7.0. EDSR 03-09-1998 •
•
11)11)
WATERMARKCORPORATION '•.•
STATEMENT OF PURPOSE
for
Watermark Corporation Item #7.
Waterevenrmarkue. Corporation designs, manufactures, and sells underwater video equipment. The
company currently sells product to swim trainers and would like to expand into the
Sportfishing Market,because of the sales potential of this 22.7 million person market.
Research indicates that a remote underwater video system would be desirable to sport
fishermen in the $1000 U.S. dollar price range.
Watermark is currently seeking equity funding in the amount of$0.5 million, representing
approximately a 33%ownership position in the company. Eighty percent of pre-tax net
income will be distributed to the share holders as dividends.
The proceeds will be used to fund three phases in the next 18 months. Phase I,Product
Development, will include 10 prototypes and all documentation necessary to manufacture
the product. Phase II,Product Introduction,will produce inventory and marketing to
generate market awareness and sales. Phase III, Transition to High Volume, will
concentrate on increasing sales by additional advertising and penetration of new markets.
Research on new features and products will commence in Phase III and are funded by sales
I. ORGANIZATIONAL PLAN
• I Watermark
I
Description of the Business
In January of 1993,Michael Gill formed a business, which was structured as a sole
f
proprietorship. In January 1994,the business structure was changed to a partnership, named
Watermark, so that Maureen Gill would have equal (50%)ownership of the company. As of
December 1997,the founders of Watermark, partnership, have joined with Harlan Jacobs of
Genesis Business Centers, LTD,to create Watermark Corporation. In the interest of
expanding the business, improving legal protection, and minimizing taxation, the business
structure will be a Limited Liability Corporation(LLC). Formation of this corporation will
be completed on January 1, 1998.
Over the past four years Maureen and Michael Gill have self funded the design,
} development, production, marketing, and sales of an underwater video product called
Watercam. The target marketing for this unique product has focused on the 6000 members
of the American Swim Coaches Association(ASCA), which is a small segment of the
aquatic training market. The reason for selecting this market segment was that our initial
marketing research indicated a high level of acceptance of this type of new product within
ASCA. It was also highly reachable through low cost advertising that fit within the budget.
• The Watercam product introduction and first sales were made in 1996. As anticipated
through market research, sales increased through the end of the first year. In 1997,
Watercam total sales increased by 300%over 1996 total sales. Watercam sales are
projected to increase within ASCA in the next year. In addition to increasing ASCA sales,
growth is projected from expansion of Watercam sales in other segments of the aquatic
training market such as swim instruction facilities (YWCA/YMCA)and coaches of other
aquatic sports(diving/synchronized swim). This will be accomplished through the addition
of commissioned sales groups and increased advertising budgets. There has also been
international interest from European,Asian, South African, Canadian,and Australian
markets which could be reached through proper advertising.
As Watermark continues to produce and sell Watercam to the aquatic training market, a new
product will be developed and marketed to expand the underwater camera product line. The
new product, called Fishcam,would be a cost effective version of Watercam,adapted for
use in the sport fishing market. Such a product would substantially increase sales by
fulfilling a need in this large, technology hungry market. Our marketing research has shown
that there is a demand for such a product near or below our targeted$990 price. Currently
such a product does not exist in this price range.
Over the next three years,Watermark will be positioned as the leader in remote underwater
video products. This will be done through means of producing quality products at a low
• cost, marketing aggressively, expanding into additional markets,applying technological
innovations, and obtaining adequate legal protection.
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• Legal Structure
Watermark began as a sole proprietorship in January of 1993 by Michael Gill. It was then
converted to a partnership by Maureen Gill and Michael Gill in 1994. By the beginning of
1998, Watermark will change to a limited liability corporation, and add Harlan Jacobs of
Genesis Business Centers,LTD., as the third founder. Business advisors recommended an
LLC as the most effective structure for this company, since it provides officers and investors
liability protection, avoids double taxation, while also offering a convenient mechanism for
raising capital to finance growth.
With regard to the Watermark Corporation stock,the company intends to authorize
10,000,000 shares of its common stock. Of these authorized shares, a total of 210,000 shares
will be issued to the founders as follows:
Michael Gill 100,000 shares
Maureen Gill 100,000 shares
Genesis Business Centers,Ltd. 10,000 shares
The outside investors will be purchasing 100,000 shares at$ 5.00 per share. Accordingly,
their investment in the aggregate will entitle them to about a 33 percent ownership position
in the company( 100,000 shares/310,000 shares).
• The $5.00 per share price of the stock would make this stock eligible for Small Company
Offering Registration(SCOR). This would permit private trading of the stock on the
interne to raise capital. Additionally,the SCOR offering removes the restriction of having
to hold stock for one year.
In the LLC structure, share holders must report corporate profits or losses on their income
tax for their corresponding ownership of the company. Eighty percent of pre-tax net income
will be distributed to the share holders as dividends. As the corporation becomes profitable
the investors will begin to see a return on investment, and will have the resources available
(from the dividends)to pay their share of the taxes on the corporate income. More
importantly,after the payment of the taxes,there should be a sizeable remainder that is their
annual net return from their investment in the company.
