonable best efforts to advise
the other Party prior to making the disclosure).
(b) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(c) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. Except as otherwise provided herein, all notices,
requests, demands, claims, and or other communications to be given hereunder
will be in writing and will be (as elected by the party giving such notice): (a)
personally delivered; (b) transmitted by postage prepaid registered or certified
airmail, return receipt requested; (c) transmitted by electronic mail via the
Internet with receipt being acknowledged by the recipient by return electronic
mail (with a copy of such transmission concurrently transmitted by postage
prepaid registered or certified airmail, return receipt requested); (d)
transmitted by facsimile (with a copy of such transmission by postage prepaid
registered or certified airmail, return receipt requested); or (e) deposited
prepaid with a nationally recognized overnight courier service. Unless otherwise
provided herein, all notices will be deemed to have been duly given on: (x) the
date of receipt (or if delivery is refused, the date of such refusal) if
delivered personally, by electronic mail, facsimile or by courier; or (y) three
(3) days after the date of posting if transmitted by certified mail. Notice
hereunder will be directed to a party at the address for such party as set forth
below. Either party may change its address for notice purposes hereof on written
notice to the other party pursuant to this Section 14 (f).
If to Holding: Copy to:
John T. Botti Victor J. DiGioia, Esq.
Authentidate Holding Corp. Goldstein & DiGioia, LLP
2165 Technology Drive 369 Lexington Avenue, 18th Floor
Schenectady, New York 12308 New York, New York 10017
If to Authentidate: Copy to:
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Robert Van Naarden Victor J. DiGioia, Esq.
Authentidate, Inc. Goldstein & DiGioia, LLP
2 World Financial Center, 43rd Floor 369 Lexington Avenue, 18th Floor
New York, New York 10281 New York, New York 10017
If to IVC:
Frank J. Skelly, III
218 Royal Palm Way
Palm Beach, Florida 33480
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail). Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(g) Governing Law. This Agreement has been executed in the State of New
York, and except as otherwise provided herein, its validity, interpretation,
performance, and enforcement will be governed by the laws and courts of such
state, without application of the conflict of law principles thereof.
(h) Jurisdiction and Venue. Any judicial proceedings brought by or
against any party on any dispute arising out of this Agreement or any matter
related thereto shall be brought in the state or federal courts of New York
City, New York and, by execution and delivery of this Agreement, each of the
parties accepts for itself the exclusive jurisdiction and venue of the aforesaid
courts as trial courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement after exhaustion of all
appeals taken (or by the appropriate appellate court if such appellate court
renders judgment).
(i) Arbitration. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, except as otherwise provided
herein to the contrary. The undersigned agree that any and all disputes or
disagreements relating to this agreement shall be submitted to arbitration
before the American Arbitration Association in accordance with the rules and
procedures governing such proceedings and that the venue for any such proceeding
shall be within the State of New York. The parties further agree to accept and
acknowledge service of any and all process which may be served in any suit,
action or proceeding, and agree that service of process upon each other mailed
by certified mail to each other's address shall be deemed in every respect
effective service of process in any such suit, action or proceeding. The parties
further agree each party shall bear their own costs of the arbitration as well
as the costs of its own attorneys' fees.
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(i) Amendments. This Agreement may be amended by the parties hereto at
any time; provided, however, that any amendment must be by an instrument or
instruments in writing signed and delivered on behalf of each of the parties
hereto.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
[Remainder of page intentionally left blank. Signature page is next page.]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
AUTHENTIDATE HOLDING CORP.
--------------------------------
By John T. Botti, President
AUTHENTIDATE, INC.
--------------------------------
By John T. Botti, Chairman
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INTERNET VENTURE CAPITAL, LLC
--------------------------------
An Authorized Representative
NICHOLAS THEMELIS (Solely with
respect to Sections 3.2 and 3.3 and
Article V hereof)
---------------------------------
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EX-10.17
9
y53484ex10-17.txt
UNDERLEASE AGREEMENT
1
Exhibit 10.17
UNDERLEASE BETWEEN
ROCHDALE INSURANCE COMPANY, UNDERLANDLORD
AND
BITWISE DESIGNS, INC. AND AUTHENTIDATE, INC., UNDERTENANT
UNDERLEASE made as of the 19th day of October, 2000, by and between
ROCHDALE INSURANCE COMPANY, a New York corporation, having an office at c/o
AmTrust Realty, 59 Maiden Lane, New York, New York 10038 (hereinafter called
("Underlandlord"), and BITWISE DESIGNS, INC., a Delaware corporation, having an
office at 2165 Technology Drive, Schenectady, New York 12308 ("Bitwise") and
AUTHENTIDATE, INC., a ____________ corporation, having an office at c/o Bitwise
Designs, Inc., 2165 Technology Drive, Schenectady, New York
12308 ("AuthentiDate"; AuthentiDate and Bitwise are collectively, and jointly
and severally "Undertenant").
