Looking at my apache logs file it would suggest that you are trying to modify the .htaccess
[Fri Jan 01 12:41:05.536000 2016] [:error] [pid 1688:tid 948] [client 192.168.0.10:10715] PHP Warning: file_get_contents(C:\\wampstack\\apps\\mydomain\\htdocs/wp-content/uploads/.htaccess): failed to open stream: No such file or directory in C:\\wampstack\\apps\\mydomain\\htdocs\\wp-content\\plugins\\add-watermark\\add-watermark.php on line 235, referer: https://www.mydomain.com/wp-admin/plugins.php
My webserver is running the Bitnami WAMP stack on a Win7 Host
The .htaccess file is present in wp-content/uploads/ and your plugin has created/modified the .htaccess
### WATERMARK START
RewriteEngine On
RewriteBase /wp-content/uploads/
RewriteCond C:/wampstack/apps/mydomain/htdocs%{REQUEST_URI} -f
RewriteCond $0 ^/?(.*\.(jpe?g|png))$
RewriteCond C:/wampstack/apps/mydomain/htdocs/wp-content/plugins/add-watermark/cache//%1 -f
RewriteRule (.*) /wp-content/plugins/add-watermark/cache//$1 [L]
RewriteCond $0 ^/?(.*\.(jpe?g|png))$
RewriteCond C:/wampstack/apps/mydomain/htdocs/wp-content/plugins/add-watermark/cache//%1.nowm !-f
RewriteCond $0 !^wpcf7.*
RewriteRule (.*) ../../wp-admin/admin-ajax.php?action=watermark_image&path=$1 [L]
### WATERMARK END
It all looks to be ok but what the dashboard error upon activation of 322 characters of unexpected content is I do not know.
hope the above helps