•
2
• Location
The address and contact information for Watermark is:
Watermark Corporation
4790 Centerville Road 120
White Bear Lake,MN 55127
(612)407-2944
mmgill@summitpoint.corn
Watermark intents to move into the Elk River Business Incubator, located at:
16820 Highway 10
Elk River,Minnesota 55330
This business incubator is sponsored by the City of Elk River's Economic Development
Authority(EDA), and Genesis Business Centers,LTD.
There are many reasons for the selection of this location. An important factor in this
decision was the support provided by both the City of Elk River and Genesis Business
Centers,LTD. This area also offers a rich pool of labor,manufacturing facilities,
• shipping/transportation resources and many other business resources that have supported
strong economic growth of this region.
In addition,the nearby Twin City area is one of the largest fishing communities in the
nation, according to the 1997 Life Style Market Analysis(SRDS marketing publication).
This provides access to a large cross section of our target sport fishing market, and
numerous test sites.
•
3
• Products
Watermark products include Watercam, which is currently in production and sold to swim
trainers; Fishcam, which is in product planning stages for introduction to the sport fishing
market in the spring of 1998; and Fishcam II, which is in the concept stage. Fishcam II will
have enhancements over the original Fishcam product.
Watercam:
Watercam is used by aquatic trainers to facilitate viewing and recording of athletes and
students under the water. Watercam was the first submersible remote video camera
introduced to the aquatic training market that could be used to obtain views from anywhere
in or out of the pool.
The Watercam remote submersible video product has three main components. The
watertight video camera head,the power pack, and the pool mount. The camera head,
which generates the video signal, is a small 3"diameter device that can be completely
submerged in water to depths greater than 100 feet. Above the water surface,the
rechargeable power pack provides 12 volt DC power to the camera head through a 100 foot
cable. On this same cable, a video signal is directed from the camera head to the power
pack. A convenient standard output is provided on the power pack that allows the customer
to connect the Watercam to their A/V equipment for viewing and recording.
Utility of the system for the aquatic trainer is expanded through use of the specially
designed pool mount. The camera head may be attached to the pool mount in a variety of
configurations to allow viewing from the pool side and pool bottom. Also included with the
Watercam, is a telescoping pole which can be attached to the mount to expand versatility.
The Watercam product is provided to the customer with their choice of a color or
monochrome camera head. The high resolution video output from the camera head is
generated by a small circuit board mounted charge coupled device(CCD)camera. This
camera is very light sensitive and suitable for low light environments and has an automatic
gain control which makes it equally suitable for outdoor daylight.
With Watercam,trainers are now able to:
1. View sharp, clear, high quality underwater video of their swimmers
2. View swimmers from any angle above or below the water
3. Record swimmers from any view, including views from pool floor
4. Track a swimmer's stroke from one end of the pool to the other
5. Move the viewing system easily from one location to another
6. Set up an underwater viewing session quickly
7. Leave the system unattended to record swim stroke video
8. Review underwater video with students at the pool side
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4
Products (cont.)
The Watercam product satisfies a definite need in the swim training market segment, as
indicated from a market survey conducted by Watermark in December of 1995. In this
survey, 100%of American Swim Coach Association(ASCA)members agreed that
underwater video during training enhances swimmers' performance.
Video from the remote camera head reveals important details about swimming technique
that cannot be seen from above the water. Improvements in performance are accelerated by
the coach's review of recorded video with the student. The resulting improvements are an
important key to why Watermark has received so much praise from their customers.
The purchase price for a Watercam with color output is$1,690 US dollars and with
monochrome output is $1,297 US dollars. The cost of manufacturing the Watercam in
quantities under 10 is$921 per color unit, and$805 per monochrome unit. These values are
determined using low volume component prices and out of house labor estimates.
All components and subassemblies are maintained in minimum quantities necessary to
provide product on demand. Currently two units are kept in inventory. Only long lead
items are ordered in quantities greater than 10 units. The longest lead time item is a custom
made cable which takes 4 to 8 weeks to produce by our current vendors. With higher
volumes,production cost would be greatly reduced.
• Assembly of most of the product is currently done in house. Our manufacturing facilities
include an 800 square foot light assembly area. Currently it takes an average of 4 hours to
produce one unit in house. Procedures include: electronic panel soldering and assembly,
enclosure and cable assembly,mount fabrication and welding, product testing,
documentation preparation,product packaging, and shipping. Assembly houses have been
identified to assist with production when volumes mandate.
Fishcam:
The Fishcam will be a new and unique product for the sport fishing market that will allow
fishermen to remotely view and record underwater environments. Like Watercam, it will
feature three main components. A new camera head that can be made through less
expensive means, while having more features designed specifically to suit sport fishing. A
power-viewer that will provide 12 volts DC to the camera head through a suitable length
cable, and also contain an integral viewer to monitor the camera output. The third
component will be a camera head mount or mounts that will assist the fisherman in
obtaining the underwater view they desire depending on the type of fishing or activity the
they are undertaking. Fishing activities that could be enhanced with use of the Fishcam
include trolling, casting, scouting new locations, ice fishing, and many other activities.
This product will be designed specifically for fishermen. For example,the Fishcam will
have the capability of using power from the boat or trolling motor battery, and still provide
• an output should the user want to record the video with their camcorder.
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Products (cont.)
In addition to the main system,the Fishcam product line may include additional accessories
to make it even more adaptable and appealing to its targeted market while generating
additional sales from established customers.