W I T N E S S E T H
WHEREAS:
A. By lease dated April 5, 1990 (such lease as the same has been or may be
amended is hereinafter referred to as the "Main Lease"), Olympia and York Tower
B Lease Company, predecessor-in-interest to Merrill Lynch/WFC/L, Inc., as
landlord ("Overlandlord"), leased to The Yasuda Fire & Marine Insurance Company
of America, as tenant ("Sublandlord"), certain space (the "Leased Space") in the
building known as Two World Financial Center, New York, New York (the
"Building") in accordance with the terms of the Main Lease. A copy of the Main
Lease is annexed hereto as Exhibit A.
B. By sublease dated as of August 18, 1998, (such sublease as the same has
been or may be amended is hereinafter referred to as the "Sublease"),
Sublandlord subleased to Underlandlord a portion of the Leased Space located on
a portion of the forty-third (43rd) floor of the Building shown hatched on
Exhibit B annexed hereto and made a part hereof (the "Premises") in accordance
with the terms of the Sublease. A copy of the Sublease (from which certain terms
which do not relate to Undertenant's obligations hereunder have been deleted) is
annexed hereto as Exhibit C.
C. By consent to sublease dated as of October 13, 1998 (the "Consent to
Sublease"), Overlandlord consented to the Sublease, subject to the terms of the
Consent to Sublease. A copy of the Consent to Sublease (from which certain
terms which do not relate to Undertenant's obligations hereunder have been
deleted) is annexed hereto as Exhibit D.
D. By consent to sub-sublease dated as of October 13, 1998, (the "WFP
Consent"), WFP Tower B Co. L.P. consented to the Sublease, subject to the terms
of the WFP
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Consent. A copy of the WFP Consent (from which certain terms which do not relate
to Undertenant's obligations hereunder have been deleted) is annexed hereto as
Exhibit E.
E. Underlandlord and Undertenant desire to consummate an underleasing of
the Subleased Space on terms and conditions contained in this agreement (the
"Underlease").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, it is hereby agreed as follows:
1. Term and Rent.
1.1. Underlandlord hereby leases to Undertenant and Undertenant hereby
hires from Underlandlord the Premises shown hatched on Exhibit B annexed hereto
and made a part hereof (comprising a portion of the Leased Space) for a term
(the "Underlease Term") to commence on the date Overlandlord and Sublandlord
deliver to Undertenant their consent to this Underlease (the "Underlease
Commencement Date") and to end on March 29, 2006 (the "Underlease Expiration
Date"), or until such term shall sooner cease and terminate as herein provided.
The annual fixed rent to be paid by Undertenant to Underlandlord during the
Underlease Term shall be as follows:
(i) TWO HUNDRED SEVENTY EIGHT THOUSAND EIGHT HUNDRED TWENTY-FIVE AND
00/100 ($278,825.00) DOLLARS per annum during the period commencing on the
Underlease Commencement Date and ending on the last day of the month in which
occurs day thirty-three (33) months after of the Underlease Commencement
Date;
(ii) THREE HUNDRED EIGHT THOUSAND ONE HUNDRED SEVENTY FIVE AND 00/100
($308,175.00) DOLLARS per annum during the period commencing on the first day
of the month in which occurs the day thirty-four (34) months after of the
Underlease Commencement Date and ending on the Underlease Expiration Date.
The fixed annual rent set forth herein shall be paid by Undertenant to
Underlandlord at Underlandlord's office (or such other location as Underlandlord
shall designate) by check drawn on a bank which is a member of the New York
Clearing House Association in equal monthly installments in advance, on the day
which is five (5) business days prior to the first day of each month during the
Underlease Term without any set-off, off-set, abatement or reduction whatsoever,
except that Undertenant shall pay the first monthly installment of annual fixed
rent to Underlandlord upon the execution hereof.
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2. Assignment and Subletting.
2.1 Underlandlord's consent to any further underlease or assignment
proposed by Undertenant shall be given or denied in accordance with the
provisions of Article 7 of the Main Lease as if such provisions were set out
in full herein, provided that if either Overlandlord or Sublandlord shall not
consent to such proposed further underlease or assignment, then Underlandlord
shall have no obligation to give its consent to such further underlease or
assignment, notwithstanding anything to the contrary contained herein.
3A. Incorporation of Main Lease.
3A.1 Except as herein otherwise expressly provided and except for the
obligation to pay rent and additional rent under the Main Lease, all of the
terms, covenants, conditions and provisions in the Main Lease are hereby
incorporated in, and made a part of this Underlease, with the exception of the
"Excluded Main Lease Articles" (as hereinafter defined) (the incorporated
terms, provisions, covenants and conditions are collectively called the
"Incorporated Main Lease Articles") and such rights and obligations as are
contained in the Main Lease are hereby imposed upon the respective parties
hereto; the Underlandlord herein being substituted for the "Landlord" named in
the Main Lease, and the Undertenant herein being substituted for the "Tenant"
named in the Main Lease; provided, however, that the Underlandlord herein shall
not be liable for any defaults by Overlandlord and Underlandlord shall have
all of the rights, but none of the obligations under the Incorporated Main
Lease Articles. If the Main Lease shall be terminated for any reason during the
term hereof, then and in that event this Underlease shall thereupon
automatically terminate, and Underlandlord shall have no liability to
Undertenant by reason thereof unless the termination of the Main Lease was
caused by Underlandlord's default under the Main Lease or Underlandlord's
voluntary agreement to terminate the Main Lease. Upon the termination of this
Underlease, whether by forfeiture, lapse of time or otherwise, or upon the
termination of Undertenant's right to possession, Undertenant will at once
surrender and deliver up the Premises in good condition and repair, reasonable
wear and tear excepted.
