INFORMATION #1 EDSR 03-13-2006INFORMATION
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MEMORANDUM
TO: Economic Development Authority
FROM: Heidi Steinmetz, Assistant Director of Economic Development
DATE: March 13, 2006
SUBJECT: Incubator Tenant K-Netica Relocation Update
Background
K-Netica became an Incubator tenant in May of 2002, subleasing 2,267 SF of space. The
company has developed a universal human language translator utilized through computer
software. The software has a number of key applications fox commercial, government,
military, and personal use.
The EDA has granted K-Netica six sublease extensions: one fox 9 months, four fox 6
months and most recently one fox two months due to the sale of the Incubator building.
Issue
Below is a timeline of staffls involvement with the company's relocation efforts.
• February 8, 2006 -Staff provided IC-Netica with a list of seven available business
park space opportunities.
• February 9, 2006 -Staff arranged/attended a tour with the company CEO of the
Briggs Properties space.
• February 21, 2006 -Staff arranged/attended a tour with the company CEO of space
in the Oxluck building. The company CEO indicated that he was not interested in
additional site tours.
• March 2, 2006 -Recruiter Pete Myxvik of Kfoxce (experienced in recruiting the type
of employees needed by K-Netica) contacted K-Netica per staffs request.
• March 6, 2006 -Staff informed the company CEO of the option to extend the
sublease with the EDA until May 15, 2006 and of the potential opportunity to sign a
lease with the future building owner.
The company CEO responded with the following update:
• I{-Netica will more than likely sign a short-teen lease next week in the Twin Cities at
a significantly reduced rent with great expansion potential.
• The company has toured six Elk River locations.
• The main factor of the relocation is the term, cost, space size, or the expansion
oppartunity issues.
• The secondary factor is that the company is having trouble getting J2EE
axchitectaral programmers/developers to commute ox xe-locate to Elk River.
• The third factor is that the company's customers axe in the metro and the company
virtually "lives" with them as solutions axe integrated. An 80-mile round trip in
traffic at any time in the day really impacts their efficiency.
It is important that the EDA know that there is a location commitment clause in the Memo
of Understanding document held between the EDA and K-Netica. The clause reads as
follows:
"Location Commitment: Mandatory Repurchase: Put Options. So long as EDA is owner of
any Shares of Company stock, the Company's headquarters and administrative facilities shall
be located within the City of Elk River. In the event that the Company no longer maintains
ALL such facilities within the City of Elk River, the EDA shall have the option to require
the Company to repurchase the Shares owned by EDA within 30 days of written demand.
The repurchase price shall be the last price per share offered in any private or public offering
authorized by the Board of Directors of the Company, but not less than twice the price used
to calculate Shares provided to the EDA under 2.1.(A) of this Agreement."
Staff will provide the EDA with a recommendation regarding K-Netica's relocation upon
formal written notification from the company.