With this product a sport fisherman will have the ability to remotely:
1. Identify desired species in"hot spots"
2. Estimate population density and average size in locations of interest
3. Examine aquatic life in natural habitats
4. Study lure performance in the water
5. Explore underwater structure and topography
6. Study game behavior
7. Keep a record of excursions
8. Locate items of interest
9. Have even more fun with their sport
Though higher cost underwater vision systems can be found, a low cost alternative
developed exclusively for fishing has not been introduced to the large sport fishing market.
Our preliminary market research in this market has indicated that there is a great deal of
interest in such a product. Fishcam would fulfill this need as early as Spring of 1998.
Through the development of Fishcam,there is a planned redesign of the underwater circuit
board camera enclosure. This enclosure will be designed for high volume production to
accommodate the sales generated by the addition of the large sport fishing market, and to
reduce unit cost. Market research suggests that the sport fishing market can support sales
volumes high enough to justify injection molding, which is the most cost effective method
of producing this part. This camera assembly will also replace the one currently used in the
Watercam product such that it can also benefit from the cost reduction. Currently, it costs
$200 dollars to have the circuit board potted, when an injection molded inclosure will cost
less than$20.
Watermark is currently investigating the feasibility of patenting the use of an injection
molded enclosure for the purpose of video camera submersion. Such a patent could prevent
competition from producing a submersible camera as cost effectively. This is just one
patent option of many that could be used to hinder competitors.
Our objective is to price this product below$1,000 US dollars. The initial profit margin
will be near 50%. Anticipated first year sales will be 1,000 units, as estimated by industry
insiders. Upon market acceptance,volumes near 10,000 units per year are anticipated based
on the performance of existing, similarly priced, electronic products in the sport fishing
industry.
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• Products (cont.)
To reduce the time to market,much of the production of this product will be outsourced in
the first year. A concurrent cost analysis will be done in the first year to determine the most
economical means of producing the product internally. If proven cost effective,the new
production methods will be implemented the following year.
The estimated life cycle of this product is six years based on the performance of other
similarly priced electronics in this industry that have significant competition. Typically,
older products are phased out because new products are added with improved technology
either by the same company,the competing companies, or both.
With the anticipation of growing competition Watermark is planning the next generation
Fishcam, internally referred to as Fishcam II.
Fishcam II:
Fishcam II is the planned next generation Fishcam product which is scheduled for a year
2000 introduction. High technology features added to the original Fishcam product will be
implemented in response to competition and market demands. New product features may
include a wireless camera head,zoom options,remote position control, additional sensors
(i.e. temperature, depth, etc.)and displays.
The flexibility of the original Fishcam product could be enhanced through the elimination of
the cable between the power-viewer and the camera head. The camera could be placed or
suspended at a remote underwater location with no physical attachment to the boat.
Position control could also be added, allowing the fisherman to move the camera head to a
location of interest by manipulation of controls at the power-viewer. All information would
be conveyed without wires.
Additionally, a variety of sensors or gages could be added to the product that would provide
more information to the fisherman about the environment in which the camera head is
located such as temperature and depth. These could be displayed on the main power-viewer
screen overlaying the video images. Market research has indicated that some of the high
end fishing electronics manufacturers are combining technologies into hybridized
instruments. For this reason it may be advantageous to plan for integration of additional
technologies into future Fishcam products. An example would be to combine fish locator
information with the image data produced by Fishcam on the same display.
Other features could include alternative or additional image sensing technology that would
permit the locating or viewing of objects and fish in highly turbid water.
As we gather marketing data on Fishcam field performance and acceptance, we will be
better prepared to make decisions on the fmal Fishcam II features. New technologies will
also enter the price ranges that would make their incorporation into the product possible.
This will undoubtedly spawn new ideas for Fishcam II, and future products.
• WATERMARK,LLC.
SUBLEASE Item #7.
THIS SUBLEASE, made this day of , 199_, by and between the
City of Elk River Economic Development Authority, a Public Body Corporate and Politic
(hereinafter called "Sublessor"), and Watermark, LLC., a Minnesota Limited Liability
Corporation, (hereinafter called "Sublessee");
WITNESSETH, THAT:
WHEREAS, Sublessor has leased certain space in an office/industrial complex known as
the Elk River Business Incubator and located at 16820 Highway 10 in the City of Elk River, for
the purpose of supporting the development and growth of high technology companies in the City
of Elk River. Such space being leased by Sublessor shall be referred to herein as the "Elk River
Business Incubator."
WHEREAS, Sublessor is leasing the Elk River Business Incubator pursuant to the terms
and conditions of that certain lease (hereinafter called "Prime Lease") dated March 18, 1997,
between Larry Hickman (hereinafter called "Landlord"), as landlord, and Sublessor, as lessee, a
true and correct copy of which is attached hereto as Exhibit A and made a part hereof.
• WHEREAS, Sublessee desires to lease the space in the Elk River Business Incubator
designated on Exhibit B attached hereto and made a part hereof (hereinafter called the
"Subleased Premises") and Sublessor desires to sublease the Subleased Premises to Sublessee.
NOW, THEREFORE, in consideration of the rents to be paid and the covenants to be
performed by the Sublessee as hereinafter set forth, Sublessor does hereby demise and sublease
the Subleased Premises to the Sublessee, and Sublessee does hereby hire and take the Subleased
Premises from Sublessor upon the terms and conditions hereinafter set forth.