3A.2. For purposes of this Underlease, "Excluded Main Lease Articles"
shall mean the following articles, sections, exhibits and schedules of the Main
Lease: Sections 1.01, 1.02, 1.03, 1.04, 1.05, 2.01, 2.02, 5.04, 5.05, 35.21,
35.23, Articles 3, 11, 14, 28, 29, 33, 36 and 37, Exhibits B-I and B-II, and
Schedules A, B, C-I, C-II, C-III and D and all references in the Main Lease to
the aforesaid Sections, Articles, Exhibits or Schedules of the Main Lease shall
not be deemed incorporated in or made a part hereof. If there are any
provisions in this Underlease that are inconsistent with the Main Lease, the
provisions of this Underlease shall govern unless to do so would result in a
breach of the Main Lease in which case the terms of the Main Lease shall govern.
3B. Incorporation of Sublease.
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3B.1 Except as herein otherwise expressly provided and except for the
obligation to pay rent and additional rent under the Sublease, all of the terms,
covenants, conditions and provisions in the Sublease are hereby incorporated in,
and made a part of this Underlease, with the exception of the "Excluded Sublease
Articles" (as hereinafter defined) (the incorporated terms, provisions,
covenants and conditions are collectively called the "Incorporated Sublease
Articles"), and such rights and obligations as are contained in the Sublease are
hereby imposed upon the respective parties hereto; the Underlandlord herein
being substituted for the "Sublessor" named in the Sublease and the Undertenant
herein being substituted for the "Sublessee" named in the Sublease; provided,
however, that the Underlandlord herein shall not be liable for any defaults by
Sublessor and Underlandlord shall have all of the rights, but none of the
obligations, under the Incorporated Sublease Articles. If the Sublease shall be
terminated for any reason during the term hereof, then and in that event this
Underlease shall thereupon automatically terminate, and Underlandlord shall have
no liability to Undertenant by reason thereof unless such termination was caused
by Underlandlord's default under the Sublease or Underlandlord's voluntary
agreement to terminate the Sublease. Upon the termination of this Underlease,
whether by forfeiture, lapse of time or otherwise, or upon the termination of
Undertenant's right to possession, Undertenant will at once surrender and
deliver up the Premises in good condition and repair, reasonable wear and tear
excepted. Notwithstanding anything to the contrary contained in this Underlease,
Undertenant agrees that Underlandlord may at any time after the date hereof
surrender the Sublease and the premises demised thereunder to Sublandlord,
provided Sublandlord shall deliver a written agreement to Undertenant providing
that notwithstanding such surrender Sublandlord shall not disturb Undertenant's
occupancy of the Premises so long as Undertenant is not in default hereunder if
Undertenant shall at Sublandlord's election either (i) attorn to Sublandlord as
if Sublandlord were the Underlandlord hereunder or (ii) enter into a lease with
Sublandlord for the remaining term of the Underlease on the same terms and
conditions contained herein.
3B.2. For purposes of this Underlease, "Excluded Sublease Articles" shall
mean the following articles and sections of the Sublease: I, II, IV(a), V(e),
VI, VIII, IX and X and Exhibit B and all references in the Sublease to the
aforesaid Sections or Exhibits of the Sublease shall not be deemed incorporated
in or made a part hereof. If there are any provisions in this Underlease that
are inconsistent with the Sublease, the provisions of this Underlease shall
govern unless to do so would result in a breach of the Sublease in which case
the terms of the Sublease shall govern.
Section IV. (d) of the Sublease is incorporated herein, except as modified by
Section 17 hereof.
4. Condition of Premises.
4.1 Undertenant has examined the Premises, is aware of the physical
condition thereof, and agrees to take the same "as is," in its current
condition and state of repair, with the understanding that there shall be no
obligation on the part of Underlandlord to perform any work,
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supply any materials or incur any expense whatsoever in connection with the
preparation of the Premises for Undertenant's occupancy thereof.
4.2 (a) Undertenant shall be permitted to use the office furniture and
equipment listed on Exhibit F annexed hereto (the "FF&E") which are currently
located in the Premises and owned by Underlandlord. On the condition that
Undertenant shall not be in default under the Proposed Underlease as of the
Underlease Expiration Date or such earlier date as this Underlease shall expire,
then subject to the final sentence of this Section 4.2(a) hereof, the FF&E shall
become the property of Undertenant at the expiration of the Proposed
Underlease. Underlandlord makes no representations or warranties of any kind
regarding the FF&E, except that the FF&E is free and clear of any liens.