(1) Assumption of Obligations. Except as may be herein otherwise specifically
provided, Sublessee shall have all the rights and privileges and assume and agree to keep, obey
and perform all of the obligations, restrictions and conditions, agreements and covenants of the
Sublessor as lessee under the Prime Lease as fully and to the same extent as if the provisions of
the Prime Lease were set forth herein.
Sublessee hereby accepts the demise and Sublease of the Subleased Premises expressly
subject to all of the terms, covenants and conditions set forth in the Prime Lease, and agrees to
comply with all of the terms, covenants and provisions thereof. Any failure by Sublessee to
perform such duties, liabilities and obligations under the Prime Lease shall also be a default
under this Sublease.
• (2) Rent and Other Charges. In consideration of the aforesaid subleasing, Sublessee
covenants and agrees to pay to the Sublessor, without setoff or deduction whatsoever, rent in the
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amount of$200.75 per month payable on the first day of each month during the Term of March
15, 1998 to March 14, 1999, and $267.67 per month during the Term of March 15, 1999 to April
14, 1999. In the event that the Term begins or ends on other than the fifteenth or fourteenth day
of the month, rent shall be pro-rated for such partial month. Sublessor shall be responsible for
payment of all rent due to the Landlord under the Prime Lease.
(3) Term. Notwithstanding any provisions relating to the Term or Renewal Term
contained in the Prime Lease, the Term of this Lease shall be for the period commencing on
March 15, 1998 and terminating on April 14, 1999. In the event the Sublessor takes action to
extend the Term or Renewal Term of the Prime Lease, the Term of this Sublease shall be
extended, at the option of Sublessor, to March 14, 2000 and upon such extension, Sublessee
covenants and agrees to pay Sublessor, without setoff or deduction whatsoever, rent in the
amount of$267.67 per month during the Term of such extension, which Term shall be April 15,
1999 to March 14, 2000.
(4) Quiet Enjoyment. Sublessor covenants that Sublessee, subject to the Prime Lease
and on paying the rents and performing the covenants herein set forth, shall and may peaceably
and quietly have, hold and enjoy the Subleased Premises for the Term hereof free of all claims
made by persons claiming by,through or under Sublessor.
(5) Exclusions. The following rights, if any, reserved to the Sublessor under the
Prime Lease shall be reserved to the Sublessor, and Sublessee shall have no right therein:
11)
(a) The right to sublease, assign or sublet.
(b) Any right on the part of the Sublessor under the Prime Lease to terminate
the Prime Lease in the event of damage by casualty or taking by eminent
domain,the default of the Landlord, or for any reason whatsoever.
(c) Any option or right to extend the Term or any Renewal Term.
(6) Maintenance. The Sublessee agrees to accept the Subleased Premises as of the
commencement of the Term in their then "as is" condition and that they will take good care of the
Subleased Premises, and will commit no waste, and will not do, suffer or permit to be done any
injury to the same; that they will keep said Subleased Premises in at least as good order,
condition and state of repair required of Sublessor under the Prime Lease; that they will permit
the Sublessor to enter onto the Subleased Premises at any and all reasonable times to inspect the
same or for any other proper purpose without liability on the part of Sublessor for any loss or
interruption of business occasioned thereby, and that they will not do or permit to be done any act
or thing contrary to the covenants and agreements made by the Sublessor in the Prime Lease.
Sublessee shall also, at their sole cost and expense, comply with all applicable local, state and
federal laws, ordinances, codes and regulations, and with all rules and regulations promulgated
by companies which from time to time insure against loss or damage to, or against injuries or
• deaths occurring on or about, the Subleased Premises. In no event shall Sublessee allow the
Subleased Premises to be used for any use which makes void or voidable any insurance in force
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with respect to the Subleased Premises or makes it impossible to obtain insurance, creates a
public or private nuisance, or is illegal, unlawful, immoral, or is a hazardous business, trade,
411
occupation, activity or purpose.
(7) Alterations. Sublessee agrees that any alterations or improvements will be made
in good and workmanlike manner and that it will not make any alterations or improvements in or
to the Subleased Premises except in compliance with Prime Lease and with all applicable laws,
ordinances, codes and regulations and without obtaining the prior written consent of the
Sublessor, but such consent will not be unreasonably withheld if Landlord grants its consent
thereto. Sublessor may require Sublessee, at the end of the term and at Sublessee's expense, to
remove all alterations and improvements made by Sublessee and to repair any damage caused by
such removal.
(8) Liability of Sublessor; Assignment of Right of Action. Sublessor shall have no
responsibility whatsoever with respect to the Subleased Premises or the condition thereof.
Sublessor shall not be liable for any nonperformance of or noncompliance with or breach or
failure to observe any term, covenant or condition of the Prime Lease upon Landlord's part to be
kept, observed, performed or complied with, or for any delay or interruption in Landlord's
performing its obligations thereunder. Sublessor hereby assigns unto Sublessee, for so long as
this Sublease shall be in force and effect, any and all rights and causes of action which it may
have against Landlord with respect to the Subleased Premises due to defaults by Landlord under
the Prime Lease. Sublessor agrees to cooperate with and join Sublessee in claims or suits
• brought by Sublessee against Landlord under the Prime Lease, provided that the costs and
expenses of such participation shall be borne by Sublessee. Sublessor reserves the right at
Sublessor's option to tender to Sublessee the defense of any claim made against Sublessor arising
out of the Prime Lease, the Sublease or any use of the Subleased Premises, in which instance
Sublessee shall defend the claim using counsel reasonably acceptable to Sublessor. In any event,
the expense of all such costs and attorney's fees shall be borne by Sublessee.
(9) Insurance; Indemnification. Sublessee shall continuously maintain public liability
insurance with respect to death or injury to persons and damage to or destruction of property
occurring at or about the Subleased Premises. Such policy of insurance shall be in form and
amount reasonably satisfactory to Sublessor, shall name Sublessor and/or Landlord as an
additional insured party and shall be delivered to Sublessor. Sublessee hereby agrees to
indemnify and hold harmless Sublessor from, and shall reimburse Sublessor for, all costs and
expenses, including reasonable legal expenses, incurred by Sublessor in connection with the
defense of all claims and demands of third persons, whether or not suit is brought, including but
not limited to those for death, for personal injuries, or for property damage, arising out of any
default of Sublessee in performing or observing any term, covenant, condition or provision of
this Sublease, or out of the use or occupancy of the Subleased Premises by the Sublessee, or out
of any of the acts or omissions of the Sublessee, its agents, representatives, employees,
customers, guests, invitees or other persons who are doing business with Sublessee or who are at
the Subleased Premises with Sublessee's consent. Sublessee, for itself and its insurers, hereby
further expressly waives all claims against Sublessor for any and all damages to persons or
property caused by or resulting from any thing or circumstance. Sublessee agrees that said
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• insurance policies shall contain waiver of subrogation rights against Sublessor.
(10) Termination; Surrender of Subleased Premises. This Sublease shall terminate at
the end of the term hereof or upon any default arising under the Prime Lease without the
necessity of any notice from either Sublessor or Sublessee to terminate the Sublease. Sublessee
hereby agrees that they will peacefully and quietly vacate and surrender the Subleased Premises
to the Sublessor at the expiration of the term, in as good order and repair as required under this
Sublease and the Prime Lease. It is further understood and agreed by and between the parties
hereto that existence of this Sublease is dependent and conditioned upon the continued existence
of the Prime Lease, and in the event of the cancellation or termination of said Prime Lease, this
Sublease automatically shall be terminated. Sublessor shall have no liability to Sublessee due to
the termination of the Prime Lease by reason of any default by Sublessee hereunder, by reason of
any condemnation or destruction of the Subleased Subleased Premises, or by any other reason not
within the control of Sublessor.
(11) Sublease and Subletting. Sublessee may not assign this Sublease or sublet all or
any part of the Subleased Premises. Sublessee may not pledge this Sublease, or allow any liens
to be placed hereon, or suffer this Sublease or any portion thereof to be attached or taken upon
execution.
(12) Sublessor's Right to Cure Defaults. If Sublessee shall default in the observance or
performance of any of Sublessee's covenants, agreements or obligations hereunder, Sublessor
.111°
may, but it is not obligated, and without limiting any other remedy which Sublessor may have by
reason of such default, cure the default and charge the cost thereof to Sublessee including,
without limitation, reasonable attorney's fees. Sublessee shall pay the same within ten (10) days
after receipt of an invoice therefore from Sublessor, together with interest thereon at the lesser of
the rate of twelve percent(12%)per annum or the maximum rate allowed by law.
(13) Default by Sublessee. If Sublessee shall default in the payment of any installment
of rent or other monies to be paid under this Sublease, or if Sublessee shall default in the
observance or performance of any of Sublessee's other covenants, agreements or obligations
hereunder, or if any proceeding is commenced by or against Sublessee for the purpose of
subjecting the assets of Sublessee to any law relating to bankruptcy or insolvency, or for
appointment of a receiver for Sublessee or for any of Sublessee's assets, or if Sublessee makes a
general Sublease of Sublessee's assets for the benefit of creditors; then Sublessor, at its option,
may terminate this Sublease, may reenter the Subleased Premises and remove all persons and
property therefrom, and have, regain and enjoy possession of the Subleased Premises and, in
addition, Sublessor shall have all of the rights and remedies against Sublessee as are available to
Landlord against Sublessor pursuant to the Prime Lease.
Sublessee hereby expressly waives service of any notice of Sublessor's intention to
reenter and waives all right of restoration to possession of the Subleased Premises after reentry or
after judgment for possession thereof. In case of any such termination, and in addition to any
other remedies which Sublessor may have, Sublessee shall indemnify Sublessor for all damages
Sublessor may incur by reason of such default, including the cost of recovering the Subleased
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• Premises, attorney's fees and expenses incurred in enforcing any term of this Sublease, and the
rent reserved in this Sublease for the remainder of the Term, all of which amounts shall be
immediately due and payable to Sublessor. Sublessor shall have no obligation whatsoever to
mitigate the aforesaid costs, expenses or damages incurred or suffered by Sublessor.
(14) Security Interest. Sublessor shall have a security interest in all trade fixtures,
exterior signs, floor coverings, or drapes, or any other equipment or property owned by Sublessee
and installed on the Subleased Premises, for rent and other sums which may become due
Sublessor, or upon any default, under this Sublease and the Prime Lease. Sublessee agrees to
execute such UCC filings as Sublessor may require as necessary to perfect such security interest.