Undertenant has examined the FF&E, is aware of the physical condition thereof,
and agrees to take same "as is" and "where is", in its current condition and
state of repair, with the understanding that there shall be no obligation on the
part of the Underlandlord to perform any work, supply any materials or incur any
expense whatsoever in connection with the preparation of the FF&E for
Undertenant's use thereof. If this Underlease is terminated prior to March 29,
2006 as a result of Undertenant's default, Undertenant shall return the FF&E to
Underlandlord in its current condition and state of repair, subject to
reasonable wear and tear.
(b) If Undertenant desires to remove any of the FF&E from the Premises
prior to the Underlease Expiration Date, Undertenant shall give Underlandlord a
notice (the "Disposal Notice") specifying which of the FF&E Undertenant desires
to remove from the Premises. Underlandlord shall have the option to remove such
FF&E at Undertenant's sole cost and expense, provided Underlandlord notifies
Undertenant within fifteen (15) business days after Underlandlord's receipt of
the Disposal Notice that Underlandlord is exercising such option. If
Underlandlord does not exercise its option to remove such FF&E at Undertenant's
expenses, then Undertenant shall have the right to remove such FF&E at
Undertenant's sole cost and expense.
5. Use.
5.1 Undertenant agrees that the Premises shall be occupied only as
executive, administrative and general offices for Undertenant's business.
6. Consent of Overlandlord and Sublandlord.
6.1 This Underlease is conditioned upon the consent by Overlandlord and
Sublandlord to this Underlease which consent shall be evidenced by
Overlandlord's and Sublandlord's signature appended hereto or separate consents
in the form utilized by Overlandlord and Sublandlord for such purposes.
Undertenant shall promptly execute any documents reasonably requested by
Overlandlord and/or Sublandlord in order to obtain their approval.
6.2 Undertenant stipulates that it is familiar with the provisions of
Article 7 of
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the Main Lease. In the event that Overlandlord shall exercise any of its options
pursuant to Sections 7.07, 7.08, 7.09 and 7.10 of the Main Lease with respect to
the Premises upon Underlandlord's request for Overlandlord's consent to this
Underlease, Underlandlord will so notify Undertenant and, upon receipt of such
notification by Underlandlord, this Underlease shall be deemed to be null and
void and without force or effect, and Underlandlord and Undertenant shall have
no further obligations or liabilities to the other with respect to this
Underlease. In the event that Sublandlord shall exercise any of its options
pursuant to Sections 7.07, 7.08, 7.09 and 7.10 of the Main Lease (as
incorporated into the Sublease) with respect to the Premises upon
Underlandlord's request for Sublandlord's consent to this Underlease,
Underlandlord will so notify Undertenant and, upon receipt of such notification
by Underlandlord, this Underlease shall be deemed to be null and void and
without force or effect, and Underlandlord and Undertenant shall have no further
obligations or liabilities to the other with respect to this Underlease.
6.3. In the event Overlandlord shall not exercise any of its options
pursuant to Sections 7.07, 7.08, 7.09 and 7.10 of the Main Lease with respect to
the Premises, Underlandlord makes no representation with respect to obtaining
Overlandlord's approval of this Underlease and, in the event that Overlandlord
notifies Underlandlord that Overlandlord will not give such approval,
Underlandlord will so notify Undertenant and, upon receipt of such notification
by Underlandlord of the disapproval by Overlandlord, this Underlease shall be
deemed to be null and void and without force or effect, and Underlandlord and
Undertenant shall have no further obligations or liabilities to the other with
respect to this Underlease.
6.4. Except as otherwise specifically provided herein, wherever in
this Underlease Undertenant is required to obtain Underlandlord's consent or
approval, Undertenant understands that Underlandlord may be required to first
obtain the consent or approval of Overlandlord and Sublandlord. If Overlandlord
or Sublandlord should refuse such consent or approval, Underlandlord shall be
released of any obligation to grant its consent or approval whether or not
Overlandlord's or Sublandlord's refusal, in Undertenant's opinion, is arbitrary
or unreasonable. Undertenant agrees that Underlandlord shall not be required to
dispute any determinations or other assertions or claims of Overlandlord or
Sublandlord regarding the obligations of Underlandlord under the Main Lease or
Sublease for which Undertenant is or may be responsible under the terms of this
Underlease. Should Underlandlord elect not to dispute any such determinations,
assertions or claims by Overlandlord or Sublandlord, Underlandlord hereby grants
Undertenant the right to dispute the same in its own name without
Underlandlord's consent and the right to resolve such disputes to its own
satisfaction, provided that (i) Undertenant shall bear any and all costs and
expenses of any such dispute and/or settlement and (ii) Underlandlord shall not
be bound without its consent by any settlement, agreement or resolution reached
by Undertenant and Overlandlord and/or Sublandlord in regard to any such
dispute, or by any decree, judgment or penalty resulting therefrom, and (iii)
Undertenant shall indemnify and hold Underlandlord harmless from and against any
liability, damage, loss, claim or expense (including reasonable attorneys' fees)
incurred by Underlandlord in connection with the exercise of such dispute right.