(15) Expenses and Attorney's Fees. Sublessee shall pay to Sublessor within ten (10)
days after receipt of an invoice therefore an amount equal to any costs, legal or otherwise,
including attorney's fees, incurred by Sublessor in protecting Sublessor's interest in the
Subleased Premises or in enforcing Sublessor's rights under this Sublease, whether or not a
lawsuit is involved.
(16) Relocation. In the event that the Landlord exercises its rights, if any under the
Prime Lease to relocate the Subleased Premises, then Sublessor shall have the same right to
relocate the Subleased Premises.
• (17) Notice. Any notices or demands (not to include invoices) permitted or required
hereunder shall be deemed given or made if, and shall not be deemed to have been delivered or
made unless, in writing and delivered personally or deposited in the United States mails,
registered or certified,postage prepaid, addressed to Sublessor and Sublessee jointly as follows:
If to Sublessor: City of Elk River Economic Development Authority
Elk River City Hall
P.O. Box 490
Elk River,Minnesota 55330-0490
Attention: Paul Steinman
If to Sublessee:
which addresses may be changed from time to time by notice as above provided. Sublessee
agrees to furnish Sublessor immediately upon Sublessee's receipt thereof any and all
communications received by Sublessee from the Landlord under the Prime Lease. Sublessee
further agrees to give Sublessor concurrent notice of any notice or demand given to said
• Landlord.
eda/doc/wateleas 5
(18) Relationship of the Parties. This Sublease does not and shall not create the
111 relationship of principal and agent, or of partnership, or of joint venture, or of any other
association between Sublessor and Sublessee, the sole relationship between the parties hereto
being strictly Sublessor and Sublessee.
(19) Severability. If any term, condition or provision of this Sublease, or the
application thereof to any person or circumstance, shall, to the extent be held to be invalid or
unenforceable, the remainder hereof, and the application of such term, provision, and condition
to persons or circumstances other than those as to whom it shall be held invalid or unenforceable,
shall not be affected thereby, and this Sublease, and all of the terms, provisions, and conditions
hereof, shall, in all other respects, continue to be effective and to be complied with to the full
extent permitted by law.
IN WITNESS WHEREOF,the parties hereto have fully executed this Sublease on the day
and year first written above.
SUBLESSOR:
City of Elk River Economic Development
Authority
By:
• Witness
Its:
SUBLESSEE:
Watermark, LLC.
By:
Witness
Its:
eda/doc/wateleas 6
Exhibit A
Prime Lease
S
S
eda/doc/wateleas 7
. Exhibit B
Subleased Premises
eda/doc/wateleas 8
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MEMORANDUM OF UNDERSTANDING Item #7.
•
11°.
MEMORANDUM OF UNDERSTANDING ("Agreement") is made and
entered into this day of , 19by and between the City
of Elk River Economic Development Authority (EDA), Larry Hickman,
Genesis Portfolio Partners, LLC., and Watermark, LLC., a Minnesota
Limited Liability Corporation.
BACKGROUND
The EDA has created the Elk River Business Incubator (ERBI) to
support the development of new high technology companies ("Member
Companies") during the early years of such Member Companies'
development.
The Company has been approved as a potential Member Company, and
the Company desires the support, services, and programs of the EDA as part
of the Elk River Business Incubator.
EDA, through its creation of the Elk River Business Incubator, is
prepared to arrange for the provision of certain services in accordance with
the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual promises and covenants contained in this Agreement and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties covenant and agree as follows:
1. SERVICES OF ERBI
1.1. Rent of Available Space. At the time of execution of this
Memorandum of Understanding, the Company shall have executed a
Sublease for space within the Elk River Business Incubator. The terms and
conditions of such space rental shall be strictly in accordance with the
Sublease, substantially in the form of Exhibit A attached hereto.
1.2. Leasehold Improvements. In order for the Company (and
additional companies) to occupy space within the Elk River Business
Incubator, the EDA has provided leasehold improvements in the form of
construction of restroom facilities, partition walls, doors, windows, carpeting,
and other improvements, at a total cost of$75,063. Such leasehold
improvements were constructed in order to make the Elk River Business
Incubator available to all qualified applicants, including the Company.
eda/doc/watagrmt 1
•
• 2. CONSIDERATION
2.1. Issuance of Stock. In consideration for the services
11°
provided to the Company hereunder, the Company, at the time of execution of
the Company lease attached as Exhibit A hereto, shall convey and issue to
the EDA (Landlord), Larry Hickman (Building Owner), and Genesis Portfolio
Partners, LLC. (EDA Business Incubator Consultant), a number of shares of
the voting common stock of the Company ("Shares") as follows:
A) For the service provided in Rent of Available Space (1606
square feet @ $10 per square foot in stock) :
EDA (Landlord) 1,652 Shares which is
equal to $4.75 per square
foot of space leased per
year, at a value of$5 per
share.
Larry Hickman (Building 1,044 Shares which is
Owner) equal to $3 dollars per
square foot of space
leased per year, at a
value of$5 per share.
Genesis Portfolio Partners, 783 Shares which is
LLC. (EDA Business equal to $2.25 per square
Incubator Consultant) foot of space leased per
year, at a value of$5 per
share.
All Shares issued to the EDA, Larry Hickman, and Genesis Portfolio
Partners, LLC., pursuant to this Agreement shall be subject to any
restrictions on transferability under state and federal securities laws, and
shall be entitled to all rights and privileges to which other shares of voting
common stock the Company are subject.
eda/doc/watagrmt 2
• 2.2. Adjustments Stock Issued. In the event that the shares of
voting common stock of the Company are changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation,
recapitalization, reclassification, stock, split, combination of shares of
dividends payable in capital stock, the Company shall convey and issue to the
EDA, Larry Hickman, and Genesis Portfolio Partners, LLC. additional shares
of the voting common stock of the Company, so that the value of current
shares owned by EDA, Larry Hickman, and Genesis Portfolio Partners, LLC.
is not less than the value used to determine number of shares set forth in
Section 2.1.(A) of this Agreement.
2.3. Continuing Obligation. The EDA may agree to exercise
its option to extend or renew the term of the Sublease. In such event,
additional shares shall be issued to the EDA, Larry Hickman, and Genesis
Portfolio Partners, LLC., at the commencement of such extension or renewal
on the same basis as is set forth in Section 2.1., except that an appropriate
proportional adjustment shall be made to the number of shares issued in the
event that subsequent to the date of this Memorandum, there has been any
change in the voting shares of the Company by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split, stock
• price dilution, combination of shares, or dividend payable in capital stock.
2.4. Anti-dilution Clause. In the event that the shares of
voting common stock of the Company are sold to parties other than EDA,
Larry Hickman, and Genesis Portfolio Partners, LLC., at a value which is
less than the value used to determine number of shares set forth in Section
2.1.(A) of this Agreement, the Company shall convey and issue to EDA, Larry
Hickman, and Genesis Portfolio Partners, LLC., additional shares of the
voting common stock of the Company so that the value of current shares
owned by EDA, Larry Hickman, and Genesis Portfolio Partners, LLC., is not
less than the value used to determine number of shares set forth in Section
2.1.(A) of this Agreement.
2.5. Location Commitment: Mandatory Repurchase; Put
Options. So long as EDA is owner of any Shares of Company stock, the
Company's administrative, marketing, product development, warehouse and
manufacturing 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
eda/doc/watagrmt 3
not less than twice the price used to calculate Shares provided to the EDA
under 2.1.(A) of this Agreement.
3. COMPANY RESPONSIBILITIES
3.1. Financial Statements and Employee Reports. The
Company shall provide EDA with "bookkeeper-prepared" quarterly financial
statements and all available audited financial statements (Note: EDA does
not require the Company to incur the cost of"audited" statements as a
requirement of this agreement). The Company shall also provide EDA with
detailed periodic data on all employees of the Company, including salaries,
number and names of Company employees, titles and positions of each
employee, and the names and positions of the Company's officers and Board
members.
3.2. Annual Objectives. The Company shall maintain a
written policy statement on a quarterly and annual basis defining its
objectives with respect to its growth and development, and shall provide EDA
with copies of such written policy statement. The Company shall also
provide to EDA periodic reports on the Company's growth and development,
as may be reasonably requested by EDA from time to time.
3.3. Regular Meetings. The Company shall conduct and hold
regular periodic meetings with the EDA Executive Director and members of
the EDA Commission as determined appropriate for the purpose of reviewing
the Company's progress. The Company acknowledges that as part of the
services provided to it hereunder, the Company shall receive advice and
counsel from such Executive Director and EDA Commissioners. The
Company shall hold and conduct such meetings at least once every quarter
during the term of this Agreement.
3.4. Board Meetings. The Company shall provide EDA with
written notice of, and allow an EDA representative or designee to attend, all
regular and special meetings of the Company's Board of Directors and/or
Board of Advisors (collectively the `Boards"). Although an EDA
representative or designee may offer guidance or advice to the Boards, no
officer, director, agent, or employee of EDA shall be deemed a member of the
Company's Boards. Any EDA representative or designee attending the
meetings for the Company's Boards shall attend without a vote, without
compensation, and without fiduciary or legal responsibility to the Company,
its officers, directors, or stockholders. The Company shall indemnify the
EDA, including its representative or designee attending such Board
meetings, against all costs and liabilities to the same extent as the Company
•
so indemnifies its officers and/or directors. The EDA, or its representative or
11°.
designee, shall hold all Company information in strict confidence.
eda/doc/watagrmt 4
•
3.5. Job Openings. The Company agrees to post all job
openings with the Private Industry Council 5 at 657 Main Street NW, Elk
River, Minnesota 55330, Phone 441-5903, and the Company agrees to keep a
written record of all persons interviewed and hired by completing the Notice
to Employee attached as Exhibit B. The Company acknowledges that a
portion of the funds used to facilitate the Elk River Business Incubator are
provided from Federal Community Development Block Grants and as such,
the EDA and Company are required to meet certain standards for the use of
such funds.
3.6. Vendor Contracts. The Company shall make available to
the EDA Executive Director, its vendor contracts. Such vendor contracts will
be used to provide opportunities to local manufacturing companies and
service providers in order to create and retain jobs in our community. The
Company is strongly encouraged to utilize local businesses in its
manufacturing and production of goods, however the Company is allowed to
make the final decision on its own vendors at all times.