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6.5. In the event Sublandlord shall not exercise any of its options
pursuant to Sections 7.07, 7.08, 7.09 and 7.10 of the Main Lease (as
incorporated into the Sublease) with respect to the Premises, Underlandlord
makes no representation with respect to obtaining Sublandlord's approval of this
Underlease and, in the event that Sublandlord notifies Underlandlord that
Sublandlord will not give such approval, Underlandlord will so notify
Undertenant and, upon receipt of such notification by Underlandlord of the
disapproval by Sublandlord, this Underlease shall be deemed to be null and void
and without force or effect, and Underlandlord and Undertenant shall have no
further obligations or liabilities to the other with respect to this Underlease.
7. Defaults.
7.1. Undertenant acknowledges that all services, repairs, restorations,
equipment and access to and for the Premises and any insurance coverage of the
Building will in fact be provided by Overlandlord or Sublandlord, and
Underlandlord shall have no obligation during the term of this Underlease to
provide any such services, repairs, restorations, equipment, access or
insurance. Undertenant agrees to look solely to Overlandlord and/or Sublandlord
for the furnishing of such services, repairs, restorations, equipment, access
and insurance. Underlandlord shall in no event be liable to Undertenant nor
shall the obligations of Undertenant hereunder be impaired or the performance
thereof excused because of any failure or delay on Overlandlord's or
Sublandlord's part in furnishing such services, repairs, restorations,
equipment, access or insurance. If Overlandlord or Sublandlord shall default in
any of their obligations to Underlandlord with respect to the Premises,
Undertenant shall be entitled to participate with Underlandlord in the
enforcement of Underlandlord's rights against Overlandlord or Sublandlord, as
the case may be, but Underlandlord shall have no obligation to bring any action
or proceeding or to take any steps to enforce Underlandlord's right, against
Overlandlord or Sublandlord, as the case may be. If, after written request from
Undertenant, Underlandlord shall fail or refuse to take appropriate action for
the enforcement of Underlandlord's rights against Overlandlord or Sublandlord,
as the case may be, with respect to the Premises within a reasonable period of
time considering the nature of Overlandlord's or Sublandlord's default, as the
case may be, Undertenant shall have the right to take such action in its own
name, and for that purpose and only to such extent, all of the rights of
Underlandlord under the Main Lease or Sublease, as the case may be, hereby are
conferred upon and assigned to Undertenant and Undertenant hereby is subrogated
to such rights to the extent that the same shall apply to the Premises. If any
such action against Overlandlord or Sublandlord, as the case may be, in
Undertenant's name shall be barred by reason of lack of privity,
nonassignability or otherwise, Undertenant may take such action in
Underlandlord's name provided Undertenant has obtained the prior written consent
of Underlandlord, which consent shall not be unreasonably withheld or delayed,
provided, and Undertenant hereby agrees, that Undertenant shall indemnify and
hold Underlandlord harmless from and against all liability, loss, damage or
expense, including, without limitation, reasonable attorney's fees, which
Underlandlord shall suffer or incur by reason of such action.
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7.2. Anything contained in any provisions of this Underlease to the
contrary notwithstanding, Undertenant agrees, with respect to the Premises, to
comply with and remedy any default claimed by Overlandlord or Sublandlord and
caused by Undertenant, within the period allowed to Underlandlord as subtenant
under the Sublease, and allowed to Sublandlord as tenant under the Main Lease,
even if such time period is shorter than the period otherwise allowed in the
Main Lease due to the fact that notice of default from Underlandlord to
Undertenant is given after the corresponding notice of default from
Overlandlord or Sublandlord, as the case may be. Underlandlord agrees to
forward to Undertenant, upon receipt thereof by Underlandlord, a copy of each
notice of default received by Underlandlord in its capacity as sublessee under
the Sublease. Undertenant agrees to forward to Underlandlord, upon receipt
thereof, copies of any notices received by Undertenant with respect to the
Premises from Overlandlord, Sublandlord or from any governmental authorities.
7.3 In the event of a default by Underlandlord in the payment of any
sum or performance of any other obligation under the Sublease, Undertenant
shall have the right (but shall not be obligated) to pay such sum directly to
Sublandlord or perform such obligation on behalf of Underlandlord, as the case
may be, and the sums so paid or expended by Undertenant shall be reimbursed to
Undertenant by Underlandlord within twenty (20) days after demand therefor or,
at Undertenant's election, may be offset from the rent and other charges
payable by Undertenant hereunder.
8. Underlandlord's Representations.
8.1 Underlandlord represents (a) that it is the holder of the
interest of the sublessee under the Sublease, and (b) that the Sublease is in
full force and effect.
9. Subordination.
9.1 This Underlease is subject and subordinate to, and Undertenant
accepts this Underlease subject to: (a) the Main Lease, the Sublease, the
Consent to Sublease and the WFP Consent (the "Leasing Documents"), (b) any
amendments and supplements to the Leasing Documents hereafter made, provided
that any such amendment or supplement to the Leasing Documents will not prevent
or adversely affect the use by Undertenant of the Premises in accordance with
the terms of this Underlease, increase the obligations of Undertenant or
decrease its rights under the Underlease or in any other way materially
adversely affect Undertenant, except to a de minimis extent, and (c) all
ground or underlying leases and to all mortgages which may now or hereafter
affect such leases or the real property of which the Premises are a part and
all renewals, modifications, replacements and extensions of any of the
foregoing. This Paragraph 9.1 shall be self-operative and no further instrument
of subordination shall be required. To confirm such subordination, Undertenant
shall execute promptly any certificate that Overlandlord, Sublandlord or
Underlandlord may request.
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10. Broker.
10.1 Undertenant covenants, represents and warrants that Undertenant
has had no dealings or communications with any broker or agent in connection
with the consummation of this Underlease other than Mariner Real Estate
Services, L.L.C., and Newmark & Company Real Estate, Inc. (herein collectively
called the "Broker") and Undertenant covenants and agrees to pay, hold harmless
and indemnify Underlandlord from and against any and all cost, expense
(including reasonable attorneys' fees) or liability for any compensation,
commissions or charges claimed by any broker or agent other than the Broker with
respect to this Underlease or the negotiation thereof.
10.2 Underlandlord covenants, represents and warrants that
Underlandlord has had no dealings or communications with any broker or agent in
connection with the consummation of this Underlease other than the Broker and
Underlandlord covenants and agrees to pay, hold harmless and indemnify
Undertenant from and against any and all cost, expense (including reasonable
attorneys' fees) or liability for any compensation, commissions or charges
claimed by any broker or agent other than the Broker claiming to have dealt with
Underlandlord with respect to this Underlease or the negotiation thereof.
11. Additional Rent.
11.1 Subtenant stipulates that it is familiar with the provisions of
Section V.(c) of the Sublease and agrees that such provision is incorporated
herein by reference, except that the Base Pilot Amount shall mean the PILOT for
the tax fiscal year July 1, 2000 through June 30, 2001.
11.2 Subtenant stipulates that it is familiar with the provisions of
Section V.(d) of the Sublease and agrees that such provision is incorporated
herein by reference, except that the Base Operating Year shall mean the
Operating Expenses for the calendar year 2000. Notwithstanding anything to the
contrary contained in this Section 11.2, the additional rent paid pursuant to
this Section 11.2 shall be abated during the period commencing on the Underlease
Commencement Date and ending on June 30, 2001.
11.3 Undertenant shall pay to Underlandlord any "Tenant Surcharges"
(as that term is hereinafter defined. "Tenant Surcharges" shall mean any and all
amounts other than annual fixed rent, "Operating Expenses" [as such term is
defined in the Main Lease] and the "PILOT" [as such term is defined in the Main
Lease] which, by the terms of the Sublease or Main Lease, become due and
payable by Underlandlord to Sublandlord or to Overlandlord as additional rent or
otherwise and which would not have become due and payable but for the acts,
requests for services, and/or failures to act of Undertenant, its agents,
officers, representatives, employees, servants, contractors, invitees, licensees
or visitors under this Underlease, including, but not limited to: (i) any
increases in Overlandlord's or Sublandlord's fire, rent or other insurance
premiums resulting from any act or omission of Undertenant, (ii) any additional
charges to Underlandlord on account of Undertenant's use of heating,
ventilation, air
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conditioning or electricity after hours or in excess of normal usage, (iii) any
charges which may be imposed on Underlandlord, to the extent that such charges
are attributable to the Premises or the use thereof or services or utilities
provided thereto, and (iv) any additional charges to Undertenant on account of
Undertenant's use of cleaning and elevator services after hours or in excess of
normal usage. Within a reasonable time after receipt by Underlandlord of any
statement or written demand from Overlandlord or Sublandlord including any
Tenant Surcharges, Underlandlord will furnish Undertenant with a copy of such
statement or demand, together with Underlandlord's statement of the amount of
any such Tenant Surcharges, and Undertenant shall pay to Underlandlord the
amount of such Tenant Surcharges within five (5) days after Undertenant's
receipt of such statement or demand; provided, however, that in any instance in
which Undertenant shall receive any such statement or demand directly from
Overlandlord or Sublandlord, Undertenant may pay the amount of the same
directly to Overlandlord or Sublandlord.
11.4 Payments shall be made pursuant to this Section 11 notwithstanding
the fact that the statement to be provided by Underlandlord is furnished to
Undertenant after the expiration of the term of this Underlease and
notwithstanding the fact that by its terms this Underlease shall have expired
or have been cancelled or terminated.