4. INDEMNIFICATION. The Company shall indemnify and hold
harmless the EDA from any loss, damage, expense, liability, or claim,
including without limitation attorneys' fees and expenses of litigation, to
which such parties may become subject arising out of: (a) any failure of the
• Company to perform any of its covenants, agreements or undertaking
contained in this Agreement, the lease of space, or in any other agreement
executed in connection with the transactions contemplated herein; or (b) any
other action or inaction of the Company, its directors, officers, employees, or
designees, which action or inaction is not a result of any fault on the part of
the EDA.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
A. The EDA agrees that during the term of this Agreement
and for a period of two (2) years immediately thereafter, it shall not, other
than to EDA Commissioners, and in a non-public format, disclose to any
individual, firm, corporation, partnership, or other business entity, or use for
its own financial gain or benefit, any Confidential Information (defined
below), that it obtained during the term of this Agreement. "Confidential
Information" shall mean any and all information (other than trade secrets)
relating to the Company's business provided to the EDA during the term of
this Agreement or to which the EDA had access or which it compiled during
the term of this Agreement, not generally known to the public, and with
respect to which (i) the Company has clearly indicated to the EDA that such
information is confidential and proprietary, or (ii) the Company has provided
written notice to the EDA confirming that such information is confidential
• and proprietary. The Company agrees and acknowledges that it will not be
required by this Agreement to disclose to the EDA (and the EDA neither
eda/doc/watagrmt 5
desires access to or disclosure of), any trade secrets of the Company or any
• third party.
B. Section 5A. shall not apply to any information:
(i) Generally known in the trade or to the public
through no fault of the EDA; or
(ii) Disclosed to the EDA by any party having
legitimate possession thereof and the unrestricted right to
make such disclosure; or
(iii) Hereafter published in any publication for public
distribution or filed as public information with any
governmental authority; or
(iv) Required to be disclosed by applicable law or legal
process with the exception of the Open Meeting Laws
governing public boards and commissions; or
(v) Within the EDA's legitimate possession prior to the
Company's disclosure.
6. TERMS AND TERMINATION.
6.1. Term. The term of this Agreement shall be for a period
• equal to the term of the Sublease attached herein as Exhibit A. Either party
may terminate this Agreement with or without cause by providing written
notice to the other party ninety (90) days prior to termination. The
provisions in this Agreement calling for performance by any party after
termination shall continue in full force and effect.
6.2. Termination by the EDA for Cause. The EDA may
immediately terminate this Agreement, without providing any prior notice to
the Company, for cause, defined as follows:
A. The Company materially breaches any of the terms or
conditions of this Agreement, the Sublease, or, and any other
agreement in connection with the subject matter hereof, if such
breach continues for ten (10) days after the EDA has provided
the Company with written notice of the breach; or
B. The Company intentionally engages in conduct or
activities materially damaging to the EDA.
6.3. Termination by Company for Cause. The Company may
immediately terminate this Agreement, without providing any prior notice to
the EDA, for cause, defined as follows:
•
eda/doc/watagrmt 6
A. The EDA materially breaches any of the terms or
conditions of this Agreement, the Sublease, or, and any other
agreement in connection with the subject matter hereof, if such
breach continues for ten (10) days after the Company has
provided the EDA with written notice of the breach; or
B. The EDA intentionally engages in conduct or activities
•
materially damaging to the Company.
7. GOVERNING LAW. This Agreement shall be governed,
construed, and enforced in accordance with the substantive laws, but not the
conflicts, of the State of Minnesota.
8. BINDING ARBITRATION. Any controversy or claim arising
out of or relating to this contract, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator(s) may
be entered in any court having jurisdiction thereof.
9. SEVERABILITY. If any provision or covenant of this
Agreement should be held by any court to be invalid or unenforceable, either
in whole or in part, such invalidity or unenforceability shall not affect the
• validity of enforceability of the remaining provisions or covenants of this
Agreement, all of which shall remain in full force and effect. Should any
covenant contained herein be held by any court of competent jurisdiction to
be overly broad and unenforceable, the parties agree that any such court may
enforce so much of such covenant or restriction as is otherwise enforceable.
10. NOTICES. All communications provided for hereunder shall be
in writing and shall be deemed to be given when delivered in person or
deposited in the United States Mail, First Class, Certified Mail, Return
Receipt Requested, with proper postage prepaid, and addressed to the party
and at the address specified below.
11. ENTIRE AGREEMENT. This Agreement and the Schedules
attached hereto represent the complete and mutual understanding of the
parties with respect to the subject matter hereof, and supersede and cancel
all previous and contemporaneous written and oral agreements and
communications with respect to the subject matter hereof, except for the
Sublease herein attached as Exhibit A.
IN WITNESS WHEREOF, the parties have set their hands and seals
as of the day first above written.
•
eda/doc/watagrmt 7
•
CITY OF ELK RIVER EDA: WATERMARK, LLC.
By By
Typed Name Typed Name
Title Title
Date Date
By By
Typed Name Typed Name
Title Title
Date Date
LARRY HICKMAN
By
Typed Name
Title
Date
GENESIS PORTFOLIO PARTNERS, LLC.
By
Typed Name
Title
Date
•
eda/doc/watagrmt 8
Exhibit A
• Sublease
eda/doc/watagrmt 9
Exhibit B
Notice to Employee
eda/doc/watagrmt 10