12. Notices.
12.1 Any notice, demand or communication which, under the terms of this
Underlease or under any statute or municipal regulation must or may be given or
made by the parties hereto, shall be in writing and unless otherwise required
by such law or regulation, shall be sent by (i) hand delivery with receipted
delivery, or (ii) nationally recognized overnight courier service (such as
Federal Express) with receipted delivery, addressed to the party for whom
intended at its address as aforesaid, except that, after the Underlease
Commencement Date, Undertenant's address shall be deemed to be the Building
unless Undertenant shall give notice to the contrary. Either party, however,
may designate such new or other address to which such notices, demands or
communications thereafter shall be given, made or mailed by notice given in the
manner prescribed herein. Any such notice, demand or communication shall be
deemed given or served, as the case may be, on the date of the receipt thereof,
or in the case of refusal to receive, as of the date of such refusal.
13. Electricity.
13.1. Underlandlord shall not be liable in any way to Undertenant for any
failure or defect in the supply or character of electric energy furnished to the
Premises by reason of any requirement, act or omission of the public utility
serving the Building with electricity or for any other reason.
14. Alterations.
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14.1 Undertenant may make no changes, alterations, additions,
improvements or decorations in, to or about the Premises without (x)
Overlandlord's and Sublandlord's prior written consent, which consent shall be
governed by and subject to the relevant provisions of the Main Lease and
Sublease, and (y) Underlandlord's prior written consent, which consent may be
given or denied in Underlandlord's sole discretion, notwithstanding anything to
the contrary in the Main Lease or the Sublease, as incorporated herein.
15. Limitation of Liability.
15.1 Undertenant agrees to look solely to Underlandlord's estate and
interest in this Underlease, and the Premises, for the satisfaction of any right
or remedy of Undertenant for the collection of a judgment (or other judicial
process) requiring the payment of money by Underlandlord, in the event of any
liability by Underlandlord, and no other property or assets of Underlandlord
shall be subject to levy, execution, attachment, or other enforcement procedure
for the satisfaction of Undertenant's remedies under or with respect to this
Underlease, the relationship of Underlandlord and Undertenant hereunder, or
Undertenant's use and occupancy of the Premises, or any other liability of
Underlandlord to Undertenant.
16. Quiet Enjoyment.
16.1 So long as Undertenant pays all of the rent and additional rent
due under this Underlease and performs all of Undertenant's other obligations
hereunder, Underlandlord shall not disturb or terminate Undertenant's leasehold
estate hereunder, subject, however, to the terms, provisions and obligations of
this Underlease, the Sublease and the Main Lease.
16.2 In the event Undertenant does not completely vacate the Premises
by the Underlease Expiration Date or earlier termination of this Underlease,
Undertenant shall defend indemnify and hold harmless Underlandlord in respect
of any and all holdover charges or penalties imposed under the Main Lease or the
Sublease upon Underlandlord in respect of the Premises and in respect of any and
all reasonable costs, liabilities or expenses (including reasonable attorneys
fees) suffered by Underlandlord in respect of same, as and when such costs,
liabilities or expenses are incurred.
17. Security.
The amount of security required pursuant to the provisions of the
first paragraph of Section IV. (d) of the Sublease, as incorporated herein,
shall be $250,000 (the "Security Deposit"). The second paragraph of Section IV.
(d) is not incorporated herein. Notwithstanding anything to the contrary
contained in such Section of the Sublease, the Security Deposit shall consist of
the following: (a) 25,000 shares of Bitwise Designs, Inc. stock to be held in
escrow by DiGioia and Goldstein, LLC in the name of AmTrust Financial Services,
Inc., and (b) a letter of credit in the amount necessary to bring the total
value of the Security Deposit to $250,000. The letter of credit shall be issued
by a New York bank satisfactory to Underlandlord and in a form
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satisfactory to Underlandlord, both in Underlandlord's sole discretion. The
value of the letter of credit shall be adjusted within 15 days after the last
day of each calendar quarter so that on the date 15 days following the last of
each calendar quarter the value of the total security deposit shall equal at
least $250,000 as of the last date of each calendar quarter, with said security
deposit calculation based on the closing price of Bitwise Designs, Inc. common
stock (BTWS-Nasdaq) on the last trading day of such calendar quarter.
18. Miscellaneous.
18.1. This Underlease may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
18.2. This Underlease shall not be binding upon Underlandlord unless
and until it is signed by Underlandlord and a fully-executed counterpart thereof
has been delivered to Undertenant and approved by Overlandlord and Sublandlord.
This Section 18.2 shall not be deemed to modify the provisions of Article 6
hereof.
18.3. This Underlease constitutes the entire agreement between the
parties and all representations and understandings have been merged herein.
18.4. This Underlease shall inure to the benefit of all of the parties
hereto, their successors and (subject to the provisions hereof) their assigns.
18.5. The term "Underlandlord" as used in this Underlease shall mean
only the Underlandlord named herein, so that in the event of any assignment of
the Sublease, the Underlandlord named herein shall be and hereby is entirely
freed and relieved of all future covenants, obligations and liabilities of
Underlandlord hereunder, including but not limited to covenants, obligations and
liabilities pertaining to Undertenant's security deposit, and it shall be deemed
and construed without further agreement between the parties or their successors
in interest that the assignee of the Sublease has assumed and agreed to carry
out any and all such covenants, obligations and liabilities of Underlandlord
hereunder.
18.6. Where applicable, Undertenant shall be responsible for all
additional costs incurred as a result of the Underlease, including without
limitation, security cards and keys.
18.7. Bitwise and AuthentiDate are jointly and severally liable for
all obligations of Undertenant.
18.8. This Sublease may be executed in multiple counterparts, each of
which shall, when executed, be deemed to be an original, and all of which when
taken together shall constitute but one Sublease. Each party may rely upon a
faxed counterpart of this Sublease executed and delivered by the other party as
if such counterpart were an original counterpart.
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IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the day and year first above written.
ROCHDALE INSURANCE COMPANY,
Underlandlord
By: /s/ B. Zyskind
---------------------------
Name: B. Zyskind
Title: Vice President
BITWISE DESIGNS, INC., Undertenant
By: /s/ Ira C. Whitman
---------------------------
Name: Ira C. Whitman
Title: Secretary/Vice President
AUTHENTIDATE, INC., Undertenant
By: /s/ Robert Van Naarden
---------------------------
Name: Robert Van Naarden
Title: CEO/President
THE YASUDA FIRE & MARINE
INSURANCE COMPANY OF AMERICA,
Sublandlord
By:
----------------------------
Name:
Title:
MERRILL LYNCH/WFC/L, Inc.,
Overlandlord
By:
---------------------------
Name:
Title:
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BITWISE DESIGNS, INC. ACKNOWLEDGMENT
State of New York )
):ss
County of Schenectady )
On the 19th day of October in the year 2000, before me, the undersigned, a
Notary Public in and for said state, personally appeared Ira C. Whitman
personally known to me or proved to me on the basis or satisfactory evidence to
be the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his capacity, and that by his signature on
the instrument, the person, or the entity upon behalf of which the person acted,
executed the instrument, and that such individual made such appearance before
the undersigned in the offices of BitWise Designs, Inc., 2165 Technology Dr.,
Schenectady, NY.
/s/ Elizabeth L. Flatly
Notary Public State of New York
Comm. exp. 10/13/02
AUTHENTIDATE, INC. ACKNOWLEDGMENT
State of _____________________ )
):ss
County of ____________________ )
On the ______ day of ____________ in the year 2000, before me, the undersigned,
a Notary Public in and for said state, personally appeared ________________
personally known to me or proved to me on the basis or satisfactory evidence to
be the person(s) whose name(s) is (are) subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument, and that such individual made such appearance before the
undersigned in the _________________________________________________
____________________________________________________________________.
______________________________________
Notary Public
15
BITWISE DESIGNS, INC. ACKNOWLEDGMENT
State of ___________________________ )
):ss
County of __________________________ )
On the ___ day of _________ in the year 2000, before me, the undersigned, a
Notary Public in and for said state, personally appeared __________________
personally known to me or proved to me on the basis or satisfactory evidence to
be the person(s) whose name(s) is (are) subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument, and that such individual made such appearance before the
undersigned in the ____________________________________________________________
____________________________________________________________.
_______________________________
Notary Public State of
AUTHENTIDATE, INC. ACKNOWLEDGMENT
State of New York )
):ss
County of New York )
On the 19th day of October in the year 2000, before me, the undersigned, a
Notary Public in and for said state, personally appeared Robert Van Naarden
personally known to me or proved to me on the basis or satisfactory evidence to
be the person(s) whose name(s) is (are) subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
person(s), or the entity upon behalf of which the person(s) acted, executed the
instrument, and that such individual made such appearance before the undersigned
in the _________________________________________________________________________
____________________________________________________________.
/s/ Victor J. Di Gioia
_________________________
Notary Public
VICTOR J. DI GIOIA
Notary Public, State of New York
No. 31-02014764350
Qualified in New York County
Commission Expires June 30, 2002
EX-21
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y53484ex21.txt
SUBSIDIARIES OF REGISTRANT
1
LIST OF SUBSIDIARY COMPANIES EXHIBIT 21
DJS Marketing Group, Inc.
Albany, NY
Authentidate, Inc.
New York, New York
WebCMN, Inc.
Schenectady, New York
Authentigraph, Inc.
Schenectady, New York
EX-23
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y53484ex23.txt
CONSENT OF PRICEWATERHOUSE COOPERS
1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 33-80917, 333-05445 and 333-49160) and Form
S-8 (File Nos. 333-23933, 333-65894 and 333-91337) of Authentidate Holding Corp.
and subsidiaries of our report dated September 7, 2001, except for Note 19, as
to which the date September 11, 2001, relating to the consolidated financial
statements and financial statement schedule which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Albany, New York
September 25, 2001